Wealth in Words

Every day we face a barrage of stimuli from the world around us. If we are not careful, these distractions can keep us from reaching our goals. When you focus equally on essential as well as non-essential tasks, nothing gets done. Think of it like a race car team preparing a car before an important race. There are countless tasks that could be done in the limited hours beforehand but ultimately the o nly thing that matters is doing the tasks necessary to get the car across the finish line. When it comes to steering your money and finances in the right direction, make time to decide which vital functions you must address right now to make improvements this year.  These vital factors are your most obvious or urgent needs. For example, paying down credit card debt, student loans, car loan, creating a budget , building a savings account , or starting investing  could be one of your top three financial priorities. Begin to focus all your effort on improving these t...

In light of Mother’s Day I thought it would be helpful to reflect and impart some of the financial wisdom my mother shared with me. These quick, simple nuggets of advice continue to prove useful as I navigate adulthood. 1. Create a budget Soon after graduating college I was able to secure an investment job in the region I wanted. However, this required that I move out of home and begin living on my own. Facing this new chapter in my life, my mother took time to write out a budget  with me detailing my cash inflows versus outflows and determined how much I could expect to have left over. She emphasized that the key was to have something left over each month to  save   or invest   while still living comfortably. Overall, I learned that a budget is nothing more than a road map that helps you maintain control of your finances. 2. Maintain a healthy savings reserve Growing up I did various jobs during my summer breaks from school. During this time my moth...

Socially Responsible Investing (SRI) is an investment style that caters to environmental, social, and corporate governance concerns. A socially responsible investment has two mandates: find companies that promote positive social impact as well as offer opportunity for financial gain. As it turns out, the two are not mutually exclusive. For example, from 1990 through 2013 an investment in the MSCI KLD 400 Social Index would have produced a higher return on your investment than a buy and hold strategy with the S&P 500 Index. Visually, the chart below dispels the myth that investors may sacrifice some potential gains in order to meet their socially-conscious investment objective. Instead, the opposite may be true. That is, socially responsible companies may make better products and earn more money for their shareholders, thereby creating long-term value through a higher share price. As the markets have evolved so too have SRI objectives, driven by shifts in societal and i...

Since their inception in 1993, Exchange Traded Funds  (ETF’s) have increased exponentially in popularity with institutional and retail investors. The advent of ETF’s to the investment landscape is analogous to the introduction of flat-screen TV’s to the home entertainment arena. In other words, in the investment product space ETF’s function like the sleek, flat-screen High Definition TV’s, while their predecessor, the mutual fund, is big and clunky just like an old TV set. Accordingly, record assets have been invested in these products with hardly a sign of slowing down. This relentless demand is being fueled for a few reasons. First, ETF’s cost less than their primitive counterparts, the index fund and mutual fund. The costs to run a fund are ultimately passed onto the investor in the form of an expense ratio and, with mutual funds, additional sales and load fees. Since ETF’s offer a comparable investment strategy to an index fund (that is, both products are built to mirr...

Dollar cost averaging is a simple, yet effective investment strategy. In effect, you as an investor contribute a set amount of money to an account to buy a fixed amount of an investment regardless of share price. For example, you can set aside $100 a month to invest into a particular product, thereby averaging out the cost per transaction given the fixed amount contributed over the lifetime of your investment. Using dollar cost averaging will allow for you to begin to accumulate wealth in the stock market just as setting aside a pre-determined amount each month for savings will create a financial safety cushion. Additionally, dollar cost averaging is an excellent way to eliminate trying to time the market, which in most cases can lead to paralysis by analysis. In other words, creating a systematic process for investing can help automate the saving process and focus your thoughts on long-term results. For those of you who are new to investing, dollar cost averaging is ...

For those unfamiliar, the late Jim Rohn was one of leading minds in the business coaching and personal development field. His work covers topics such as business strategy, time management, goal attainment, and personal finance. Rohn’s book “7 Strategies for Wealth and Happiness” contains a plethora of useful, applicable tactics that can dramatically improve your lifestyle through creating paradigm shifts in mindset and actions. He spends a portion of the book discussing an outline for managing a budget.  Specifically, Rohn calls it his 70/30 Rule. The premise is simple to follow and easy to implement. First, you start with your after-tax net earnings each month and multiply that value by 70%. Expenses for the month should not exceed this number (i.e. 70% of net wages). Second, subtract this expense target from after-tax monthly income and you will have 30% remaining. Lastly, this 30% is to be divided evenly into thirds. Rohn advises that the first third (10% of after-tax ...

Company 401K plans are popular, accessible retirement savings vehicles for most individual employees. A 401K plan allows for workers to accumulate retirement savings by contributing a portion of each paycheck before taxes are taken out, thereby letting one’s savings grow at a higher, tax-deferred rate. Ultimately, taxes are paid once money is withdrawn from the account. In addition to the tax-deferred benefits, employees usually have an employer match program for the plan. For example, the employer will match up to 50% of the first 6% that the employee contributes to the account. Consider the funds from this employer match a “bonus” that is received each pay period and contributed immediately to savings. Within each 401K account every company will have its own list of pre-selected funds through which an employee can create an asset allocation. If no action is taken by the employee, he or she will most likely be automatically enrolled and begin investing contributions into a Targe...

What is an ETF? How is it used? What are its benefits? These are a few of many questions that will need to be explored to adequately understand this popular investment product. ETF is an acronym for Exchange Traded Fund which is an investment product that works similarly to a mutual fund.  However, there are several key differences between these products which ultimately give ETF’s an advantage. As the name implies, ETF’s are listed on an exchange and traded during market hours. This provides instant liquidity and exposure for market participants without having to wait to buy or sell funds based on closing values (i.e. Net Asset Value or NAV) as you would have to do with a mutual fund.  ETF’s also provide an alternative to equity index futures for money managers who desire timely market exposure or hedging ability. ETF’s can offer this exposure since most are “indexed” or created to mirror an existing basket of securities (e.g. S&P 500 Index). In other words, an ETF i...

A common question I receive is “What is a bull market and a bear market?” Contrary to initial thought these are not just cute names to inoculate something potentially hazardous to your wealth such as investing or trading. The use of bull and bear delineates disparate market environments. Simply put, asset prices go up in a bull market and trend down in a bear market. Defining a bull or bear market always depends on the time frame that one is referencing. It is possible for a market to be in a long-term bull and short-term bear or vice-versa.  In other words, understanding the time frame being analyzed is essential to understanding the implications from market perspective and putting it into action.  There are several heuristics that can be used to identify bull and bear markets, however no rule holds up perfectly every time. In my opinion, the simplest and easiest way for investors to ascertain the state of the markets is to look at the historical price action. Price data...