Thoughts On Money [TOM]

I’m married to a planner. I have become well versed in scoping the landscape and communicating to my wife all the possible things that could happen. Many of these things don’t end up happening, but the love of my life appreciates me being her eyes and ears.

The reason that books like “What to Expect When You’re Expecting” are bestsellers is that all of us have a little planner inside of us. We know what it feels like to be put on the spot or be surprised and unprepared to react. We all have comical stories relating to our unprepared responses and reactions.

Now, the reality is, is that surprises are just a normal part of life. We can’t predict every potential outcome we face, but if we are in regular conversation about the good, the bad, and the ugly, we start to train or prepare ourselves because surprises are normal.

The ultimate goal is not to be surprised by surprises. No rise in your blood pressure, no feeling the need to go off-script, but rather referring back to conversations with your safari guide (advisor) about the importance of staying the course.

Clarity around expectations and regular communication about the range of potential outcomes. That’s it.

Links mentioned in this episode:

• http://thoughtsonmoney.com

My wife and I have two sons at home, 2.5 years old and 9 months old.  Even at these young ages, we can see how different these two boys are.  They look different and behave differently; they eat differently and sleep differently; they laugh differently and cry differently.  Two brothers, same family, each unique in their own way.   

I myself have two siblings, a brother, and a sister.  Each of us three years apart in age, me being the youngest.  We each have our different strengths and weaknesses.  We have our own unique experiences and perspectives.  Again, the same family, but all very different.   

This reality is not unique to just me or my family.  Since the beginning of time, families have been populated with a diverse set of individuals.  From Cain and Able to the Kardashians.   

Can you relate?  How about you and your siblings – Similar? Different?  

Today on TOM, I’d like to discuss two financial siblings that I am sure you are quite familiar with – Stock Prices and Dividends.  These are two financial metrics that are of the same family but tend to behave and look quite different from one another.   

• http://thoughtsonmoney.com

Growing up, I adopted a negative view of borrowing.  I saw many family members get in over their heads in debt, which eventually led to horrible things like divorce and bankruptcy.  I looked up to many people in my community and at my church who talked about debt as something dangerous or evil.  I always thought it was best to avoid debt like the plague with these exposures and perceptions.

When I went to college, I worked full-time and paid for all my classes as I went.  I never took out one student loan for undergraduate or graduate school.  I was afraid of borrowing because of the damage that I had seen it cause.

In my first Corporate Finance course in grad school, I started to really comprehend the math behind leverage (borrowing) and the potentially positive outcomes it could create for a company.  By looking at the interest expense associated with the debt concerning the potential return on capital, one could decipher if it was prudent to borrow.

Prudence was the key.

This new lesson on prudent borrowing shifted my paradigm of how I viewed debt, and my long-held negative associations of debt were being challenged.

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Links mentioned in this episode:

• http://thoughtsonmoney.com

Do you suffer from financial cravings? TOM helps put you on the right financial diet to keep your portfolio healthy!

Links mentioned in this episode:

• http://thoughtsonmoney.com

Over the last few months, many of my Thoughts On Money have revolved around the importance of marrying one’s financial plan and investment management. That is to say, that the financial plan should be the driving force behind how an investment portfolio is designed.

Now, I am not talking about a “financial plan,” as in, a 100+ page bound printout that makes its way from your advisor’s office to being a dust-collecting–paperweight at your home. I mean, the actual planning of finances – the living document, the dialogue, the collaboration around how to best plan all of your money decisions.

Often this is not the case, though; these two practices – financial planning and portfolio construction – are held in isolation and not seen as a collaborative exercise.

This is a problem.

This results in investors and many advisors trying to develop alternate (sub-optimal) methods for how to best design a portfolio. Some will conclude with a one-size-fits-all age-based solution, and some will try to navigate these waters with a risk-survey-only driven process. Today, I want to teach you about a process I call Expense Based Planning (EBP).

Links mentioned in this episode:

• http://thoughtsonmoney.com

I come across a lot of people that implement strategies from investors they admire. Much too often, these strategies are constructed without understanding the context or reasoning behind the strategy. This misunderstanding often leads to disappointment, as the outcomes don’t always meet the investor’s expectations.

You have goals, and these are often unique goals. These goals revolve around what’s important to you. Your financial situation is unique, and that uniqueness should be understood and reflected in your financial plan and your portfolio. Some billionaire sharing a soundbite in passing doesn’t know you, your goals, or what’s important to you. Mimicking their approach is about as silly as me trying to emulate Steph Curry on the basketball court.

Opinions are just the tip of the iceberg. Just like our discussion today on annuities, you have to peel away the layers to understand the basis for these opinions. Then you take those first principles you derive from this process and use that reasoning or those objectives to craft a solution most fitting to your situation.

It’s not easy, but that’s the fun part. The journey is never over…

Links mentioned in this episode:

• http://thoughtsonmoney.com

Our family takes full advantage of this beautiful weather, and I am sure these claimed averages do ring true, but this does not stop us from checking the weather forecast on a daily or weekly basis. Whether we are making a trip to the local zoo, planning a beach day, or having a picnic with friends, we’d like to know the specifics of what the weather will be like.

We need to know if we should pack jackets for our two boys or if we should wear shorts or on the rare occasion that it would be wise to bring an umbrella. We don’t prepare for an outing based on the “average” weather; we plan according to the day’s actual weather.

I know the statement above is both obvious and silly, but when it comes to inflation, people often prepare and fear the “average,” but are unaware of the actual. Today we will discuss why inflation is a very personal matter and how one’s financial plan should address their personal inflation expectations.

Links mentioned in this episode:

• http://thoughtsonmoney.com

Have you ever tried to learn a foreign language? It can be a slow and arduous process. Many say that an effective way to speed up the learning process is to immerse oneself in a foreign language country. The most common areas where students fail are just the lack of vocabulary, poor sentence structuring, or conjugating verbs erroneously.

Yet, there are some instances when the errors become quite comical. I have a funny story to start out today’s TOM discussion, so join us on a short journey south of the California border.

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For a financial professional, there are two decisions that need to be made:

(1) What will I recommend to clients?

What I find interesting is whether or not the same answer will suffice for both questions.

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We live in a world that we could have never imagined a decade ago.

We are more “connected” today than ever, yet many of us are feeling more alone than ever.

The headlines are littered with polarizing opinions on everything from the pandemic to politics. And now add to this, a highly publicized stock market battle, in which a group of message-board-rebels are using the stocks of struggling companies as financial weaponry against a handful of hedge fund titans. All the while, sideline spectators (speculators) are jumping in the frenzy, hoping to get-rich-quick.

All of this is unsettling, to say the least.

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