Office Admin

Compound Interest – Myth or 8th Wonder of the World?

August 16, 2017 by Office Admin

Einstein is credited with saying compound interest is the 8^th wonder of the world. While I’m nowhere near as smart as Einstein, I have good reason to believe there is only partial truth in his statement. Specifically because of two myths surrounding compound interest that we will discuss here.

Myth #1: I will earn 7% consistently.

Mathematically, the power of compound interest is incredible. The financial industry consistently tells you to save early, save often, save (then invest) as much as you can. At an annual growth rate of 7%, you will be a millionaire at retirement. You’ve seen the graph. Just save a little each pay period, and it will growth exponentially. And they’re right…to a point.

To maximize the effects of compounding interest, two elements must exist: 1) Time. 2) Consistency.

To get the exponential growth Einstein was referring to takes years. How many years? Most likely 20+. If you are in your 20’s and methodically saving for retirement, compounding works in your favor. If you are 55 and want to retire in 10 years, it won’t help you. Most people don’t realize this until it’s too late.

Another big problem with compound growth is figuring out where you’ll get that consistent return. Interest rates are near zero and bonds aren’t returning anywhere near 7%. The stock market is the only place to achieve an annual growth rate of 7%. At least that’s what the market has delivered over the past 20 years. But does that mean you’ll get a 7% compounded return? Probably not…but, why?

The type of compounded return from the market is only seen over very long periods, at least 20 years or more. So, for long-term savings like a 401k, you can expect to achieve this type of growth as long as you leave it there. The problem is when you have to take distributions on that account. You never know what the market will be doing at that time. If it’s in a bear market, you better have another source of funds to draw from, otherwise you’ll start eating principle. This is called sequence of returns risk. You can see the grand fluctuations in the chart below.

Myth #2: It’s easy to withstand wild market fluctuations.

The other problem is whether you have the stomach to weather large drawdowns. Large, and even not-so-large, market drawdowns have a direct impact on your ability to compound returns. In the early 2000s it took several years just to get back to even. In 2008 there was such a drop that many investors sold out, just in time to lock in big losses. Withstanding wild fluctuations over a 20-year plus period is hard, very hard. You have to be true to yourself to know if you can handle it. Otherwise you’ll never see compounded returns from the market.

Why Does It Matter to You?

These are big issues for our clients. Many of whom are entrepreneurs or business owners who’ve made great sums in their businesses. While they still want to grow their investments, the overriding goal is Warren Buffet’s two rules of investing: 1) Don’t lose money. 2) Never forget rule #1.

To help our clients accomplish this we use rules-based trend following strategies. Our strategies use trends to capture upside momentum, as well as trying to limit drawdowns. This provides downside risk management with upside market potential. By providing a smoother investment ride, our investors are more likely to stick with the strategy long-term. That’s when they have a better chance to capture impressive compounded returns. That’s when they have a better chance of reaching their full financial potential.

These 9 Principles Can Lead You to Investing Success

August 9, 2017 by Office Admin

When people talk of investing success, it’s often around some new stock picking method, or that one time they got extremely lucky and were the exception, not the rule. In a rising market like we’ve had for the last several years, there are many people who feel like successful stock pickers. There are many people who feel like they’ve gotten lucky – repeatedly. That’s because a rising tide lifts all boats.

True long-term investment success comes from a lot more than stock picking methods or luck. But no one likes to admit that – talking about discipline and smart investor savvy doesn’t always make for the best “look at me” story to tell your friends. That’s why you have to decide what’s more important to you, long-term success and a secure future, or a good story about “that one time…..”

Having sound principles to guide your investment decisions and strategy choice are one of the best ways to ensure your ability to reach your full financial potential.

Here are some of the investing principles we abide by, and educate our clients on:

1. Markets are in a drawdown more often than not. Yes, they market may be down 3% today, but that’s normal. Don’t be alarmed, but also, be prepared that you may see red once in a while. That’s why you should have an investment strategy that is designed to “miss” the worst days, and cushion the blow to your money.

2. A rules-based, disciplined approach is the best way to ensure long-term success. You should fully understand how and why you’re invested the way you are. An Investment Policy Statement is one of the best ways to do this. If your investments don’t align with your IPS, you shouldn’t invest in it. Period.

3. Volatility eats your returns. Not risk. Risk doesn’t drive your returns, it just affects your probability of losing money. Volatility directly affects your returns, and wild fluctuations can quickly erode your wealth. This is where diversification isn’t enough – it only mitigates risk. You must have a strategy in place that mitigates volatility as well.

4. Buy and hold is easier said than done. “Set it and forget it’ is the mantra of many investment firms. This isn’t necessarily bad advice. Over the long-term, the market has produced a compounded return around 7%. However, the real return fluctuates between up 40% and down 60%. Most people can’t hold on during those drawdowns, and wind up selling at the wrong time.

5. It’s better to miss the worst days and the best days in the market. Buy and hold advisors say you must capture the 10 best days in the market, as that is what drives your overall return. And they are right. But, if you miss both the best and worst days, (by using a trend following/momentum strategy, for example) your return could be even better. Historically, research shows that the best days come during the worst bear markets, so we’d prefer not to participate in the full bear periods.

