Financial Literacy

Residual Self-Image and Personal Spending

Enter the Matrix

Last Friday, I decided it was time to introduce my oldest daughter to The Matrix. I'm happy to report (a) she liked it and (b) the film, which was released way back in 1999 (!), has held up pretty well. Yes, the computers and cell phones featured in the movie are dated, but the subjects of A.I., virtual reality, and control over the population are still relevant today.

Residual Self-Image

After Neo (Keanu Reeves) has been freed from The Matrix, brought into the real world and his physical body healed, his liberators have to show him what The Matrix is. In this scene, Neo is jacked into a computer program and his avatar's appearance, complete with hair, stylish '90s era clothing, and a distinct lack of creepy ports embedded in his body. In other words, very different from his real-world self.

It's no surprise that this change confuses Neo. Morpheus (Laurence Fishburne) explains "your appearance now is what we call residual self-image. It is the mental projection of your digital self."

I find the concept of residual self-image applies to the real world. For example, I recently turned 43, but I don't feel all that different from when I was 30. More importantly, my residual self-image, my mental projection of myself, is that of a younger version of me.

I'm pretty sure this happens to most people. As long as we don't have any major health issues, we assume we still look like we did 5, 10, or even 15 years ago. That is, of course, until we look at pictures of ourselves from those periods and we are surprised at how young we look or how much weight we've gained (or lost, depending on the individual).

Residual Personal Spending

In my experience, a phenomenon similar to residual self-image occurs with our spending. For lack of a better name, I'll call this Residual Personal Spending, which is how you think you spend, not how you actually spend.

Here's how it works: We go about our daily routines, spending money as we always have. Sometimes this goes on for years.

One day, we decide to take the red pill. Either we begin tracking our spending on our own or we hire a financial planner who forces us to find out where our money is going.  Suddenly, we discover our residual personal spending is all wrong. We spend how much on dining out? We couldn't possibly spend that much on groceries!

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Take the Red Pill

Do yourself a favor, and take the red pill - start tracking your spending. Technology makes this easy. You can use Mint to aggregate your bank and credit card transactions. Or, if you're like me and hate advertising, use an inexpensive service such as Tiller to aggregate your transactions in an easy-to-manage spreadsheet. Disclaimer: I have no affiliation with either of those services.

To paraphrase Morpheus: This is your last chance. After this, there is no turning back. You take the blue pill, the story ends. You wake up in your bed, go about your day, continue to spend as you always have, and believe whatever you want to. You take the red pill, you begin tracking your spending, and I show you how deep the rabbit hole goes - how much you actually spend on dining out and groceries. Remember, all I'm offering is the truth. Nothing more.

Stay Calm And Focus On Your Plan

Volatility and Anxiety

As of today, December 7, 2018, the US market (as measured by the S&P 500 Index) has fallen about 6% over the last three months, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While the S&P 500 Index may still be in positive territory for the year-to-date, it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.

Reacting Impacts Performance

If one was to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing.

Translation: It is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill.

Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.

The following chart helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.

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The Takeaway

While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thought-out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.

In other words, stay calm and stick to your plan.

Diversification: The Avengers of Investing

This week, the creator of Marvel Comics, Stan Lee, passed away. In case you aren't familiar with Lee's work, he created or co-created some of the world's most popular comic book characters: Iron Man, The Incredible Hulk, Thor, Spider-Man, Dr. Strange, and Black Panther are just some of his creations. In honor of Lee's work, it seemed appropriate to revisit a basic principle investing, diversification.

You're probably wondering what comic book characters have to do with investing. Consider The Avengers, a team of superheroes who work together to save the day (most of the time). Individually, they can't succeed because each of them has strengths and weaknesses. Put them together and they are nearly unstoppable. Will there be ups and downs? Yes, but in the end everyone is better off working together.

When you invest, the concept of diversification works the same way.

What is diversification?
The short answer is that diversification means not putting all of your eggs in one basket. Iron Man is great. Seriously, who wouldn't want Tony Stark's brains, money, and sweet armor? However, when the fate of the world is at stake, as it always is, the odds of saving the day are vastly improved when Iron Man is assisted by Captain America, Thor, Hulk, Black Widow, and Hawkeye. If Iron Man gets knocked down another member of the team can step up and get the job done.

So how does this relate to investing?
Let's use Apple as an example of how diversification works in the world of personal finance. Apple is a highly profitable tech company. However, owning a portfolio comprised only of Apple stock is not a good long-term strategy. Let's say Apple's stock falls 20% because consumers stop buying iPhones. You won't be a happy camper if Apple is your only investment!

The solution
You need to create your own team of superheroes! Unfortunately, the team you'll create won't feature a giant green rage monster or a Norse god wielding a magic hammer. Instead, your team will be comprised of companies in different categories, such as Wells Fargo (financial services), Exxon Mobile (oil & gas), Pfizer (pharmaceutical), and Proctor & Gamble (consumer products). Why companies in different categories? Because it's impossible to predict which categories will be best from year to year. The following chart shows returns for different investment categories from 1998 - 2017.

I know it's difficult to see exactly what's going in this chart. The different colors represent different categories of assets. For each year, the best-performing assets are at the top of the page and the worst-performing assets are at the bottom. As you can see, it's rare for the same category to consistently be number one - or two.

I know it's difficult to see exactly what's going in this chart. The different colors represent different categories of assets. For each year, the best-performing assets are at the top of the page and the worst-performing assets are at the bottom. As you can see, it's rare for the same category to consistently be number one - or two.

Superhero portfolio assemble!
Okay, we've established why having one superhero (stock) isn't ideal. The following chart shows a hypothetical portfolio comprised of five superheroes (stocks). Please note the stocks referenced here provides a highly simplified illustration of how diversification works.
 
Spoiler: Instead of a 20% loss, you have a 3% gain.

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Congratulations, your superhero stocks have saved the day! Instead of a 20% loss, you have a 3% gain!!

Simplify!
For the average investor, owning a portfolio of individual stocks, such as the one in the example above, isn't practical. Fortunately, mutual funds and exchange-traded funds (ETFs) provide investors with an efficient, cost-effective means of holding large baskets of stocks and bonds.

Key takeaways

  1. Owning one stock (or having Iron Man on your side) is great, but it's risky and could lead to losses (or the end of the world). On the other hand, owning multiple stocks in different categories (or multiple superheroes) typically reduces risk and leads to better long-term returns (or the world not ending).

  2. I've just proven that reading comic books or watching movies based on comic books is not a waste of time. Thanks, Stan Lee!

