Archive for the ‘Books and CD’s’ Category

In trying to educate people about their retirement plans, many financial firms have come up with targeted portfolios based almost exclusively on age. For example, if you’re 40 years old, then you should have a certain percentage of your investments in stocks and a certain percentage in bonds. The industry has created this to assist people who are overwhelmed with their investment choices. The aim is to make it easy for the end investor to have a well-managed, diversified retirement plan.

Here’s the challenge: We don’t all fit into the same category as everyone else our age. Last time I checked, we were all different. I know plenty of people my age that I’m not like at all. My point is that you have to recognize where you are emotionally from a risk perspective. I have a client who, despite the fact that she’s in her seventies, will forever have an aggressive growth investment style. That’s how she likes it. As long as you have the risk tolerance for it, and you know your portfolio will fluctuate, then it’s fine. Those who are not in touch with the level of risk they can tolerate are the ones who run into trouble. I’ve also found, more often than not, that people’s risk tolerance changes over time.

As I’ve helped others amass wealth, I’ve noticed a fascinating pattern. People emotionally identify with dollars, not percentages. I’ve known clients who were perfectly fine with losing $2,000 off a $10,000 balance. On the other hand, those same people were extremely uncomfortable when they dropped $200,000 off their one-million-dollar portfolio, even though both corrections came to 20%. The total dollar amount lost was their emotional trigger. Intellectually, they clearly could see that the percentage of funds lost was exactly the same, but that was little comfort for their emotional loss. Investors have to recognize that their mindsets will change over time. The lesson here is to stay aligned with your tolerance level over the years. Keep an eye on your portfolio from an emotional standpoint or you may find that you’ve sold yourself — and your future — short.

When I first got into the industry, to get a professionally managed account you had to have over a million dollars. Today, with retail fund accounts, you can get in with as little as $50 per month. Most people I encounter who have yet to plan for their future, or have done so minimally, think they have to have some large sum of money. Ladies and gentlemen, I’m here to tell you that this is not the case. You can accomplish pretty much anything you want to do. The industry has become very flexible, and it can accommodate almost any net worth these days. Who cares if you have to start small? At least we live in a country that makes it relatively easy to start at all!

Now for those of you who have been building your wealth for years, I’ve found you have a different challenge. The majority of people in this great country of ours have been doing business with financial professionals who don’t have access to a full array of investment options. This is where you can really experience misperceptions about what’s available and what’s best for you. I can’t tell you how many extremely wealthy men and women I meet have spent years with a stockbroker, only to wake up and suddenly yearn for something more. They’re seeking a professional relationship that gives them more than just specific stocks and bonds recommendations. Their risk tolerance has changed and they’ve become interested in more than simply stocks and bonds, but they’re not being informed about all that’s available to them. Research done by Ibbotson Associates, a leading authority on asset allocation with expertise in capital market expectations and portfolio implementation, showed that 91.5% of performance of an investment portfolio is based on how well you diversify your assets. One great way to diversify is to have investment holdings outside the stock and bond markets. I read an article recently that said that if you had $100 million, you could invest in a specific portfolio built with privately held companies. Talk about options! You may not have this one, nor do many people have a spare $100 million sitting around, but most can still be more diversified.

Here’s another misperception: Real estate is not a viable investment for everyday people. Perhaps people you know aren’t willing to take the risk of investing in real estate. What about rental property or commercial leasing? It ties up funds, but does that lack of liquidity fit with your risk tolerance? There are many options to get into real estate. They can be great investment alternatives to consider. For instance, even non-traded real estate investment trusts (REITs) or limited partnerships can perform exceptionally well. You do need to make sure you’re an informed investor, and make sure your investments match your personal risk tolerance. As you can see, your options may not be as limited as you perceive.

Many people are not aware that 401(k) investment plans for retirement came into existence in the early ‘80s. Before this, only people with large amounts of money actually invested in the stock market. Since then, most Americans have become at least somewhat familiar with what a mutual fund is, since it’s the vehicle used in most 401(k) plans. Here’s an interesting tidbit: When the markets declined in 2000, 2001, and 2002, the most common lawsuits against employers were claims about the lack of education on 401(k) plans. Employees claimed they were not up to speed with how those types of investments moved over time, and chose to blame someone else for not allocating their investments properly. In a number of companies, the employer will now have a financial professional come in to educate staff members on their 401(k) money. But what about becoming better informed about the rest of your financial world?

I was not brought up with money, but I am blessed to have learned how to grow wealth for myself and for others, because I know both sides of the coin, so to speak. Now, I can converse in two languages, English and financial jargon. Financial jargon is that gibberish-speak financial folks use when talking about their products and services, numbers, rates, percentages and the like. Not understanding your financial advisor is a big hurdle to get over, no matter how much or how little money you have. This is a perfect example of a crab you have no control over whatsoever — unless you have a translator handy.

Another common obstacle is all of the options that are available to you: investments, savings, insurance, etc. I find it easier to categorize financial products according to your needs. I break them down into buckets. You have short-term, mid-term and long-term buckets to put your money in. I’ll get into more detail about this in Chapter Eight. What’s important for you to understand right now is that the myriad financial products that are out there don’t have to be as mystifying as they’re made out to be. Again, it’s important that you work with a financial professional who translates financial-speak into terminology you can identify with. You don’t want someone to make your eyes glaze over when it comes to chatting about your financials.