6. Markets are not always efficient. Markets rarely act the way text books say they should. Investors can and do act irrationally. Human behavior can and does move markets, and can cause prices to remain too high or too low for long periods of time. This is why momentum exists. Your strategy must be capable of capitalizing on these market realities.

7. Consistent returns are more beneficial than big pops here and there. Consistent returns, even if they’re lower, will increase your dollar growth over the long-term because it means you’re offsetting volatility. This makes for a much smoother, less emotional investment ride. In turn, it can prevent you from making bad decisions with your money. This is a result of a strategy that controls volatility.

8. Look at the downside first, not the upside. Every smart investor knows it’s not about your chance of success – it’s about your chance of failure. And remember, failure is not an option. Therefore, your strategy must minimize downside risk.

9. Investing costs matter. These can erode your returns as much as volatility. Your strategy should work to lower the cost of expense ratios and be tax efficient. Remember that a good advisor can be worth a reasonable fee. Just be sure they’re providing you with value-based solutions, not selling you products.

Why Does it Matter to You?

The principles listed here don’t encompass every good investing principle out there. But, if you act based on these principles, you’ll find that you’ve built a strong foundation for long-term investing success. Remember, this is your life. You get one shot, so make sure you do everything you can to make it successful, and succeed in living the life YOU want.

Our strategies are built based on these principles.

Want to see how you can minimize downside risk, mitigate volatility, increase consistent returns, and protect your bottom line? Click below.

Don’t live a deceptively poor lifestyle!

August 3, 2017 by Office Admin

Why High-Income Earners Are Living Paycheck to Paycheck

August 2, 2017 by Office Admin

A six-figure income can go a long way in easing financial stress. But unfortunately, it doesn’t eliminate the risk of living paycheck to paycheck.

It’s easy to associate those who make a modest salary or work in a low-paying job with a “paycheck to paycheck” lifestyle. But, a study from Nielsen Global Consumer Insights is changing the game. The study found that one in four families making $150,000 or more are living a similar lifestyle.

Lifestyle Inflation: The Rich Man’s Kryptonite

There’s a concept that even some wealthy people have trouble understanding – it’s not how much you make that matters, but how much you spend that matters.

If you make $500,000 a year, but your annual expenses total $450,000, you’re completely maxing out your lifestyle. Doing this means that you will never reach your full financial potential. That’s because you’re eroding 90% of your money just as fast as you’re making it.

High-income earners routinely suffer from lifestyle inflation. I’ve seen it happen more times than I can count – people start earning more money, and in turn, slowly start upgrading their lifestyle. Before they know it, lifestyle “creep” has sprinted out of control and has them completely handcuffed.

Lifestyle inflation generally goes toward things that don’t bring much value to your family’s financial life, either. This means things like expensive homes, cars, traveling, and just plain old foolish spending. It’s great to have and do all these things, but what’s not great is winding up house poor and car poor.

A better use for that excess money would be to invest in yourself, or in your most important financial goals.

Wealth Erosion Overload

Buying “things” are only the start of lifestyle inflation. They’re the roots that sprout all the other eroding factors.

For example, say you buy a home worth $1.2 million. Pile on top of just that the mortgage, property taxes, utilities, and general upkeep, and you could easily add another $50,000 to your annual expenses. Expensive items aren’t only expensive to buy, they’re expensive to own.

Owning expensive things is an easy way to erode your income. Then, consider all the other eroding factors on top of this that you’ll encounter – economic inflation, taxes, lost opportunity cost, planned obsolescence, and more.

Be Reasonable, Not Lavish

So, how can you avoid finding yourself in this very situation?

Simple – live reasonably, not lavishly.

This is something that I try to instill in all my clients, even the wealthy entrepreneurs that I work with. Actually, this mantra is probably more important for them than anyone, because they have the most to lose.

Now, I’m not saying that I expect you to live in a tiny home, drive an old, beat-up car, never take a vacation, and never purchase something that you want. There’s absolutely no shame in indulging – I’m all about working hard, playing hard, and being able to enjoy the finer things in life.

After all, the goal is to be able to live the life you want.

But to do that, you have to abide by some simple rules to ensure that happens. These include spending less than you make, paying for things in cash rather than financing everything you own to make a purchase, not racking up high-interest debt, saving at least 15% of your income, protecting yourself and your assets, and remembering that slow and steady wins the race.

There’s something very important that I’ve learned from coaching clients over the last 14 years – the ones who understand that it’s the simple, boring disciplines that hold the secrets for getting and staying wealthy, are the ones who reach their full financial potential.

Why Does It Matter to You?

Living paycheck to paycheck is a possibility for anyone – whether you make $50,000 or $5 million. That’s why, as your income grows, you have to control lifestyle inflation before it controls you.

Living the life you want requires a balancing act between growing your wealth and smart wealth management. You should always be thinking with an abundance mindset, but in the right way. It’s not about how you can use your money to buy lots of things. It’s about how you can use your money to create opportunities that allow you to grow, to help you live intentionally with your money, and that put your resources to work for you. That’s how you reach your full financial potential.

12 Simple Rules for Building and Sustaining Your Wealth

July 26, 2017 by Office Admin

When it comes to finance, we live in a world of information overload. One opinion here, another there. You can find about 15 ways to go about doing any one thing. But when it comes to building and sustaining your wealth, it’s important to remember that simple is better.