Image credit goes to my awesome cousin, Bryan Lenning. You can (and should) see more of his work at    instagram.com/bryanlenning

Image credit goes to my awesome cousin, Bryan Lenning. You can (and should) see more of his work at instagram.com/bryanlenning

The sad state of financial literacy in the U.S.

Working The Phones

To celebrate Financial Literacy Month I, along with eight other advisors, volunteered to spend two hours answering personal finance questions in the Help Center at Channel 7. We fielded 110 calls during the two-hour event. Here's what I learned:

  1. People cannot answer basic personal finance questions. Based on the calls I fielded it's obvious our education system is not preparing people to manage their finances.
  2. Women are more likely to ask for help. Of the 12 calls I took, 11 of them were from women. Some of my colleagues had a more balanced experience, but overall the majority of calls were from women. This shouldn't surprise anyone because most men, myself included, don't like asking for directions even when we're hopelessly lost.
  3. Many people just want to talk to someone who will listen to them. Several of the callers continued to chat with me even after I answered their financial questions. I think they just wanted someone who would listen to them vent about the stress caused by their financial problems.
  4. Answering basic personal finance questions for a couple hours is a great way to sharpen one's skills. During the two-hour shift, I covered a wide array of topics, some of which I don't always to address with my existing clients. It was a good refresher course.
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I had the opportunity to spend the day teaching these young ladies about financial planning and investing.

Take Our Daughters To Work Day 2018

Thursday, April 26th was Take Our Daughters and Sons to Work Day. In addition to my two little girls, I was fortunate to have two of their friends, who are basically like daughters, join the fun.

We started the day with a lesson about what financial planning is. The girls really got into it once I created a hypothetical plan for one of them using my planning software. It quickly became clear that they think a weekly allowance will be enough to allow them to live comfortably.

Next, I had them pair up and work on entrepreneurial projects while I got some of my own work done. Hopefully, one day they will start their own businesses.

We wrapped up the day with a lesson about investing, which covered topics such as company stock, dividends, mutual funds, exchange-traded funds, inflation, and diversification. I'm sure it wasn't the most exciting day for them, but they all asked good questions.

Maybe days like this will ensure they don't have to call a television station help center for financial advice.

Listening / Reading / Watching

Here's what has my attention right now:

  • Head On by John Scalzi. I had the pleasure of meeting Scalzi this week when he visited D.C. for a reading and book signing. He's one of my favorite sci-fi writers and you should definitely check out his books. I recommend starting with Lock In (Head Onis the sequel). If you prefer listening to audiobooks check out The Dispatcher, which is extremely fun and features a great performance by Zachary Quinto.
  • Westworld on HBO. Season two started last week and the robopocalypse continues!

Here We Go Again

Fiduciary Rule, Take #2

This week, the Securities and Exchange Commission (SEC) voted to create a rule requiring brokers to act in their clients' best interest.

If, after reading that sentence, you said, "But Chuck, didn't the Department of Labor (DOL) enact a similar rule in June of 2017?" you would be correct. Unfortunately, the DOL's rule, which applied only to retirement accounts, was recently struck down in a U.S. circuit court. While the DOL could appeal the ruling, it will probably wait and see what the SEC comes up with.

Back to the SEC's take on the fiduciary rule. Here are some highlights (with my commentary in parentheses):

  • The new rule would apply to both non-retirement and retirement accounts (This makes sense. I never understood why the DOL rule was limited to retirement accounts).
  • Brokers would be required to disclose conflicts of interest such as bonuses or commissions received for selling certain products, but no specific conflicts of interest would actually be banned. For example, financial services companies could still use incentives such as sales contests (Why not get to the root of the problem and ban the incentives?).
  • Brokers and advisors would be required to produce a brochure outlining their legal duties and the fees they charge (I support full transparency, but this will end up being another confusing document that most consumers are unlikely to read).
  • Brokers would be barred from using the title "financial advisor" (I love this...and I'm pretty sure it won't make it into the final rule because the financial services industry will fight hard to kill this provision).

Next Step: Public Comments

The SEC rule entered a 90-day public comment period, which you can read about here. If you feel strongly about this issue, I encourage you to post a comment. Unfortunately, I had to run multiple searches just to find the comment area. Frustrating!

Listening / Reading / Watching

Here's what has my attention right now:

  • Lost in Space on Netflix. I remember watching the original TV series when I was a child. Sadly, the reboot isn't as campy, but it's still fun.
  • Legion on F/X. Season two started a couple weeks ago and I'm happy to report it's still wonderfully weird.

Happy Thanksgiving!

Earlier this year I read an article about the benefits of journaling. Since then, I've spent a few minutes nearly every day writing about my ideas, tasks, and goals. I even use a physical notebook made from dead trees!

Journaling has helped me clarify ideas, prioritize tasks, and ensure I accomplish specific goals. It's been a helpful and fun exercise; one I hope to continue every day.

In addition to the things listed above, I often use my journal to note the many things I'm thankful for. Below, you'll find a list of some of those things. 

I hope you have a Happy Thanksgiving! Eat lots of pie!!

  • My family and friends. I'm fortunate to be surrounded amazing people. My wife, who is also my best friend, our two awesome little girls, wonderful family members, and great friends.
  • My clients. I truly enjoy working with all of my clients. Thank you for your trust and for letting me do what I do.
  • The fantastic trainers at CrossFit PetworthIn May, I finally drank the CrossFit Kool-Aid and now I understand why CrossFit practitioners won't shut up about their obsession. The workouts are some of the most mentally and physically challenging I've ever done. I'm stronger and I feel great. And sore. Very sore. Thanks, CrossFit Petworth team, for kicking my ass.
  • Audiobooks and podcasts. Whether I'm commuting to my office or cooking dinner, I can continue to learn new and interesting things or just listen to a good story.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

  • Shoe Dog: A Memoir by the Creator of Nike by Phil Knight. I'm a sucker for stories about how entrepreneurs started their companies. In this case, Nike shoes were popular by the time I was wearing athletic shoes, which meant I was unaware of the company's ups and downs. Highly recommended.
  • Artemis by Andy Weir. I loved Weir's first book, The Martian, so I was excited to see him this week at a Politics and Prose event. So far, the new book is fun and has some practical ideas about how a colony on the moon could function.
  • Uncharted: The Lost Legacy. Remember the game Pitfall! on the Atari 2600? Well, the Uncharted series is similar but with amazing graphics and fun gameplay. It's like playing an Indiana Jones movie.

