This Issue #6 will cover several popular questions various clients have posed. To start, here is question number 1:
How much money is enough to retire/invest? Haven’t we all thought the following?
- If only I could get a raise, or a better paying position, I could invest.If only my spouse could get work.If only my spouse could get a better paying job or a raise.Maybe I should get a second job.
- Life would be so much easier if I had a bit more money.
Does having more money make financial planning easier? Let’s answer this question with a series of questions.
- Would more money help you change your spending and saving habits?
- Would more money help you distinguish and prioritize between wants and needs?
- If you and/or your family had more money would you know where it would go?
- If it is difficult to wisely manage your current salary, would more money make a positive difference?
- How many lottery winners stay rich?
Last issue we discussed how almost every wage earner can achieve their goals. One of my clients is a single parent earning an income that fluctuates between $27,000 and $31,000 never more. This parent is raising 2 teenagers, saving for retirement, and simultaneously taught their kids to focus on long term goals. How is this possible? Quite frankly, smart and responsible money planning. People on the ‘average’ salary can get ahead.
Questions 2: Do I need to invest in mutual funds to achieve financial independence?
How many times have you heard the scheme, “I can do better in the stock market than those professional money managers.” Oh really! Then why bother hiring someone with market experience and training to invest on our behalf. It is possible that in the short run an individual will outperform certain fund managers, however, that’s short term, and that’s not an on average stat. The key, however, is not the return, it is volatility.Professionals are much better at using volatility (risk) to their advantage than you. They know the roller coaster stock market upside down and have a portfolio full of diversified options to hedge their risks.
Here are some numbers to help the argument. In July 2003, Dalbar released a study on investor behavior between 1984 and 2002. During this time the S&P 500 for US equities had an annualized return of 12.2%, and the average US equity fund returned 9.3%. The average US equity investor earned only 2.6% per year not even keeping pact with inflation at 3.1% per year. Just get sign up for a GIC! That’s only one example, but it’s a strong argument, just look at the stats.
Here’s some more info to help. Why is it to my advantage (as an investor) to get a professional money manager? Well there are some, ask yourself these questions:
- Do you have at your command teams of analysts and researchers who can travel the world in search of information to find the real news behind the news?
- Can you meet with management of companies to ask the hard questions?
- Are you able to visit company sites to study their operations?
- Can you analyze companies’ financial reports?
Mutual funds also give investors the opportunity to buy more than a few companies with a smaller amount of money. Individual investors who don’t have access to advice tend to make wrong decisions both at the peak and bottom of the market cycle. This is what I always advise people to ask me about direct participation in the stock market. If you want to go ahead, but it must be with money that you don’t need for ANY other purpose.
This newsletter will conclude with a discussion on the client financial planner relationship. The last time I expressed my thoughts to you on a handwritten postcard you would have received if you were my client a few years back. I would like to know that I am privileged to have earned your trust. Because of this trust you can acquire education and implement strategies and solutions to move ahead in life.
These are my expectations of you as a client: When I phone, email, or write you I expect a response. The response should be timely. Why? I only contact you if it is important. Excellent accurate advice is based on current information.
Clear expression of concerns. I appreciate frank talk instead of beating around the bush.Most importantly it is necessary to be serious about your future financial well being. For example, reflect on and consider my recommendations, and take the appropriate action with commitment.
Next issue: A client asks a question about market value and the price appreciation of shares, and your chance to provide feed back on this e-newsletter.