In fact, that’s how successful people reach the pinnacle – they practice simple daily disciplines obsessively. Jim Rohn said it best, “Success is nothing more than a few simple disciplines, practiced every day.”

For my purposes, and yours, I would amend this to say, “Reaching your full financial potential is nothing more than a few simple disciplines, practiced every day.” That’s how you end up living the life you want.

No Expertise Needed

The simple disciplines we’ll discuss here are just that – simple. They’re not hard to master. No expert knowledge is needed. Perhaps that’s because the best simple disciplines really come down to common sense.

They’re the things that you know you need to do, that you know are good for you. But, they’re the things that are the hardest to do. If it was easy, everyone would be successful. I think that’s an important distinction – finding success is simple, but not easy. You have to be willing to do what others are not.

12 Simple Rules for Building and Sustaining Your Wealth

Reaching your full financial potential is simple, not easy. But, I know that if you practice the simple disciplines we discuss here, it will get easier.

I can say that because I’ve seen it happen first-hand. I’ve been instrumental in instilling these simple disciplines in my clients’ daily lives, in their financial philosophy, and have watched them succeed over and over again. You can too – but it starts with changing something you do daily.

It starts with these 12 simple rules for building and sustaining your wealth:

1. Define your “why” for money. Why do you invest, work, any of it? What is it that money enables you to do? How does your money further and support your most important values? Successful people know the answers to these questions, and you need to know them too. Otherwise, you have nothing to fight for. You can’t live intentionally with your money without this.

2. Conduct your ultimate wants analysis. One of the biggest problems with traditional financial planning is that it relies on a needs analysis, on a scarcity mindset. It limits your financial potential before you even start your journey. But, thinking about what you truly want from life forces you to think with an abundance mindset. That’s how you break through the glass ceiling between what is and what could be.

3. Live within your means. If you’re constantly maxing out your lifestyle, you will never reach your full financial potential. I promise. Living reasonably instead of lavishly can save you from living a deceptively poor lifestyle. Of course, it’s alright to indulge – after all, you’re striving for the life you WANT to live. But, that doesn’t mean undoing all your hard work.

4. Pay yourself first. If you can’t master the simple discipline of saving, everything else in your financial life will have to work harder to pick up the slack. Most of America is experiencing this, since they’re saving virtually nothing. You should be saving 15% – 20% of your income annually, maintaining 3-6 months of liquid expenses. It’s also smart to have 6-12 months of near-liquid cash reserves.

LIFEHACK –Automatic deductions are one of the easiest ways to make sure you pay yourself first, every time.

5. Avoid high-interest, bad debt. Americans currently owe $1 trillion in credit card debt, with balances averaging $9,600. Carrying substantial amounts of high-interest debt like this directly affects your ability to save and invest for your future. And, unless your investments are earning the 15%+ interest you’re probably paying on that debt, investing is an act in futility for you at this point.

6. Create your Investment Policy Statement. This document puts your investment strategies, and your most important values and goals on paper. When the market moves, this is the document that keeps you disciplined – it reminds you why you’re invested a certain way. It reminds you of your “why” for money. If an investment doesn’t align with this criterion, then you shouldn’t invest in it.

7. Protection first. Think of everything you’ve built. Think of everything you’ll build in the future. Now, think if it were to all come crashing down. Ugly, isn’t it? That’s why success isn’t dependent on how much money you have. It’s dependent on how well you protect your life’s work from what can destroy it. If you don’t do this, nothing you’re working toward matters.

8. Assemble your power team. You need to assemble a team of your most trusted advisors to help guide you toward financial independence. They should all know one another, and meet regularly on your behalf. Discussions should be had before changes are made in one area of your financial life, to evaluate the impact on your complete financial position. Ideally, you would have one advisor acting as your personal CFO, coordinating this team and your complete financial life.

9. There’s a difference between risk and volatility. Risk simply means the probability that your investment will lose money. The higher risk, the higher that chance. It has no direct effect on your returns. Volatility is the amount of fluctuation a portfolio can experience. The higher the volatility, the more erratic your compound returns can be. Volatility has a direct effect on your returns – it’s what erodes your wealth. Therefore, your first priority should be to mitigate volatility.

10. Time IN the market is what matters. Stock picking, market timing, overconfidence, and more can all wreak havoc on your wealth. You’ll rarely get in or out at just the right time, or consistently pick the winning stock. If you don’t believe me, then maybe you’ll listen to a critical piece of advice from Warren Buffett, “Market forecasters will fill your ear, but never your wallet.”

11. Little changes can yield big results. You don’t necessarily need to make drastic changes to reach your full financial potential. Say you make $100,000 a year and are saving 10% of your salary into a portfolio that earns 7% return annually. Do this for 35 years, and you’ll end up with $1,479,134. But what if you increased your savings rate by just 1%? You’d end up with $1,627,048. That’s $146,914 more just by saving another measly percent.

12. Think like the wealthy when it comes to estate planning. The wealthy have three main goals when it comes to estate planning, 1) Maintain satisfactory streams of income, 2) Protect my wealth from creditors, 3) Avoid the wealth transfer tax forever. Trusts are a great way to accomplish this. And no, trusts and estate plans are not just for the ultra-wealthy. Everyone should have a basic estate plan that, at a minimum, includes a will and durable power of attorney.