The Old Versus the New

“There are new gods growing in America, clinging to growing knots of belief: gods of credit card and freeway, of Internet and telephone, of radio and hospital and television, gods of plastic and of beeper and of neon. Proud gods, fat and foolish creatures, puffed up with their own newness and importance. They are aware of us, they fear us, and they hate us," said Odin. "You are fooling yourselves if you believe otherwise.” - Neil Gaiman, American Gods

The Audiobook

Earlier this week, I finished an amazing audiobook that captured my imagination: American Gods: The Tenth Anniversary Edition (A Full Cast Production)*. The story takes place in modern America and features gods, both old and new, living among us mere mortals. The Old Gods, including Odin, Loki, and Easter, were brought to America centuries ago and are now weak, scraping by on the fringes of society. Their power and influence have faded because they have been forgotten - but that doesn't mean they are completely powerless. On the other side, the New Gods, such as Media, the Internet, and Television, have grown powerful as humanity places its faith in a new order. There's quite a bit more to the story, but I won't ruin it for anyone who decides to read it. And you really should.

*If you decide to listen to the audiobook I highly recommend this version because the cast does an excellent job bringing the story to life.

New

After finishing the audiobook I couldn't stop thinking about some of the ideas I had heard, especially the idea of the old, forgotten gods and the young, new gods.

As I was reading the Wall Street Journal, I took note of the companies making headlines: Amazon, Apple, Facebook, Netflix, Tesla, and Twitter, among others. What do these companies have in common? All were founded less than 45 years ago. Fun Facts: Founded in 1976, Apple is the oldest of the bunch, which makes it 41 years old - the same age as me.

My point is that these are relatively new companies and they garner quite a bit of attention from their customers/users, the media, and investors. I started to think of these companies as the New Gods.

Old

If the companies listed above are the New Gods, which companies are the Old Gods? I tried to come up with a list of companies that had been replaced or forgotten:

  • Amazon is where we buy books and pretty much everything else these days, so Barnes & Noble and Sears seemed like good choices.
  • Apple makes more than just computers now, but IBM seems like a good fit.
  • Despite its production problems, Tesla continues to be the carmaker everyone talks about. I think Ford and GM are the obvious choices.
  • Facebook and Twitter are social networking platforms as well as sources of news, both real and fake. All of the old media companies fit into this category.

Why bother comparing all of these companies? Because it illustrates how investors behave. Naturally, we want to use, read about, and invest in the latest and greatest things/companies. This means we often forget about the old, yet still powerful, companies, sometimes with dire circumstances. Remember the 2000 - 2002 dot-com bubble? Pets.com, which was considered one of the Next Big Things, didn't survive.

Here's another good example of why it's important to focus less on the New: In 2010 Warren Buffett's Berkshire Hathaway completed the purchase of BNSF Railway, a nearly 160-year-old company. At the time, I remember reporters saying Buffett was crazy for buying a railroad. It's an old industry! How boring! Of course, once Buffett explained why he bought a railroad everyone thought he was a genius.

The Takeaway: Don't chase the latest and greatest things - especially when it comes to investing. Stick with boring, tried and true investments. Better yet, keep it simple and buy a low-cost index fund.

One More Thing

The day after I finished listening to the American Gods audiobook I started writing down ideas that would eventually become this post. As I fleshed out my ideas I turned to that all-knowing deity The Internet for more information. To my surprise, the search revealed a similar piece written by Josh Brown earlier this year. Curses!

Fortunately for me, Brown's piece goes in a different direction than mine. Anyway, please let the record show that:

  1. I swear I came up the idea for my post before I stumbled across Josh Brown's blog, and
  2. Brown's post is excellent and you should read it.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

  • Leonardo da Vinci by Walter Isaacson. How can anyone pass up a biography of da Vinci??
  • Hash Power - A Documentary on Blockchains and Cryptocurrencies by Patrick O'Shaughnessy on his podcast, Invest Like the BestThe Invest Like the Best podcast quickly became one of my favorites after listening to just a couple episodes. The Hash Power series is a good place to start if you want to learn about cryptocurrencies.
  • Mindhunter on Netflix. Have you ever wondered how the FBI figured out how to profile and catch serial killers? If so, there might be something wrong with you.
  • Wolfenstein 2: The New Colossus. This game provides an alternate version of history, one where Germany won World War II and America is controlled by Nazis. The developer, MachineGames, released this game at a time when America actually has a real Nazi/white supremacist problem. The social commentary in the game is fantastic.

You Know You Need a Financial Advisor When...

There are a few sure-fire signs that you need a financial advisor in your life. Whether you are just starting out in your first job or on the other side of retirement, there are financial considerations at each stage of life that a financial advisor can help you understand and navigate.

If you haven’t hired a financial advisor, but are wondering if now is the right time, there are a few signs that may indicate now may be the right time to start.

·      You’re not sure you’re saving enough for retirement. Even if you are saving for retirement, it may not be enough to support your needs and lifestyle in retirement. You don’t want to be in retirement and then find out that you didn’t save enough. Better to consult with a financial advisor earlier in your life to put you on a plan that will provide you with enough income to support your retirement lifestyle.

·      You don’t know where all your money is going. If you wind up scratching your head every month wondering where all your hard earned income has gone, it’s time to work with a financial advisor. A financial advisor can help you understand your current spending habits and even help you adjust them to better align with your values and your goals.

·      You’re not sure how to make a big financial decision. Whether you’re getting married, buying a home, or considering long-term health care options, a financial advisor can help you navigate large financial decisions. There are large financial decisions we face at every stage of our life and you don’t need to make them in a vacuum. A financial advisor will help you understand your financial options so that you can make the best possible decision for you and your specific situation.

·      You don’t know what your finances are working toward. A financial advisor is going to help you set financial goals for your present and your future. He or she works with you so that you can align your money with your values and help you create the life you want to live.

·      You live beyond your means. Financial advisors are not just for people with a ton of investible assets anymore. Besides, even the highest wage earners can find themselves living beyond their means, too. If you find that you are regularly outspending your income each month, even when you have plenty of income coming in, it’s time to hire a financial advisor.

If you identified with any of these signs, I encourage you to consider working with a financial advisor. There is a lot of value a financial advisor can bring to your financial life beyond retirement planning and investment management. 

My Answers to the 19 Questions You Should Ask Every Financial Advisor

In case you missed it, The Wall Street Journal's Jason Zweig recently wrote an article titled "The 19 Questions to Ask Your Financial Advisor". Zweig, who writes a fantastic weekly column titled "The Intelligent Investor", wants consumers to receive good financial advice. To him, that means financial advisors, stockbrokers, and insurance agents should always act as fiduciaries, which means they should act in their clients' best interests.

I wholeheartedly agree. Honestly, I can't believe this is even up for debate.

