Category : investing

The Single Most Important Piece of Financial Advice

There is no shortage of advice on this topic. A quick google search on “ financial advice ” reveals roughly 65 million hits on the topic. I intend to share the one piece of financial advice that – if followed – will have the single largest impact on you becoming financially independent at some point down the road. This advice comes from my years of working with investors as they approached their own retirement.

Prior to blooom, I spent 20 years advising, planning, and managing investment portfolios primarily for baby boomers. Most of these clients were 55-65 years old and almost all of them had more than $1million in their portfolio. Often times I would meet these folks when they were within 5 years of the finish line and were looking for someone to help them plan out the financial transition from work-life to retirement. With just a few years (or months) left until retirement, there wasn’t a whole lot I could do to alter their ability to retire. Most of these folks had, for the most part, “won the race to financial independence.” Candidly, I was not their advisor when they were younger and working towards their retirement. Rather, I stepped in to help them make the transition into retirement and captain the management of their finances from that point forward.

But that begs the question…how did they amass this wealth? How did they arrive at the point in their life where they could stop earning an income and live on their accumulated savings? The answer is simple. They lived below their means during their working years. Translation – they spent less than they made. It wasn’t an inheritance, it wasn’t a big salary (as most of my millionaire clients NEVER made more than $100,000 per year) and it definitely wasn’t because they knew how to time the market. Rather, it was the simple in concept but hard to execute lifestyle of buying less “stuff” than their incomes allowed. These were the kind of people that would go to take out a mortgage in their early working years and buy a house that they could afford to buy, not the house that they could qualify to buy.

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3 Lessons Your Ruined March Madness Bracket Can Teach You About Investing

And so it begins…the one month of the year where a single college basketball tournament costs employers a collective $1.2 Billion for every hour of lost productivity. And it’s fantastic!

At blooom, we’re big believers that we can find investing lessons in nearly every aspect of our lives, which brings me to my point in writing this. Regardless of what your tournament bracket looks like right now, as the surviving teams march on toward the Final Four, there are several lessons on investing that we can take away from all the madness.

1. Analysts are as Clueless as Everyone Else

No one can possibly have enough time to watch every regular season college basketball game. Unless they get paid to. Expert forecasts are a trusted source for anyone filling out a bracket. But if the pros are always getting it wrong, how can the casual fan have any hope? That’s the point.

The financial media has made millions on the ancient art of fortune telling. No matter how many times they get it wrong, market analysts have made careers out of making random predictions that are usually very wrong. It seems like it takes just one correct guess to achieve the prestigious “guru” title on CNBC. A great example of this is the rise of Marc Faber, aka “Dr. Doom”. He’s a regular on CNBC that is best known for his ability to accurately forecast major market downturns. However, the funny thing is that he has been wrong far more often than he’s been right. If you repeat the same gloomy predictions over and over again, of course you’re going to get it right and cash in big at some point. Does that make him a prophet? No. It makes him a great salesman. 

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Keep It Simple

The biggest trick in all of finance: simple is often the most sophisticated thing you can do.

It is counter intuitive, but we as humans are trained to believe that the more we pay for something the better it must be. We assume that there is a correlation between high prices and high quality. But when it comes to your personal finances, the opposite in fact usually turns out to be true. Researchers have shown over and over again, that the higher you pay for an investment, the worse-off you do, net of fees. So why do we pay for complicated and expensive financial products and strategies if they almost always do worse than simple, transparent ones? Large companies are spending billions of dollars on advertising to convince you that expensive and complicated must be better and more exclusive. Don’t buy the hype. Let’s dispel a few scarily common myths that an entire your-money-as-entertainment industry is trying to convince you of (Think of: every show on CNBC, every E-Trade commercial, new apps for your phone advertising free stock trading).

Here is the hard truth: 90% of professional money managers fail to beat the market over any sustained period. That’s right: those people who have spent their entire careers, and in fact get paid (by you and the investing public), get it wrong 90% of the time over sustained periods. Why would you even try to buy and sell stocks, and “time the market” if experts lose 90% of the time?

We have been trained as a culture to believe that stock trading is a skill, like being an engineer or a doctor. We know by now that it is not a skill. By all means, buy and sell stocks, but do it as a fun game with very small amounts of your money, recognizing that it is for fun. Do not do this with your nest egg. Anyone telling you that you or they can beat the market is selling you false hope, and perpetuating a myth that this is even possible over the long run. For the most part you would be way better off watching the History Channel than CNBC. You will certainly learn more.

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BREAKING NEWS: This is Normal…

Not exactly a catchy, attention grabbing headline is it? Traditionally, BREAKING NEWS headlines have implied something out of the ordinary or unexpected. But in 2016, almost anything can be breaking news, including the things that should be no surprise to us. The headline above could be completely wrong. Maybe there’s an asteroid heading right for us that I just don’t know about, or maybe I’m just unaware that the Sun is supposed to randomly burn out in the next few months. If that’s the case, your investments aren’t going to do you any good anyway. I’ve seen the movies. But in the far-off chance that those things DON’T happen any time soon, I think it might be good for us to cover something EVERY long term investor must understand. The Market goes up AND down. And it happens ALL the time. So often in fact that at some point investors saving for retirement owe it to themselves to stop paying so much attention to [insert major news network].

I can’t tell you how many times I’ve seen something similar to these following headlines over the years:

“Expert: Crash is Coming, Time to Sell”
“2008 All Over Again?: Analysts Think So”
“Dow Sheds 300: Pros Say Get Out!”

And the very next day…

“Dow Rebounds 350 Points: Bull Market Marches On”
“Analysts: This Year Could Be the Best Year in Decades for Stocks”
“Risk On: Never a Better Time to Buy!”

You get the point. In a world where we now have a 24-hour news cycle, the very existence of any news outlet is highly dependent upon one thing: RATINGS. There is simply nothing better for ratings than fear and panic, which is why those first three headlines will catch more attention than the last three. It’s also why you will never hear what I’m about to tell you by watching your TV: Negativity is the lifeblood of the news.

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Flu Shots to 401(k)s

Flu Shots to 401(k)s: It’s Time to Bridge the Gap Between Health and Wealth in the Workplace
It’s no secret that your local pharmacy loves this time of the year. As temperatures cool and the year begins to wind down, over-the-counter drugs start flying off the shelves. It’s the start of flu season, and for employers, that means more employee absences, poor productivity, and higher healthcare costs.

Although the flu is a highly contagious virus that nearly every workplace will be exposed to in the next few months, there are ways to limit the flu’s impact – like the flu shot. Encouraging employees to get flu shots is one basic example of a way to improve employee wellness. Offering incentives that encourage healthy living can also limit the flu’s impact. This is not news. In fact, most companies fully understand the value of promoting healthy lifestyles for employees and have therefore introduced wellness programs. Better employee health means lower healthcare costs, better morale, and better productivity. It all makes sense. But as wellness programs focusing on physical wellness have been around for a while now, it’s the financial wellness programs that have often been neglected. But that could be changing…

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