Why Does It Matter to You?

Remember, reaching your full financial potential is simple, but not easy. However, if you follow the rules (simple disciplines) discussed here, you’ll find that living the life you want to live can start to go from dream, to an action plan for reality.

Volatility Gremlins Are Killing Your Bottom Line

July 19, 2017 by Office Admin

If you have an investment account you’ve no doubt heard the terms risk and volatility. Every investment has elements of each. But what does it really mean for you?

Understanding Risk

Risk is the uncertainty of loss. Risk is the likelihood that your investment will lose money. You know there is risk involved when investing in the stock market (whether through individual stocks, mutual funds, or ETFs), and you likely understand much of this risk. What may be less likely for you to understand is that increased risk does not mean increased return. It just means increased probability of losing money.

You must understand that risk does not drive returns.

As you faithfully save into your investment or 401k accounts each month (and you should be!) you may expect, and are often told, that the market provides a 7% real return on average. The actual return will fluctuate with a standard deviation of around 20%. This means the return normally fluctuates +/-20%. Over time an investor would expect the returns to go up and down, but average around 7%. The kicker is that your wealth won’t compound at this rate, but more likely at a rate of around 5% per year. Why is that?

Wild fluctuations can kill your returns – Volatility Gremlins!

Volatility Gremlins

As a measure of risk, volatility refers to the amount of fluctuation in returns, and is typically stated as standard deviation. The lower the volatility the better. Ed Easterling, of Crestmont Research, coined the term Volatility Gremlins. Volatility diminishes compounded returns over time. This matters to you since compounded returns are what you get to spend (you can’t spend average returns).

As portfolio volatility increases and returns become more erratic, the portfolio’s compound returns (what you actually get) get lower and lower compared to the average returns. Here’s an example from Easterling to show the volatility gremlins “eating your returns.”

Even a diversified portfolio can exhibit large volatility spikes and variations regardless of risk. For example, the charts below show the volatility of a typical portfolio consisting of 60% stocks/40% bonds and with the S&P 500.

Why Does it Matter to You?

Controlling portfolio volatility is important for every investor – it’s what protects your bottom line. It’s especially important for retirees, or investors who are approaching retirement. As you get closer to retirement, a major investment decline means your portfolio won’t have enough time to recover, which may require you to postpone retirement to make up for the shortfall. Traditional asset allocation and diversification does very little to address volatility.

That’s why we’ve designed our investment strategies to do just that. When you reduce volatility, it increases the consistency of your investment returns, and can make for a less stressful, even enjoyable, investment ride. You can also realize higher compounded returns (we’ll discuss how volatility impacts your ability to compound returns in a future post, The Myth of Compounding).

20 Life Lessons from Byron Wien That Will Make You a Better Person

July 12, 2017 by Office Admin

Byron Wien has a career that spans decades on Wall Street, and has built himself a prestigious reputation in the process. Born in the Depression era, Wien became a teenage orphan when both of his parents died before he was 14. But, he didn’t let life’s bad breaks defeat him. Wien would go on to attend Harvard University, where he graduated with a Master’s Degree.

He first entered the financial industry by working for Morgan Stanley in 1984, and eventually became the company’s top investment strategist. Today, he is the Vice Chairman of Blackstone Advisory Partners.

So, who better to take some life lessons from? I read the original article a few years ago when Blackstone first published it. I came back across it recently, and it resonated with me just as much as all the other times I’ve read it. The wisdom Wien provides in the article is simple, but invaluable. That’s why I wanted to share it with you.

Here are Byron Wien’s 20 life lessons he’s learned in his 80+ years:

1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2. Network intensely. Luck plays a big role in life, and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books, and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.

3. Treat new people like old friends. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4. Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author. If you do that, you will read faster and comprehend more.

5. Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6. Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career. Try developing concepts later. Stay at risk throughout the process.

7. Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life. See them when you return to a place.

8. When you meet someone new, find out a formative experience that occurred in their life before they were 17. It is my belief that some important event in everyone’s youth has an influence on everything that occurs afterwards.

9. Use philanthropy to relieve pain rather spread joy. Music, theatre, and art museums have many affluent supporters, give the best parties and can add to your social luster in a community. They don’t need you. Social service, hospitals and educational institutions can make the world a better place and help the disadvantaged make their way toward the American dream.

10. Younger people are naturally insecure and tend to overplay their accomplishments. Most people don’t become comfortable with who they are until they’re in their 40’s. By that time they can underplay their achievements and become a nicer, more likeable person. Try to get to that point as soon as you can.

11. Take the time to give those who work for you a pat on the back when they do good work. Most people are so focused on the next challenge that they fail to thank the people who support them. It is important to do this. It motivates and inspires people and encourages them to perform at a higher level.

12. When someone extends a kindness to you write them a handwritten note, not an e-mail. Handwritten notes make an impact and are not quickly forgotten.

13. At the beginning of every year, think of ways you can do your job better than you have ever done it before. Write them down and look at what you have set out for yourself when the year is over.

14. The hard way is always the right way. Never take shortcuts, except when driving home from the Hamptons. Short-cuts can be construed as sloppiness, a career killer.

15. Don’t try to be better than your competitors, try to be different. There is always going to be someone smarter than you, but there may not be someone who is more imaginative.