Some background: Last year, the U.S. Department of Labor released a rule which, once implemented, will require all financial professionals who provide retirement planning advice to act as fiduciaries for their clients. In addition, financial professionals must disclose all conflicts of interest and clearly disclose all fees and commissions paid by the client. Financial professionals who work on commission, primarily brokers and insurance agents, will be impacted the most. In general, these are the professionals unhappy with the rule. Unfortunately, the deadline for compliance has been delayed from January 1, 2018 to July 1, 2019. In the meantime, changes to the rule may severely weaken the rule or kill it entirely.

So how do you determine whether or not a financial planner will act in your best interest? Ask an advisor the right questions and listen for the best answers. Below, you'll find 19 questions to ask an advisor. You'll also find the answers, in parenthesis, Jason Zweig suggests you listen for. I've also included my answers to the questions, which are in bold.

Use these questions when interviewing an advisor - and interview at least three. Good luck with your search!

1. Are you always a fiduciary, and will you state that in writing? (Yes.)

Yes.

2. Does anybody else ever pay you to advise me and, if so, do you earn more to recommend certain products or services? (No.)

No.

3. Do you participate in any sales contests or award programs creating incentives to favor particular vendors? (No.)

No.

4. Will you itemize all your fees and expenses in writing? (Yes.)

Yes.

5. Are your fees negotiable? (Yes.)

Yes.

6. Will you consider charging by the hour or retainer instead of an annual fee based on my assets? (Yes.)

Yes.

7. Can you tell me about your conflicts of interest, orally and in writing? (Yes, and no adviser should deny having any conflicts.)

Yes.

8. Do you earn fees as adviser to a private fund or other investments that you may recommend to clients? (No.)

No.

9. Do you pay referral fees to generate new clients? (No.)

No.

10. Do you focus solely on investment management, or do you also advise on taxes, estates and retirement, budgeting and debt management, and insurance? (Here the best answer depends on your needs as a client.)

Investment management is important, but I believe true financial planning means looking at all aspects of a client's financial life.

11. Do you earn fees for referring clients to specialists like estate attorneys or insurance agents? (No.)

No.

12. What is your investment philosophy?

I believe it is impossible to consistently beat the market. Therefore, I use passive investments, such as low-cost index funds, in client portfolios.

13. Do you believe in technical analysis or market timing? (No.)

No.

14. Do you believe you can beat the market? (No.)

No.

15. How often do you trade? (As seldom as possible, ideally once or twice a year at most.)

As seldom as possible, typically less than twice a year.

16. How do you report investment performance? (After all expenses, compared to an average of highly similar assets that includes dividends or interest income, over the short and long term.)

After all expenses on a quarterly, 1-year, 3-year, and 5-year basis. I can compare performance to a benchmark, such as the S&P 500 Index, but I prefer not to because it's not an apples-to-apples comparison.

17. Which professional credentials do you have, and what are their requirements? (Among the best are CFA [Chartered Financial Analyst], CPA [Certified Public Accountant] and CFP, which all require rigorous study, continuing education and adherence to high ethical standards. Many other financial certifications are marketing tools masquerading as fancy diplomas on an adviser’s wall.)

I hold the Certified Financial Planner designation (CFP®).

18. After inflation, taxes and fees, what is a reasonable estimated return on my portfolio over the long term? (If I told you anything over 3% to 4% annually, I’d be either naive or deceptive.)

I cannot guarantee a rate of return. Conservatively, 3% to 4% is realistic, but markets have their ups and downs.

19. Who manages your money? (I do, and I invest in the same assets I recommend to clients.)

I do and I use the same investments I recommend to my clients.

Equifax Data Breach - What You Should Do Next

What Happened?

  • Equifax, the credit-tracking and rating company, revealed it suffered a massive data breach on July 29th of this year
  • Approximately 143 million U.S. consumers were affected

Why Should I Be Upset?

  • Having your sensitive personal information leaked is bad enough, but Equifax failed to report the hack until Thursday, September 7th - more than a month after the breach actually occurred
  • To make matters worse, executives at Equifax sold millions of dollars in company shares in early August, which isn't at all shady
  • Equifax's response to the breach was laughable, and not in a good way:
    • Initially, the website www.equifaxsecurity2017.com/, which was created to notify consumers of the hack, had numerous problems, which made it appear as if the site was a phishing threat
    • Immediately following disclosure of the breach, security codes were displayed on the main Equifax site
    • The PIN generated when a consumer initiates a security freeze appeared not to be random but generated in such a way that hackers could still determine the consumer's identity (this has since been fixed)

What Can I Do?

  • Find out if your information was included in the breach by visiting this site created by Equifax and clicking "Potential Impact"
  • Sign up for the free 12-month credit file monitoring and identity theft protection provided by Equifax
    • Note 1: Initially, the terms and conditions of this service required anyone who enrolled to give up the right to sue the company, but Equifax has since stated that specific clause would not apply to the data breach)
    • Note 2: You do not have to sign up for the monitoring service, it's simply an option
  • Check your credit reports from the three main reporting agencies, Equifax, Experian, and TransUnion by visiting www.annualcreditreport.com.
    • You are allowed to obtain one free report annually from each of the three companies
    • There are numerous websites willing to charge you for a credit report, so make sure you use the one authorized by Federal law
  • Place a credit freeze on your files
    • You can find out more about this service by visiting the Federal Trade Commission website
    • Equifax is providing the credit freeze service free of charge, but Experian and TransUnion are charging consumers $10 - $15 for the privilege (I'll give you three guesses how I feel about paying for this service to a company that's managing my sensitive data)
  • If you don't want to lock-down your credit with a credit freeze, you can initiate a fraud alert, which allows creditors to get a copy of your credit report as long as they take steps to verify your identity
  • Review your bank and credit card statements for any transactions you don't recognize
  • Improve your passwords
    • I understand how difficult it is to remember dozens of passwords, so I recommend using a password manager, such as LastPass
    • Even better, enable two-factor authentication for your most important websites
  • When using public wi-fi networks don't visit websites that require sensitive information
    • If you must use a public network, use a virtual private network (VPN), such as VPN Unlimted, which will encrypt the traffic between you and the internet

Listening / Reading / Watching

Here's what has my attention right now:

  • I'm still working on last week's books!

