A Great Gift

Recently I received a call from a young man seeking my advisory services. As an advisor my satisfaction comes from helping people get on a path to a successful retirement. This means steering them clear of high priced advisors who underperform, avoiding costly Funds that overcharge, and ensuring that the size of their nest egg will be sufficient to produce the income they need in retirement.

But this young man was a different case than I usually handle. He had just gotten out of prison on drug related charges and while in prison had read "Millionaire Teacher", which he found in the prison library, by Andrew Hallam. By reading the book he had come to understand how people build wealth by saving and investing intelligently. The book inspired him to do the same and he enlisted my services to get going. Full disclosure: I, along with a couple of other advisors, are mentioned in the book.

He related to me how his parents and entire family are poor but he had attained a job and was primed to start investing on a regular basis. To say the least this was one of my most satisfying consultations.

But the bottom line here is receiving the methodology. Admittedly, there are a number of books that describe how to invest in low cost Funds, allocate assets, and rebalance as needed. "Millionaire Teacher" is one and it is a good one. It is well written and can be read in a couple of weekends.

In my opinion it is a great life changing gift, especially for the young couple ( many of whom are financially illiterate) starting out in the professional work world. But many in mid-career find it useful as well.

So, I suggest instead of showing up with the soon to be consumed bottle of wine at the holiday party or putting a DVD of "Deadpool" under the tree consider "Millionaire Teacher".  It is an excellent choice for the budding DIY investor. As this blog and many others have harped on for a long time DIY investing done intelligently can save huge amounts and  increase the size of the nest egg over longer periods of time.

For additional background check out Andrew Hallam's website.

Do You have a Good 401(k)?

In today's world where we are responsible for our own retirement, a good 401(k) is extremely valuable.  If you are young and you have a good 401(k) and you take advantage of it, you are on the track to spending the last third of your life in really, really good shape.

Don't know how to do it?  Read this blog or hundreds like it, or read Millionaire Teacher by Andrew Hallam or The Elements of Investing by Malkiel and Ellis.  These books will take you two weekends, at most, and will put you on the aforementioned path.

But how do you know if you have a good 401(k)?  One thing you might want to do is visit www.brightscope.com where you may find your company 401(k) listed and rated.

Another approach is to read

 7 Clues That Your 401(k) Plan Sucks by Robert Berger.

Incidently, his website Dough Roller is one of my favorites that I check weekly for the articles he lists!

In this article he wrote for Daily Finance, Berger has the following important points to examine on determining the quality of your 401(k):

• employer match - in just about every instance, a match should be taken advantage of.  How do you find if you have a match?  Ask Human Resources or look at a recent statement.  Statements will have "employee contribution" and "employer contribution"(if any) listed.
• Roth 401(k) - if you have a Roth 401(k), it is good; and consideration should be given to using it.  Know that you won't get the upfront tax break for using it; but, going forward, you'll never worry about taxes again (assuming Congress doesn't change the law ;).
• Index Fund offerings - generally, if you don't have low-cost index fund offerings, then you should limit your contributions to the company match and use an IRA elsewhere.  If you aren't sure of what a low-cost index fund is, read the above mentioned books.  If you have low-cost index fund offerings (example: Fidelity Spartan Funds), then your path to a successful retirement is straight forward.  Use them to the fullest extent allowed!

Berger's article lists other important considerations.  One important point to note is at the very beginning where a lawsuit is referenced concerning a Plan Administrator.  If your 401(k) has only high-expense fund offerings, you may want to highlight the case mentioned with a yellow highlighter and drop it off in your Human Resource person's mailbox.  The days of clueless administrators choosing poor fund choices for plan participants is slowly coming to an end.

The Four Investment Books I Recommend Most Often

Today you and I need help to achieve a successful retirement.  Instead of a pension that pays us a certain percentage of our pay when we retire, we are responsible for creating a "nest egg" from which we will draw a paycheck in retirement.  But nobody gave us an instruction booklet.  It's like somebody gave us keys to a car and said "go figure out how to drive it."  Good luck at that!

But that's OK because there are really good books that explain how to invest our money appropriately and to put us on the right path for a successful retirement.

Understand that the retirement process is complicated.  We don't know how long we'll live; we don't know what market returns will be; we don't know what the inflation bite will be.  We are told that Social Security won't pay what it has promised, and even the government will likely change tax policies that will affect us.

It is not surprising that many people throw their hands up and choose to live for today.  They choose to let the the last third of their life take care of itself.  Good luck at that!

Another approach is to let advisors talk you into a $3,000 financial plan and charge upwards of 1% to manage your assets.  For most people, I believe this isn't the optimal way to go and, in fact, can be detrimental to the bottom line goal of achieving a successful retirement.  Leave the stock planning analyses of stock options, fancy trusts, and Monte Carlo simulations to those with nest eggs of $5 million or more.

Reading the following four books will put most people on the right path for a successful retirement. These are the books I recommend most often.  They teach the basic principles of investing, whether you can do it yourself, how to pick an advisor if you need one, etc.  In other words, they explain basic principles that a growing number of people, including myself, feel should be presented in high school.