16. Always take the job that looks like it will be the most enjoyable. If it pays the most, you’re lucky. If it doesn’t, take it anyway, I took a severe pay cut to take each of the two best jobs I’ve ever had, and they both turned out to be exceptionally rewarding financially.

17. There is a perfect job out there for everyone. Most people never find it. Keep looking. The goal of life is to be a happy person and the right job is essential to that.

18. Always find someone younger to mentor. It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process.

19. Every year, try doing something you have never done before that is totally out of your comfort zone. It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone. This will add to the essential process of self-discovery.

20. Never retire. If you work forever, you can live forever. I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.

Should You Invest or Pay Down Debt?

July 5, 2017 by Office Admin

Have you ever found yourself asking this very question, wondering what to do next, and what the best option is for your financial success? Don’t be embarrassed if you have. I would dare say that you’re in good company, given the fact that Americans collectively owe $1 trillion in credit card debt. In fact, the question of whether to invest or pay down debt is one that I’m asked frequently by clients.

Logic is Always 20/20

Trying to tackle debt while still trying to save and invest can be tricky. But, when you think in terms of pure numbers, pure logic, the answer to this question is actually pretty simple. Ask yourself which number is greater, the return on your investment or the interest you’re paying on your debt. If you’re paying more interest than you’re earning, paying off your debt is the smarter choice.

Here’s one way I explain this to people when they ask me whether they should invest or pay down debt:

If you eliminate debt that you’re paying 15% interest on, that’s a guaranteed 15% return in your pocket. If you invest, you may have the possibility of earning 10%. So, what’s better for you to capture right now – a guaranteed 15% return, or a possible 10% return?

Numbers and logic make this a no-brainer. But it’s not always that simple, because money is emotional.

The possibility of earning big will usually tug at your heartstrings harder than paying off your debt. Plus, saving into your investment account gives you a sense of future security and accomplishment. Paying bills is stressful and not what you “want” to do with your money.

Good Debt vs. Bad Debt

To be able to truly answer the question of whether you should invest or pay down debt, you have to understand all of its components.

That includes categorizing your debt into good debt and bad debt, and understanding how they affect you. This is the first step in creating a debt strategy that works for you.

Here’s a basic guide to help you discern what portion of your debt is good and what portion is bad:

Bad Debt (credit cards, car loans, unsecured loans, etc.):

It has high interest rates.
It’s not tax deductible.
It’s not attached to appreciating assets.

Good Debt (mortgage):

It has low interest rates.
It’s tax deductible.
It’s attached to appreciating assets.

Good debt is an interesting topic. It’s worth pointing out that most private equity and real estate firms build their empires by leveraging almost everything they have. People do this in a similar way. Why wouldn’t they, given that the market and other appreciating assets are out-earning the current interest rates?

For instance, the ticker SPY for the S&P 500 has returned 7% for the last 20 years. In comparison, our all-equity ETF portfolio has an average back-tested return of a little more than 9%. That means in 20 years, $10,0000 becomes $58,474.

Your 4-Step Action Plan

Given all the factors we’ve discussed here, there’s probably one thing you’re thinking right about now – Great, but where do I start?

You should start with the following four-step action plan. We use this with our clients, and strive to approach their financial life in the following way:

1. Build core liquidity. You should have a minimum of 3-6 months in liquid cash. It would even be wise to have 6-12 months of near-liquid assets on hand as well.

2. Eliminate bad debt. Again, that would be any substantial amount of short-term debt that may have high interest rates.

3. Save 15% of your salary. With $1 trillion in credit card debt weighing on Americans, it’s no wonder that the average savings rate has plummeted to just under 6%. But if you can’t save, everything else has to work harder to pick up the slack. A healthy savings rate of at least 15% is critical to reaching your full financial potential.

4. Invest. Investing is critical to your success, but should only be done when you’re in the right position to do so.

5. BONUS! Have an ideal mortgage to income ratio. Your mortgage payment should be no more than 15% of your gross income. Otherwise, you may wind up house-poor down the road.

This action plan takes a “priority and combination” approach to your financial life. Put simply, this approach focuses on securing your liquid safety net first, paying off bad debt, and finally investing. Once you have your core liquidity built up, you can then use your 15% savings to accelerate your debt pay off. I recommend this approach because it allows you to pay off your debt, and eventually invest, while still being able to adapt to life’s changes.

In other words, you’re not completely sacrificing one important element (i.e. savings) just to take care of another (i.e. paying off debt).

Why Does It Matter to You?

Numbers make the answer to whether you should invest or pay down debt pretty simple – if you’re paying out more than you’re earning, investing may be an act in futility for you right now. But as we’ve shown here, that’s not all this question asks you to consider.
This question is about more than just numbers – it’s about prioritizing your financial life in a way that makes your money work for you. A way that makes your money work as efficiently as possible. That means having six months of liquid cash built up, paying off any substantial bad debt, and then investing. There’s no one-size-fits-all timeline for the action plan we’ve outlined here, either. However, it’s important to remember that the longer you delay investing and compounding your savings, the less time your money has to grow. That can mean a diminished lifestyle in retirement.

When you look at the big picture, debt directly affects your ability to save, invest, and ultimately live the life you want. Start tackling it now, and you can find yourself much better off in the future.