My Takeaways From the 2017 XY Planning Network Conference

What I Learned

  1. The number of advisors working with Gen X and Gen Y clients continues to grow - quickly. The XY Planning Network had 250 members in 2016. Not bad, but the network was just shy of 500 members when the conference started. That's a lot of advisors dedicated to serving as fiduciaries for their clients. Especially when you consider parts of the financial services industry are fighting hard to kill or water down the Department of Labor's Fiduciary Rule. Advisors in the XYPN have embraced working in their clients' best interests.
  2. FinTech (financial technology) for advisors continues to improve. There were some impressive new tools designed to help advisors better serve their clients. I wish I could adopt everything showcased at the conference. Too bad I have a finite budget for tech!
  3. I'm adding a new college planning/pre-approval service to my practice. While at the conference, I took a day long workshop on college planning and learned ways to help clients and their children make better-informed decisions and, hopefully, save money, when it's time to select a school.
  4. It's worth taking time off to go to a conference. The value of continuing education and time spent talking to my fellow planners far outweighs the costs associated with attending a conference.
  5. I need to pack a hoodie for next year's conference. The main ballroom in the hotel was freezing.

Listening / Reading / Watching

Here's what has my attention right now:

  • Where You Go Is Not Who You Will Be: An Antidote to the College Admissions Mania, by Frank Bruni. This book was recommended by one of the presenters at the XYPN conference. "Bruni, a best-selling author and a columnist for the New York Times, shows that the Ivy League has no monopoly on corner offices, governors' mansions, or the most prestigious academic and scientific grants. Through statistics, surveys, and the stories of hugely successful people who didn't attend the most exclusive schools, he demonstrates that many kinds of colleges - large public universities, tiny hideaways in the hinterlands - serve as ideal springboards."
  • The Clockwork Dynasty, by Daniel H. Wilson. Here's another fun book from the author of Robopocalypse and Robogenesis. Instead of having robots take over the world, Wilson "weaves a path through history, following a race of human-like machines that have been hiding among us for untold centuries."

Practicing What I Preach

This week, while having lunch with a friend and mentor, I questioned whether or not I really need to join a gym (and thus pay a monthly membership fee). Could I not continue my DIY approach? After all, I trained for and competed in triathlons for 10 years, so I'm pretty sure I know what I'm doing.

Thanks to an astute observation from my mentor, I had an epiphany: Although I consistently encourage people to invest in themselves, I wasn't following my own advice.

I believe it's almost always worth the expense to invest in, among other things, education, fitness, and of course financial planning. Okay, I'm definitely biased when it comes to financial planning because that's how I make a living. But it's worth it, I swear!

Sure, You Can Do It Yourself. But Will You?

With few exceptions, there's very little we can't do ourselves. For example, I had no idea how to perform maintenance on the commercial-grade plumbing hardware in our house, but after watching a few videos on YouTube I was ready to tackle the job. Unfortunately, I don't think I should try that if I need surgery.

I certainly could continue to workout on my own and save the cost of the monthly gym membership, but I know I'll work harder and have better results if I actually go to a gym. I believe the same thing applies to financial planning. Sure, you can do it yourself. But will you?

My point is that sometimes we can't do it ourselves. Sometimes the outcome is better when we have help. Clint Eastwood (as Dirty Harry) once said, "A man's got to know his limitations." Know your limitations and don't be afraid to invest in help when you need it.

Listening / Reading / Watching

Here's what has my attention right now:

  • Alien: Covenant. As a major sci-fi nerd and superfan of most installments in the Alien series, I can't wait to see this tonight.
  • Quiet: The Power of Introverts in a World That Can't Stop Talking, by Susan Cain. As an introvert, I think it's fitting that I listen to this with earbuds firmly planted in my ears. That way I can keep to myself and not risk having someone try to talk to me.
  • Master of None, season two on Netflix. If you haven't watched season one, do it now. Comedian Aziz Ansari's series is excellent.

Take Our Daughters (and Sons) to Work Day Yields Interesting Ideas About What I Do

We started the day with what I believed was going to be an exciting discussion about financial planning, budgeting, stock ownership, and dividends.


My youngest burst my bubble by asking, "When's lunch?".


This year's National Take Our Daughters and Sons to Work Day fell on Thursday, April 27th. I was pleasantly surprised when both of my daughters (and my youngest's BFF!) wanted to spend the day at work with me.


The girls enjoyed the budgeting exercise. I was amused when they wanted to earmark only $100/month for groceries.


The girls quickly took to creating a budget, even if some of their estimates were unrealistic. I think they enjoyed showing off their math skills.


Apparently, the girls think my job would be a lot more interesting if I traded socks rather than stocks.


What Does a Financial Planner Do?

I posed this question to the girls and had some surprising responses. Apparently, my job entails:

  • Counting people's money

  • Using a calculator to count people's money

  • Working on a computer

  • Buying stocks (not socks!)

  • Earning money

  • Going to bank accounts to see how much money people have (this is my favorite because I envision myself actually going up to people and asking to look at their bank accounts)

  • Teaching people how to spend wisely

These are all true statements. Especially the one about not buying socks.


I think lunchtime was the highlight of their day.


Listening / Reading / Watching

Here's what has my attention right now:

  • The Tipping Point: How Little Things Can Make a Big Difference by Malcolm Gladwell. I have yet to find a book written by Malcolm Gladwell that I didn't like.

  • Catastrophe, Season three on Amazon Prime. Amazon just dropped all six episodes of season three onto Prime. Seasons one and two were hilarious, so I hope the trend continues.

Iceland, Bank Bailouts, and Alternative History

Revisiting Iceland

In November of last year, my wife and I spent a long weekend in Iceland. In case you missed it, you can read my blog post about the trip.

Iceland was beautiful and anyone that likes to travel should definitely add it to their bucket list. Anyway, I'm revisiting my blog post not to pitch you on a trip to Iceland (just go), but to provide you with an update on the country's economy and to play a fun game of Alternative History. Exciting, no?

Eight Years Later: Recovery

While reading this week's edition of The Economist, a headline caught my attention: The End of a Saga: Iceland Lifts Capital Controls. What does lifting "capital controls" mean and why is it important? It means that pension and investment funds are once again allowed to invest their money abroad. This is important because eight years after the financial crisis, Iceland's economy appears to have recovered, thanks to strict financial controls and a big boost in tourism.

Why, you ask, should we celebrate Iceland's economic recovery? Well, aside from the fact that the country produces the best yogurt ever, Iceland's recovery presents us with an interesting case study of how to manage an economic crisis. Iceland's leaders took a different approach to handling the crisis than did their counterparts in the United States. I wonder if perhaps our leaders chose...poorly.

Now for a brief summary of how we got here.

Hop Into My Wayback Machine And Let's Travel Back To 2008

Remember when that little thing called The Global Financial System had a complete meltdown? If not, I highly recommend reading or watching The Big Short, which provides a great (and often funny) overview of what caused the financial crisis. 

Iceland was one of the countries hardest hit during the economic meltdown of 2008. Three of the country's largest privately-owned banks defaulted on $62 billion of foreign debt and eventually collapsed. But wait, there's more! Iceland's currency, the krona, fell 50% in one week. The stock market fell 95%. Nearly every business in Iceland went bankrupt.