• Millionaire Teacher by Andrew Hallam.  This book is filled with laugh-out-loud stories that take you on a journey whereby Andrew Hallam, a teacher, became a millionaire at a young age. Read this book in 2 weekends, and you will know how to construct a portfolio using low-cost, well-diversified funds that track broad sectors of the market.  This book will give you the knowledge to pick appropriate funds from the 401(k) choices you are faced with.  It is a great resource for the whole family.
• The Smartest Investment Book You'll Ever Read by Dan Solin.   Solin's book can also be read in a couple of weekends.  He emphasizes that most people don't finish most investment books because the books get bogged down in esoteric jargon.  His book explicitly avoids this.  Like Hallam, Solin provides explicit portfolios of low-cost well-diversified funds.  As a highly experienced securities arbitration lawyer, he is especially well positioned to help you avoid the traps set up for the novice investor by the financial services community.
• Your Money Ratios by Charles Farrell.  Charles Farrell will help you answer the nagging questions like how big should your nest egg be, how much you should be saving at your age, what income you should be targeting for retirement, do you have the right insurance?  He provides a worksheet that you'll return to over the years as you approach retirement.  Advisors will charge you up to $3,000 to answer the questions he gives guidance on. 
• Your Money and Your Brain by Jason Zweig.  Jason Zweig's highly readable book will ramp up big time your sophistication in understanding the pitfalls in picking stocks and timing the market.  It will solidify your philosophical foundation in arriving at the all-important investment philosophy presented by the authors above.  If you like books that make you smarter, you'll love this well-written book that takes you to the frontier of investment research.

These books were chosen especially for the investment novice.  They are well written, hold the jargon to a minimum, and do not require an inordinate amount of time.  They make great gifts for those struggling with their investments.

There are other really good books as well:  for example, any investment book written by William J. Bernstein (example: The Intelligent Asset Allocator) or Burton G. Malkiel (example: A Random Walk Down Wall Street - a must-read if you're going to advise others on investing!) or John Bogle (example: Common Sense on Mutual Funds).  These books get more into teaching how the car works, whereas the above four books focus on how to drive the car.  For most investors, how to drive the car is more than sufficient.

If you have favorite investment books, I'd love to hear them.

Online Book Discussion - Millionaire Teacher

The second online book discussion of Andrew Hallam's Millionaire Teacher will kick off with a meeting at the Miller Branch of the Howard County Library System on Tuesday, 9/24/2013 at 7 p.m.  You don't have to come to the meeting to participate.  All you have to do is read one chapter per week and check into the blog.

Unlike decades past, today we are responsible for managing our own retirement.  But, we haven't been given the basics on how to proceed.  We wonder if we're saving enough, do we need an advisor, which funds should we invest in, should we take the investment advice of our stock broker brother-in-law, and countless other issues.

Andrew, and many others, argue that these basics of financial literacy should be taught in school.

Please pass this on to anyone you think might be interested.  As you can see from the syllabus on the blog, we'll cover many essential topics--such as how to avoid excessive fees in building a retirement portfolio, how to get time on your side in the investment process, how to avoid the negative impact of emotions on your investment strategy, and even how to construct a portfolio conducive to your risk tolerance.  The next time you sit in a human resources meeting confronted with making a choice among numerous funds, you'll know exactly how to proceed.

Millionaire Teacher Online Book Discussion Started

Andrew Hallam

The online book discussion of Andrew Hallam's best selling Millionaire Teacher has begun at Millionaire Teacher Book Discussion blog.  This is an excellent chance for Andrew Hallam fans to interact with new readers as they learn the basics of investing for a successful retirement.
 
To succeed, this discussion needs commenters offering examples, asking questions, and even debating various points. All are welcome.

I Don't Have an Ideal Client

Source: Capital Pixel

Marketing gurus ask me about ideal clients.  They say I should be able to describe in a few sentences my ideal client.  I should be able to spit out "male, Physician (fill in the occupation), 41 years old, portfolio of $500,000, 2 children in middle school and a mortgage that has 15 years to run."

Other gurus say I should have a niche.  I should focus on doctors or teachers.  I should focus on teachers who are on the verge of retirement.  I should focus on divorcees.  Having an ideal client and a niche is, they say, a key to growing an advisory business.

 Ideal Client?

Well, I don't have an ideal client or a niche.  I'm an investment advisor.  Many people, young or old, whether they are teachers, doctors, or the Comcast gal who fixes your cable after a storm, have a need to go over their investment strategy whether they are looking for investment management or just a second opinion on their 401(k).

A one hour sit-down with statements spread around the table with an investment professional can do wonders for the investment program of many people.  Without belaboring the point, suffice it to say that getting in place a well thought-out investment strategy is the one legitimate shot many have at moving higher in the wealth spectrum.
 
Marketing gurus do suggest one thing that I agree with.  They say that advisors should differentiate themselves.  This goes beyond saying "I manage assets so that clients reach their goals" or "we build portfolios with the client's goals as the number 1 priority," etc.  Everyone puts out the similar tired phrases.  Differentiating is about doing something that others don't.