[INFOGRAPHIC] 9 Ways to Supercharge Your Morning Routine

June 28, 2017 by Office Admin

The Ultimate 13-Point Financial Checklist for Your 40s

June 28, 2017 by Office Admin

Rarely do you have time to think about and plan for the future, when your daily life consumes all your time. But when you hit your 40s, your finance-sense can radically change. This is a key life stage for making sure you’re on track.

In your 20s and 30s, retirement was a million years away. You were just wrapping your brain around settling down. Your biggest goal was buying a home. Having kids started to transform from a casual conversation to a serious thought.

But now, in your 40s, retirement is on the horizon – you can see it coming into focus more and more every day. You’ve been paying that mortgage for at least 10 years. Your oldest will be a teenager soon, if they aren’t already. You’re probably making more income than ever before. Saving for college and retirement are now some of your biggest goals.

Untangle Your Complexity: The Ultimate 13-Point Financial Checklist for Your 40s

Over the last 20 years, all the elements of your financial life have been building up. That complexity requires attention, careful consideration, organization, and smart decisions to untangle it.

Chances are it’s been a while since you really thought about the strategies you put in place several years ago. Your 40s are a critical time to take that folder off the shelf, brush the dust off, and evaluate it. What does your current financial position look like? Are you accomplishing your goals, or on track to do so? What do you need to do moving forward?

Use the following as a roadmap to identify and prioritize the financial goals you should seek to accomplish in your 40s:

1. Eliminate short-term debt. Carrying debt directly affects your ability to invest and save your money. If you still have substantial short-term debt in your 40s, one of your top priorities should be getting rid of it.

2. Evaluate your retirement savings. Again, retirement is palpable at this stage in your life. You need to make sure that you’re on track. This is the perfect time to think about whether you need to adjust your contributions.

3. Start saving for college (if you haven’t already). The best time to start saving for your children’s college education is when they’re barely walking. That way you have lots of time to let your money grow. But if you had other priorities that were more pressing, that’s alright. Now’s the time to determine if you want to start saving. You shouldn’t do this at the expense of your retirement, however.

4. Decide when you want to retire and what retirement looks like for you. Some people say they’ll never really retire – does that sound like you? Do you see yourself working part-time, doing consulting work, or still having a hand in your business? Others envision traveling, volunteering, and leisure. This is important to make yourself aware of. In retirement, your money needs to work for you in a way that allows you to do those things – to live the life you want at every stage of life.

5. Maintain your lifestyle. In your 40s, you’re probably making more money than you ever have. As a result, it can be tempting to upgrade your lifestyle, simply because you can. But, overspending just to increase your lifestyle is something that you should avoid. Sure, you can indulge here and there, but if you’re maxing out your lifestyle and overspending in your 40s, you can find yourself in a world of financial hurt in your 50s and 60s. A better use for that excess money would be to put it toward your important financial goals.

6. Do an insurance audit. One of the most common problems I see with clients is that they’re overspending on insurance. Pull out your policies and evaluate them. Could you raise your deductibles and effectively lower your premiums? What about bundling? Are there any areas where you’re over-insured? By doing an insurance audit, you can potentially find lost money, recapture it, and then put it back to work for you.

7. Do a fee/cost audit. Costs matter – a lot. They directly impact your bottom line. That’s why you have to know how much you’re paying in fees to your advisor. You also need to know how much your portfolio is costing you. Often, this isn’t on your quarterly statement. You may need to get your advisor to run an analysis for you. You also need to know how much you’re paying in taxes. Yes, taxes are costs! What you’re paying in taxes detracts from your returns. Are your investments tax managed?

8. Do a beneficiary audit. By now, your financial life may be so complex that you have dozens of accounts between your savings, checking, and investments. When was the last time you modified your beneficiaries? If you can’t remember, do it now. This is something that you should do every year. Here’s why – your beneficiary information actually trumps what’s in your will, something most people don’t know. That’s why it’s important that they are accurate.

9. Implement an estate plan (or review your current one). Another common issue I see with many of my clients is that they don’t have an estate plan. Everyone needs an estate plan, whether your estate is worth $500,000 or $10 million. These plans aren’t just for the rich – they’re to ensure your wealth is protected, and distributed according to your terms and conditions. At the very basic level, you should have a will and durable power of attorney. If you already have an estate plan, this is the perfect time to review it and make any necessary updates.

10. Maintain your core liquidity. Even in your 40s, you should still be saving 15% – 20% of your income. Your emergency fund should be brimming with 3-6 months of expenses sitting in cash. You should also be keeping 6-12 months of expenses in near-liquid investment accounts.

11. Create an Investment Policy Statement. This document is key in helping you understand the answers to three critical questions surrounding your investments – 1) Where is my money?, 2) What is my money doing?, 3) Why is my money where it is and doing what it’s doing? Your IPS puts your most important values and goals, and your investment strategies, on paper. This is the document you pull out when the markets move and you’re tempted to make a rash decision – it helps keep you disciplined.

12. Review your life insurance policy. If you have a term life insurance policy, you need to know when it expires. Depending when you bought the policy and your age now, it may be close to expiration, or you may still have a decade of coverage left. The point is, once it expires, you can’t extend it or get it back – unless you want to pay substantially higher premiums. As your coverage gets closer to its expiration date, you may want to consider converting your term policy to a whole life insurance policy. In retirement, this can help you produce a greater income, while still leaving a legacy for your loved ones.