Here's the major difference with how the crisis was handled: Unlike the too-big-to-fail banks in the United States, Iceland's three largest banks were allowed to fail.

Alternative History (Not Facts)

Would the United States be better off today if our banks, like those in Iceland, had been allowed to fail?

This question started an ongoing debate between my wife and me. She has always argued the United States would be better off today if our banks had been allowed to fail. I've argued that bailing out banks was the correct course of action because it was the only way to avoid widespread economic hardship.

After reading about Iceland's recovery, I've been questioning my opinion on the bank bailout. That's right, I'm admitting my wife might be right.

News of Iceland's recovery isn't the only reason I'm questioning the wisdom of bailing out banks; the aftermath of the 2016 presidential election also plays an important role in my thinking. It's clear there's a sharp - and growing - divide between rich and poor in the United States. Much of that divide can be attributed to rapid changes in technology, which is going to be exacerbated by advances in A.I. and autonomous vehicles. Very little seems to have changed for the better for a large segment of the population. I wonder if letting the banks fail - a reboot - could have benefitted a greater number of people.

The downside of letting banks fail is that we would have seen mass bankruptcies, an inability to borrow money, even greater losses in the U.S. financial markets, and mass unemployment. And probably worse: Riots and civil unrest. But maybe the country as a whole would have come out stronger on the other side. 

I guess it comes down to this: Which option is less terrible? Your answer will most certainly depend on what you stand to gain (or lose).

Not An Apples-To-Apples Comparison

Iceland, while an interesting case study, is obviously far different from the United States. For example, Iceland has a population of ~325,000, compared to ~310,000,000 in the U.S. That difference makes it difficult to imagine the scale of problems the U.S. would have faced if banks had been allowed to fail.

Ultimately, there's no way to determine what would have happened if the United States had followed the same course of action as Iceland. But it's a fun question to consider! *

* It's possible my idea of fun differs from yours.

Listening / Reading / Watching

Here's what has my attention right now:

Basic Income: A Radical Proposal for a Free Society and a Sane Economy by Philippe Van Parjis and Yannick Vanderborght. The idea of Universal Basic Income (UBI) has been around for a long time but has resurfaced as people such as Elon Musk have suggested it as a solution to a world facing radical change due to advances in A.I. and autonomous vehicles. Would it work? I don't know, but it's a fascinating subject.

The books in the sci-fi series The Expanse offer a template for UBI:

Don't want to work? No problem. You'll receive Basic, which is enough money to live off of. It will be a no-frills, not-especially-comfortable life, but you won't have to work.

Want to have a more comfortable life? Great. You have to work for a year to ensure you really want to work. Succeed and you're allowed to go to a university where you'll learn a trade or profession that will enable you to earn more than just Basic.

Update on the Fiduciary Rule (Spoiler: It's Not Dead Yet)

There's a Big Difference Between Mostly Dead and All Dead. Mostly Dead is Slightly Alive.

Remember when I wrote about the Fiduciary Rule? It was only last year, so of course you do. The rule, written by the Department of Labor (DoL), was created to ensure advisors and brokers act in their clients' best interests, at least when it comes to advisors overseeing clients' retirement accounts.

The Fiduciary Rule was in the news again this week after the Trump Administration released a memorandum directing Edward Hugler, the Acting Secretary of Labor, to "examine the Fiduciary Rule" and "prepare an updated economic and legal analysis concerning [its] likely impact."

Since the release of the memorandum, there's been some confusion surrounding the status of the rule. Allow me to clarify: The Fiduciary Rule isn't all dead. It's not even mostly dead (fans of The Princess Bride will get this reference). For now, the Rule is set to take effect on April 10, 2017.

Why Do We Need a Rule Forcing Advisors to Act in Their Clients' Best Interests??

I've asked myself this question many, many times. My conclusion: We need the Rule because there are some terrible humans working in the financial services industry.

Not Everyone is Terrible

Of course, the Rule isn't opposed by everyone in the financial services industry. Senator Elizabeth Warren issued a letter on Tuesday highlighting the importance of the Rule. I was happy to see The XY Planning Network, of which I'm a member, was mentioned as one of the companies that support the Rule.

The bottom line is that we shouldn't need a rule forcing advisors to act in their clients' best interests. The sad reality is that the Rule is necessary to ensure consumers aren't taken advantage of. I hope the Rule isn't delayed or watered down. And that it goes into effect on April 10th.

Listening / Reading / Watching

Here's what has my attention right now:

  • Leviathan Wakes by James S. A. Corey. Have you seen The Expanse on the SyFy Channel? The show is pretty darn good and it's based on a series of books that are definitely worth reading. If you're into science fiction. And a nerd. Don't want to read? You can stream the first season of The Expanse if you have Amazon Prime.

Here's What Happens When You Take a Financial Planner to Las Vegas

Viva Las Vegas

Over the long MLK weekend, I went to Las Vegas with my wife and six of our friends. They all joked that hanging out with a financial planner in Sin City wasn't going to be any fun. There's some truth to that because Vegas really isn't the ideal getaway for an introverted financial planner who doesn't like to gamble and whose idea of a fun evening involves a good book and lights out at 10PM.

I may not have gambled while in Vegas, but that doesn't mean I'm a total stick-in-the-mud: I stayed up well past my bedtime every night. I like living on the edge.

The eight of us did the usual things people do in Vegas: Eat, drink, go to shows, and gamble. Fortunately, everyone took a sensible approach when it came to gambling. Each couple agreed upon an amount of money they could use, and possibly lose, while gambling. No one raided their bank account with the goal of winning back money lost at the blackjack table.

Gambling Versus Investing

While in Vegas one of my friends asked a good question: "Isn't investing in the stock market the same as gambling at a casino?"

The short answer: No, these activities are not the same.

The long answer: I understand why one might think investing and gambling are essentially the same. On the surface, both activities entail putting your hard-earned cash at risk
ofa gain (yay!) or a loss (boo!). Of course, there are some key differences that may not be obvious. Let's look at what differentiates these activities:

Investing

  • Ownership: When you buy shares of an index fund or a company, you own part of a company or companies. Gambling gives you nothing - except maybe some free drinks.
  • Potential long-term income: When you own shares of a company that pays dividends, you'll have an income stream for as long as you own the shares. Gambling might pay off, but it's usually a one-time event.
  • Appreciation: The value of those shares you purchased might become more valuable over time. Even better, you can then sell the shares and enjoy a gain.

