MONEY matters

Imagine being an investor at the time of the Crash of 1929 and realizing that you lost all of your savings that was invested in the stock market. Picture the images of distraught businessmen leaping out of buildings and the poverty that followed in the years of the Great Depression.

These images burn in the minds of those who lived through it and will forever be associated with the risk of investing. The risk of the market alone wasn’t what caused people to jump to their deaths, rather, it was the enhanced risk caused by leverage. People were investing beyond their means by buying on margin, and as a result lost more than they had invested; in many cases, they lost more than all of their net worth.

You’ve probably read or heard about these tips many times, but it never hurts to remember the basics for smart investing. And in this Vanguard article, Major League Tips for Avoiding Financial Errors, the tips are prefaced by what are known as 'Yogi-isms' after the late, great Yogi Berra. 

Yogi claimed that "we make too many wrong mistakes," but if you stick to a plan, diversify, invest for the long term, and pay attention to costs and taxes, you can help eliminate some costly errors that could keep you from reaching your goals.

As a teenager playing baseball, I remember watching a few of my teammates hit home runs over and over again. I remember my coach, knowing I was not the homerun slugger type, encourage me to go for the singles and doubles instead. But being the young rebel I was then and probably still am, I aimed for the bleachers anyway.

And guess what? I kept striking out over and over again.

Here we go again…The stock market roller coaster ride is back with a vengeance.

As for Bogle, he’s plenty happy with his age-based investing formula. “I’ve always had in the back of my mind this incredibly simplistic idea, that your bond position should have something to do with your age,” he said.

In his retirement portfolio today, he’s got two-thirds of his bond portfolio in the Vanguard Total Bond Index fund VBMFX

Having a portion of your investment portfolio in precious metals such as gold has traditionally proven to be a good hedge against inflation as well as a hedge against a falling dollar. Most advisors recommend no more than a 5-10% total allocation to precious metals.

Think there is a difference in how men and women plan for retirement?

I just read this interesting article by Dave Carpenter called Sex Matters When it Comes to Retirement Planning, where he explores the very different approaches men and women take when investing and retirement planning.

As a fee-only financial planner, lately some new clients have asked if I could use a different word besides budget when discussing their cash flow plan. Words do matter and for many reasons, the word budget congers up all sorts of negative thoughts and feelings. So for that reason and many others, lose the word budget and replace it with two words - spending plan.

Before you decide on a spending plan, keep one major goal in mind - your savings plan. Paying yourself first, meaning, putting your savings and investments to work by automatically funding these accounts first before paying your bills is the key to long-term financial success.

I came across an article in the Journal of Financial Planning that really opened my eyes to how our brain works in terms of making financial decisions. The title is Money on Your Mind: The Brain’s Role in Financial Decision-Making.

Now you’re probably thinking, it sounds like a pretty wonky publication, but It's really not. If you’re at all interested in the role emotional intelligence plays in your relationship with money and investing, you have to read this case study. If the memory of the DJIA dropping over 900 points in one day is still a vivid memory, this is a must read.