13. Re-evaluate your priorities and goals. Your life has changed a lot since you got your first job, and shared a house with three of your best friends from college. What is important to you now? What are your top goals you must accomplish? Write these down. Compare them to your current financial strategies, and see if it’s time to make a change.

7 Principles That Will Protect Your Finances From “Life”

June 21, 2017 by Office Admin

There are only two things that we can know with absolute certainty in the world of finance – your current financial position, and that your life will change. That’s it. Anyone who tries to tell you any different is lying. Despite your best efforts, you can’t predict, or even “plan,” for an unknown future. All you can do is take what you know, and use it to your advantage.

The Problem With Planning

Traditional planning is based on the premise that your life, your future, is linear. It then uses stagnant inputs and assumptions about tomorrow, to try and formulate a bullet-proof plan for success.

Here’s the bad news – your life isn’t linear. It’s not stagnant. If you plotted your life up until this point on a graph, it more than likely won’t yield a beautifully straight line. That’s because stuff happens, and when it does, it can cause your life to swing one way or the other. Your life is always in motion – it evolves through time. It’s dynamic, and therefore can’t be addressed by a static plan.

A static plan has little wiggle room when your life “chart” experiences fluctuations. But, your life will swing, I can promise you that. It won’t always be linear.

That’s precisely why traditional planning is flawed.

Life Events That Can Change Your Financial Situation

Here’s a quick-list of those big milestones that can cause your life to fluctuate:

1. Marriage.

2. Having a child.

3. Changing jobs.

4. Job loss.

5. Divorce.

6. Death of a spouse.

These events have different implications – some of them positive, some of them negative. Unfortunately, the negative ones can hit you out of nowhere. It’s usually not until this happens that you realize just how vulnerable your life’s work was. At this point, there’s typically little you can do about it other than stomach the blows.

On the other hand, you want to be able to take advantage of opportunities when they present themselves. These include things that can advance your life or make it more complete, like a new and better job, getting married, having children, or starting your own business.

To do both, to mitigate the financial heartache from the negative swings and capitalize on the good from the positive swings, you have to be optimally positioned to effectively react to your life as it evolves.

7 Principles That Will Protect Your Finances From “Life”

So, how do you do that? How do ensure that you can handle “life” when it happens to you? You adhere to these seven principles:

1. Practice financial positioning. This is the overarching principle to apply to your financial life. The others are gravy on top – but still extremely important. If planning is broken, you need something else. Financial positioning focuses on optimizing your current financial position. It manages your changing information as your life evolves, stress testing your current strategies against it. You can then keep yourself positioned to effectively react and adapt to life’s curve balls – whether positive or negative. The result? An increased ability to live the life you want.

2. Be engaged. You should regularly review your financial strategies, and be instrumental in implementing them. Make sure you understand what is being done on your behalf, and that you know what you have and where it is.

3. Align your financial strategies/behaviors with your most important values. Values should play the same role in your financial life that they play in your daily life – they should guide your decisions making. This keeps what is most important to you at the heart of your financial strategy.

4. Define your “why” behind money. What’s your reason for working, investing, doing everything you do? What does money mean to you? What does it enable you to do? Until you define this, you have nothing to fight for. Your “why” will guide your decision making, and help you live intentionally with your money.

5. Protect your life’s work. Your life’s work means nothing if it’s not protected from everything that can destroy it. You must protect yourself for your full economic value – this includes material assets like your home, and your most important asset, you.

6. Save at least 15% of your income. If you can’t save your money, everything else in your financial life will have to work harder to pick up the slack. Maintaining core liquidity is key to reaching your full financial potential.

7. Create an investment policy statement. This document puts your investment philosophy and strategy on paper. Essentially, it helps you understand where your money is, what it’s doing, and why it’s where it is and doing what it’s doing. Every time markets rattle you, pull out your IPS and remind yourself why it’s important to stay disciplined. If an investment doesn’t meet the criteria stipulated here, you shouldn’t invest in it.

Why Does it Matter to You?

Being able to effectively prepare for and respond to “life” is of the utmost importance.

Your success isn’t dependent on how much money you have. You can have all the money in the world, but it doesn’t mean anything if it can be wiped out should your life change. Rather, your success is dependent on your ability to effectively react to life as it happens around you – on whether your strategies can adapt to your current financial position as it continues to evolve.

Which brings us back to financial positioning – the principle that encompasses all the others. This method takes a comprehensive view of your financial life, from your assets and liabilities, to your protection and cash flow. Once you have that real-time picture of your current financial position, you optimize it based on new information, as your life evolves. This is the approach we take with our clients.

Life is messy and unpredictable. You can’t plan for a future you know nothing about. Therefore, you need a dynamic method for reaching your full financial potential that uses these facts to your advantage.

How to Create Super Effective Meetings in 6 Easy Steps

June 14, 2017 by Office Admin

Maybe you know the feeling – you wake up on Monday morning, energized and ready to take on the week. You roll into the office with a little pep in your step and favorite coffee in your hand. Then, at 9:00, you find yourself in the most boring, monotonous meeting possible. Your energy is instantly drained, your eyes glaze over, and your brain tries to be anywhere else but in that room. Your attitude for a super-productive Monday just got crushed. All thanks to an inefficient meeting.