Gambling

  • Odds: Casino operators won't be in business very long if they allow gamblers to win too often. That's why the house has an edge in all of the games they offer. Some odds are better than others, but they're never in your favor.
  • Luck: Whether it's a roll of the dice or the hand you're dealt, gambling features an element of luck. There's an element of that when it comes to investing, too. The difference is that investors can educate themselves through research prior to buying shares of a company. There's no way to research what will happen with the next pull of the slot machine.

There is one important thing both investors and gamblers need to do: Understand the rules of the game (or investment). I've seen many people take action without understanding what they were getting themselves into. The only thing they accomplished was giving their money away.

Finally, I should add one more thing before being called Debbie Downer: I understand many people enjoy gambling. I don't judge people on the activities they engage in. I love playing video games and I'm sure many people consider that a waste of time and money. To each his (or her) own.

Stray Observations About Las Vegas

  1. Outside of Bourbon Street in New Orleans, I've never seen a place that allowed (and encouraged!) drinking as much as Las Vegas.
  2. I'm amazed that it's 2017 and casinos still employ scantily clad women as dancers around the gambling tables.
  3. Casinos are extremely good at getting people to part with their money. It's kind of awesome to watch how well they do this.
  4. I haven't been around so many smokers in years. I felt like scrubbing my lungs after spending time in the casinos.

Listening / Reading / Watching

Here's what has my attention right now:

  • 1984 by George Orwell. Believe it or not, I never got around to reading this classic book. It seems like a good time to do so.

Financial Planners - They're Just Like Us!

Financial Planners Are Human, Too

I know it's difficult to believe, but even planners make financial mistakes. Below, seven of my colleagues, all members of the XY Planning Network, share their biggest financial mistakes.

Katie Brewer, CFP® / Your Richest Life

I dropped about $35,000 on an additional degree. I was already in the field of financial services when I started thinking that I would really benefit from getting an MBA, even though my peers and mentors didn’t think it was going to add a lot of additional value. I researched and applied and was accepted into a Professional MBA program. I learned a lot about business in general during my MBA program, but I didn’t really learn anything additional about my chosen field of financial services. Luckily, I was able to knock out the student loans quickly by living well below my means, but if I had to do it over again, I wouldn’t have pursued an additional degree that most of my friends and clients don’t know that I have.
My husband and I bought a house a few years ago (2012). It was a major fixer-upper so we had talked to the mortgage lender about deferring our mortgage payments for 6 months and he said that was an option. When we got to the closing table, it turned out our lender did not include that clause in our final documents, so we either had to move forward or not close that day and most likely not get the house. We signed the papers, which meant we’d have to start paying the mortgage a month from then, plus both of our rents since the home was completely unlivable.

Instead of buckling down, adjusting our lifestyles, and tightening our budgets, I found myself swiping everything on the credit card. I’m sure I had my excuses in my head, but really, I was just taking the easy way out because I had a high credit limit. It grew to a few thousand dollars in a few months and at some point, I remember thinking, well, it’s already high, so what difference is this $10 sandwich going to make?

In less than a year, I had racked up over $7500 of credit card debt and had no idea what the heck I spent it on. There weren’t any big purchases, just a lot of $10 sandwiches along the way. It almost prevented me from being able to refinance my mortgage because the balance was over half of the limit of my card and they caught that when they ran my credit report. I had a write a letter explaining why the balance got that high. Totally embarrassing and nerve wracking.

I was lucky enough to be able to refinance the credit card debt into the mortgage, a decision I don’t usually recommend, but since we had a tenant and the new mortgage payment was going to be so much less than the previous one, and I had no savings, it was the best decision we could make under the circumstances.

It was a big lesson for me to see how quickly and easily credit card debt can creep up when you throw one wrench into the mix. It’s made me that much more empathetic to clients who have credit card debt and feel ashamed by it. It can happen to any of us!
The biggest mistake we made was thinking our house was the super special house that wasn’t affected by the home value crisis.

In 2010 we found our dream home and purchased it believing we could sell our existing home in no time at a profit from where we had purchased it in 2004. That didn’t happen. 

It took close to two years to sell at a price that was at a loss (a small loss, but a loss nonetheless).

Six years on, we are very happy in our new home and plan to be here for the long haul, but our emotional attachment to our first home clouded our judgment on its value.
I have made plenty of financial mistakes but the one that really stands out to me is believing I could beat the market. After working for an investment bank I was definitely overconfident in my ability to pick winning investments, however, 2008 and 2009 proved to me that even the smartest, most well-respected managers had a very hard time getting it right. Since then, my own investment philosophy has shifted to be based more on controlling what you can control (fees, asset allocation, diversification, and how much risk to take) and I have left the rest to the markets.
My biggest mistake was not saving more when I was younger. Allowing lifestyle inflation to creep into my life to “keep up” with my friends. When I first moved to Chicago I wasn’t doing a good job of targeting 15%-20% of my income going into savings (either IRA, 401(k) or taxable). This meant I didn’t really have an emergency fund until I was older. It also meant that I had to play “catch up” to get my own retirement house in order.
I wish someone would’ve mentioned to me to put some of my wages into a Roth IRA when I was in college and younger. I’ve had jobs since I was 16 and was always saving for something besides just working for spending money.  I wish that I had saved a little for those goals and put a little away for retirement.  When I think about the compound interest that I missed out on, it makes me a little sad. Every dollar you invest in your 20s is worth more than $18 at retirement!
My biggest financial mistake actually came about through multiple decisions spanning over quite a few years. I approached and ultimately made these decisions without objectivity. Failure to inject objectivity into my decision making has been my greatest financial mistake. 

Since at the time I was studying to be a financial planner, I assumed I had all the knowledge required to make sound decisions. That notion simply wasn’t true - I lacked objectivity. 

Three rather significant financial issues arose as a result: 

1) Married at the time, we sold a house at a near $20,000 loss
2) Most of our over $100,000 net worth was in cash
3) Cash positions made it really easy to place generating income on the back burner. I became a stay-at-home dad for a year and lived well over three years earning little to no income - on purpose - but spending down our nest egg in the process.

These decisions weren’t all bad. However, from a financial standpoint alone, I can certainly reflect back and see where professional objectivity would have been quite beneficial. 
I have two financial mistakes I’d like to relate.

The first mistake came during the aftermath of the financial crisis of 2007 - 2009 when the S&P 500 lost approximately 50% of its value. This was the first major recession I had experienced post-college, so I was unprepared for the psychological impact both personally and professionally. I continued to invest throughout the downturn, but I should have put more into the market because history has shown that markets recover. That was difficult to remember when the economy and financial markets were in disarray.