I differentiate my practice by offering to teach individuals how to invest.  As far as I know, no one else does this.

I'll admit that teaching individuals how to manage their own money isn't the world's greatest business model.  In essence, it keeps monies that would be going into an advisor's pockets within client portfolios.  Over long periods, taking compounding into account, it can amount to a significant impact.

As I said, I don't have an ideal client.  That's not to say that some aren't a challenge more than others.

An Easy Client

Let me give you an example of one who isn't a challenge.  Last week I met with a young man of 34, single, good job he likes, with a portfolio slightly below $300,000.  He has a young lady in the wings (sorry ladies) and plans to marry in a few years.  She has a good job as well, and they have discussed money and are on the same page philosophically when it comes to finances.

All of this is great, but I will tell you I've seen similar cases that were train wrecks on the verge of happening.

Not with this young man.  He had read Hallam's Millionaire Teacher and grasped its principles.  He understood the importance of investment costs over the long run.  He understood the value of low-cost, well-diversified index funds.  He lives within his means and has a strong saving program.  He is also in the habit of playing around with online retirement calculators, which I encourage.

Time is on his side.

The reason we were sitting at the table was that he saw me mentioned in the book and contacted me to help rearrange his investments in line with Hallam's principles.

There are no guarantees in life.  There are potholes.  Still, it is easy to see that this young man is on the path to achieving a stress-free financial program that will very likely result in a satisfying life 60 years and beyond.  Simply stated, he and his family will have very attractive choices 30 years from now. And, the beauty is that this will be achieved as he hardly notices it.  Most of the funding comes automatically out of his paycheck.

For me, he is an easy client.  He has done his homework.  He has spent a few hours absorbing the lessons of an important book.

On the other hand, I see potential clients who are afraid to invest.  Others are convinced that they can beat the market.  As clients, they are challenges.  It turns out that the idea that even the smartest people tend to underperform the market is counter-intuitive.  So counter-intuitive, I would say, that some people just can't get it.  They are like the baseball scouts in Moneyball who can't be convinced that a nerdy guy cranking out statistics can pick ball players better than they can by watching them play a few games.

So I don't have "ideal clients" but, admittedly, some are easier than others.

DIY Interviewed by Andrew Hallam

Andrew Hallam, author of best-selling Millionaire Teacher:  The Nine Rules of Wealth You Should Have Learned in School, has recently initiated a series on his blog profiling low-fee, passive index investors and has interviewed yours truly.

The highest compliments one can receive in any endeavor are from those they respect and hold in high regard in the field.  It is, thus, an honor to be included in the series.

As I have in the past, I highly recommend Andrew's book and blog for those seeking a clear path to a satisfying retirement.  This is a man on a mission.  He shows how a bit of frugality and investment knowledge achieves this goal, and he does it with interesting anecdotes and humor.

America's #1 Personal Finance Book

Source: Amazon

Andrew Hallam's book Millionaire Teacher has deservedly reached #1 on Amazon's best seller list of personal finance books.  It's not hard to figure out why - it is readable, witty, and provides a desperately needed message to individuals on how to become financially literate.  If it was up to me, it would be required reading in all high schools and colleges; and Human Resources departments would do well passing it out to employees.  At least then we would know that students and workers had one real-life case put in front of them of someone who has figured out how to build wealth on a modest salary.  Millionaire Teacher spells out this valuable information.  It gives people a road map with the lessons it teaches.

But for most readers, this won't be all.  There is an added bonus... Andrew produces one of the top financial blogs in the world.  Readers will be impressed with the trips he takes and adventures he has.  It is clear that getting one's finances in order provides the means to live an interesting life.  Readers of his blog will also be inspired by the head-on battle he has fought with serious medical issues.  Not only has he fought back but he has continued as a world class distance runner.

I was honored in being asked to endorse the book.  Seeing my name in print next to the heavy hitters in the world of finance has been a thrill.  I hope that this book finds its way into the hands of the financially challenged this holiday season.  It truly has life-changing potential.

Shameless Promotion

Source: Amazon

Yesterday I gave a pitch to the Howard County Public Schools Academy of Finance board, of which I am a member, for Andrew Hallam's book Millionaire Teacher.  The book is highly recommended for anyone interested in learning the appropriate way to invest for the longer term and how a person of modest salary can attain a sizeable nest egg.  Andrew's humor and talent for explaining complex topics make the book extremely readable and, a rarity for this genre, highly entertaining.

The basic message in the book, for young people to start investing early, diversifying, and paying attention to costs, is lost on many as evidenced by the report described by Shawn at Watson Inc in his post "Young People Avoiding Investing in Record Numbers."

The Wells Fargo report Shawn reported on found that those in their 20s prefer CDs rather than investing in stocks.

The customer reviews of Millionaire Teacher speak for themselves.  Andrew's book is a giant step in the right direction for attaining financial literacy.

Full disclosure:  RW Investment Strategies is mentioned in the book.