This was exactly my experience every single Monday morning during our team meeting.

We had the same problems that so many companies do when running meetings. Our team meeting wasn’t structured in a condensed format, we weren’t reviewing only hot topic items, reporting was lackluster, there was constant conversation of who was owning what tasks, and they drug on and on. Sometimes for more than two hours.

After that, I was completely checked out. My employees could see it in my eyes, and I could see it in theirs – we were in a Monday morning meeting rut. We had to get out of it – fast.

A New Method: The Level-10 Meeting

I began researching methods that could help us, and came across this video. It explained the Level-10 Meeting methodology, created by the Entrepreneurial Operating System (EOS).

EOS would ask the entrepreneurs and owners in their group to rate the effectiveness of their current meetings. On average, they would rate them a 4. I probably would’ve rated ours right around there as well.

So, EOS developed a formula for creating a Level-10 Meeting – a meeting that you would rate as a 10 on the effectiveness scale.

This method has turned out to be our company’s saving grace. If you’re in a leadership position and find yourself struggling to get the results you want from your meetings, this method could be yours as well.

Our meetings now take less time and are more productive than they have been in the last decade. So, I want to tell you more about it, in the hopes it may help you implement your own Level-10 Meeting.

The Pulse of an Effective Meeting

The Level-10 Meeting methodology teaches you the importance of time management. You learn how to be the most efficient in the shortest amount of time, so that you’re never sacrificing quality.

To do this, you have to understand and adhere to the pulse of an effective meeting:

Same day.
Same time.
Same agenda.
Start on time.
End on time.

Every meeting should have this exact pulse, every time. This is the first step on your journey toward a Level-10 Meeting.

The 6 Components of Your Level-10 Meeting Agenda

The structure of EOS’s Level-10 Meeting will be the foundation for your own meeting agenda. This should be a document that one person on your team manages, and brings to every meeting.

Your agenda will be made up of six different parts:

1. Start on time. All involved team members should be in the meeting room five minutes prior to the scheduled start time. This has been key for us in making sure our meetings actually start at 9:00 sharp.

2. Positive focus. We always start our team meetings with positive focus. Each person in the meeting shares their big positive from last week. I encourage my employees to share both a professional and personal positive focus. This is what brings the human element to our meetings, and helps us grow closer as a team. It’s a great way to start your meeting on a positive note – get it?

TIME ALLOTED: 5 minutes.

3. Reporting mode. This is the part of the meeting where you make sure that everything in your business is on track. You’ll use the following three reports to examine your numbers, priorities, and people:

Scorecard. These are the hard numbers in your business. For us, we use our scorecard to track our assets under management and life insurance. This gives us a clear vision of exactly how much new business we’ve closed, and what’s in our pipeline.
ROCK review. Your ROCKS are your company’s top goals for the year. In this report, you’ll review these ROCKS, and evaluate whether your current numbers have you on track to meet them.
Customer and employee headlines. Knowing what’s going on with your customers or clients is important. We like to send piggy banks to new parents, congratulate our clients on big accomplishments they make, and send cards or gifts for newlyweds, retirees, etc. This is also a great time to give recognition to an employee’s hard work.

During the reporting section, you’ll come across items that warrant further discussion. Write them down and save them for the next portion of the meeting. This section should be pure reporting – no discussion allowed!

TIME ALLOTED: 15 minutes (5 minutes for each report).

4. Review last week’s to do list. This list should be part of the meeting agenda itself. Your to do list items are seven day action items. Every week, things should be going on and coming off, with 90% of the to dos coming off every week.

TIME ALLOTED: 5 minutes.

5. Identify, Discuss, Solve (IDS). This should be the longest part of your meeting. Here, you expand on all those things that came up in the reporting part of the meeting. Prioritize the issues you wrote down in order of importance. Then decide what the real issue is. For instance, if internal communication is a sore spot for you, is it really that no one is talking to each other? Or could it be that people aren’t utilizing your CRM correctly?

Once you identify the issue, discuss it openly. Garner feedback from key team members who are affected by the issue.

Finally, solve the issue. Once a resolution has been agreed upon, it then goes on the to-do list and a task is created for it.

TIME ALLOTED: 60 minutes.

6. End the meeting. By now, it should be right around 10:25, and you should start wrapping up your meeting. Take five minutes to recap your new to-do list, and assign tasks. Also, have everyone rate the meeting. Your minimum goal is to be consistently rating your meetings at a level 8, with the ultimate goal being a level 10.

Then, end your meeting at 10:30 sharp.

Why Does It Matter to You?

As a business owner, running effective team meetings was one of my biggest challenges. I feel like it’s a big challenge for anyone in a leadership position.

How many times do you leave a meeting thinking, “What was the point of that?”, or “Why couldn’t you have just emailed that to me?” Most of the time, your team has one day out of the week where they can all come together. So, you need to make that 90-minute window as productive as possible.

No longer do Monday morning team meetings crush my attitude for the day, for the week. Now, they help add a little extra energy. I walk out of them feeling like I have a clear vision of exactly where our company stands, and I may have only added one or two quick things to my plate. I don’t feel overly burdened.

Following the Level-10 methodology has worked wonders for our team. Be sure to watch the video and start creating yours.