Here’s what I learned from this mistake:
Buffett’s words of wisdom. Be mindful of this quote from Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful”.
Cash is king. Thankfully, a recession of this magnitude doesn’t happen often. When it does, be sure to have some extra cash on hand so you can take advantage of good deals in the markets.
The second mistake occurred after my wife (then girlfriend) and I moved in together. Our income increased, but so did our expenses because we didn’t have a plan to deal with lifestyle creep.

Here’s what I learned:
It’s important to set joint goals. We were much more likely to keep lifestyle creep in check if we wrote down quantifiable goals. 
Regular check-ins keep you on track. Setting quantifiable goals is a great first step, but setting aside time to meet and check progress towards those goals is also important.

The moral of these stories: We all make mistakes. What's important is recognizing the mistakes, learning from them, and finding ways to ensure you don't repeat them.

Listening / Reading / Watching

Here's what had my attention this week:

  • The third presidential debate. Ugh. On the bright side, at least we're done with the debates.
  • The Industries of the Future by Alex Ross. This is one of the books I heard about during the super trends session at the recent NAPFA conference. So far, it's great.

To Merge, or Not to Merge

Several years ago, my then-girlfriend (now wife of eleven years!) and I called our respective parents to give them the Big News: No, we weren’t engaged. We were taking a big step and opening joint checking and savings accounts! While they were happy for us, it wasn’t quite the Big News they were hoping for. Regardless of our parents’ feelings, I believe merging our finances was an extremely important step to building a healthy relationship. So, whether you’re newly married or contemplating moving in with your significant other, read on for my thoughts on the subject of merging finances.
           
All couples bring different financial strengths and weaknesses to their relationship. Most couples I meet with did not learn personal financial skills in school – which is unfortunate and something I’d like to change. Personal financial skills, habits, and beliefs (or lack thereof) were usually taught or modeled by family members. As you can imagine, these differences often cause stress in a relationship.

In addition to bringing their individual financial strengths and weaknesses to the table, it’s not unusual for one individual to take on most of the financial responsibilities, such as paying bills. This is great for the individual that doesn’t like dealing with finances. However, I believe imbalances such as this cause unneeded stress and can make it more difficult for couples to achieve their short- and long-term goals.
           
So, how do you reduce financial stress and have a better shot at achieving joint goals? Here are some tips:

  1. Share all financial information: This means assets AND liabilities. For example, it’s important for both parties to know how much student loan or credit card debt the other has. Once you know how much debt there is, if any, you can come up with a plan to pay it off.
  2. Establish joint bank accounts: At a minimum, I recommend opening a joint checking and savings (AKA the emergency fund) accounts. Other accounts, such as house or travel funds, can be opened later.
  3. Share your short- and long-term goals with each other: Take some time to discuss what each you want to achieve. My wife and I set goals when we first moved in together. We no update them at least once a year.
  4. Get a joint credit card: You’ve been building up your personal credit, right? Now it’s time to have a shared card. Make sure both of you review the transactions on the monthly statement.
  5. Agree upon a spending threshold: Come to an agreement about how much either of you can spend without checking in with your significant other. For example, you could agree that buying anything over $200 requires a conversation.
  6. Allow yourselves some “fun money”: Think of this as an allowance. You each get to set aside some money that can be used for whatever you want – no questions asked. Do you want to buy something more expensive? Save some or all of your monthly allowance until you have enough for it.

I understand couples may be wary of merging finances because it can mean giving up some financial freedom. From personal experience, at home and in my financial planning practice, couples that merge finances have a stronger relationship and are much more likely to achieve their goals.

Listening / Reading / Watching

Here's what's got my attention this week:

  • Hillbilly Elegy: A Memoir of a Family and a Culture in Crisis by J.D. Vance. I'm about two hours into this book and really enjoying it. Summary from the publisher: Hillbilly Elegy is a passionate and personal analysis of a culture in crisis - that of white working-class Americans. The decline of this group, a demographic of our country that has been slowly disintegrating over 40 years, has been reported on with growing frequency and alarm but has never before been written about as searingly from the inside. J. D. Vance tells the true story of what a social, regional, and class decline feels like when you were born with it hung around your neck.

Fundamental Analysis vs. Technical Analysis: Fight!

The Rebel Alliance vs. the Galactic Empire, Less Filling vs. Tastes Great, Batman vs. Superman, Cain vs. Abel, and Seinfeld vs. Newman.

These are among the greatest matchups in history. Allow me to add one more to the mix:

Fundamental Analysis vs. Technical Analysis

I know this matchup may not be as exciting as the ones listed above, but it is fascinating. At least to me. And really, it's all about me.

Both methods can be used to analyze financial markets and investors have been debating the pros and cons of each for decades. Before I tell you which method I prefer, let's explore each in turn...using references from Star Trek.

Fundamental Analysis: The Method for Logical Vulcans

If this was the Star Trek universe, investors using fundamental analysis would be from the planet Vulcan. For the uninitiated, this means investors who use logic and reason with zero emotion to analyze financial markets and companies. Here are examples of some metrics used:

  • Macro and microeconomics
  • Growth rates
  • Risk levels
  • Earnings per share (EPS)
  • Price to earnings (P/E) ratio
  • Dividends paid

In other words, fundamental analysis involves using quantifiable metrics to better understand financial markets and companies.

Technical Analysis: The Method for Irrational Humans

If fundamental analysis is the method of choice for cold, emotionless Vulcans, then technical analysis is perfect for irrational humans. Investors who use technical analysis are often known as "chartists" because they use charts to determine when to buy and sell in financial markets. Specifically, chartists make use of past trading activity and price to determine future prices in financial markets and companies.

Which Method Do I Prefer?

It may be obvious by my choice of wording, logical versus irrational, that I favor fundamental analysis. I'm sure I drive my wife crazy with my logical, rational take on life and investing. Still, we make a good team. Yin and yang. But I digress.

The following quote, which you may have heard at one time or another, sums up my rationale for choosing fundamental over technical analysis:

Past performance does not necessarily predict future results.

I cannot fathom why anyone would base investment decisions on past trading activity and price.

But Wait, There's More!

First, I have an intern. His name is Zach Snyder* and he's studying econ at my alma mater, the University of Maryland at College Park. Fear the turtle! Zach is seriously considering a career as a financial planner, so he'll be working with me over the next several months.

Second, Zach will be writing posts for my blog, www.frugalplanner.com. His first post, titled "Gen Y Got Off to a Bad Start, but it's Not Too Late to Get Back on Track" was published this week. Please take a few minutes and check it out.

*Thankfully, Zach is not the Zach Snyder responsible for directing Man of Steel or Batman vs Superman: Dawn of Justice.

Listening / Reading / Watching

Here's what's got my attention this week: