They’re professionals, right?
How did all of the mechanisms operated by the mind-bogglingly well-paid men and women of the Street go so wrong?
Archive forBooks
Ask and you shall receive; don’t ask — not so much
This article, by an academic who has studied the disparities between men and women in pay and other benefits, finds that women are not socialized to negotiate. The result, inevitably, is that they are paid less and promoted less often.
But this may not be exclusively the province of women — in my work with not-for-profit and faith-based organizations, I’ve often noted the same tendencies among men as well.
As a society, though we undoubtedly worship the pursuit of wealth too fervently, we also think it is more virtuous not to ask for more. Those who devote themselves to creating a better world often tend to aim for a degree of asceticism. The result is that the power of wealth often (not always, obviously) ends up in the hands of those who are less concerned with virtue. We pay money managers millions of dollars a year and day care workers live below the poverty level.
Certainly, living with less stuff is better for the planet, but money itself is the single most transferable, flexible form of energy we have. Money enables us to care for ourselves and reach our fullest potential free of the limitations that having too little money can impose. It enable us to support the people and causes we care about.
The key is not to view money as unimportant, or to pursue money for for its own sake, but to see it as a resource that can help us achieve meaningful goals and live a purposeful life. Remember, Mother Therese lived a vow of poverty, but it was her ability to raise funds to create orphanages and hospitals that made her so effective in the world.
So … the next time you’re offered a salary, don’t just accept it. Ask for 10 per cent more. And devote that 10 per cent to creating your richest life, or to supporting a cause that is important to you.
Not quite what I was planning…
What is your six-word memoir?
Can your values, goals, vision and mission be clarified into just six words?
Investment complexity, or all you ever need to know to invest successfully
While I was collecting some articles I’d written from various websites last week, I came across a review of my first book, Financial Serenity,Successful Financial Planning and Investment for Women in Quill and Quire Magazine. First, I’d like to state for the record that it is an honour to be reviewed by Quill and Quire, and that I always feel sorry for critics, who are paid by the word and can’t, therefore, say ‘this is/is not my cup of tea’ which is essentially what all criticism is. (As H. L. Mencken noted “Criticism is prejudice made plausible.”)
But one of the great privileges of blogging is that one gets to respond to one’s critics. Financial Serenity has lots of flaws, which is why I look forward to writing the sequel. In the language of critics, it is amateurishly and indulgently written, which is natural since I was an amateur indulging myself when I wrote it. Also, I was working as a financial advisor at the time, which means that I was still under the influence (of the investment industry). So if you happen to have a copy of the book, please ignore all the investment advice is favour of the updated view below.
In the two negative reviews the book received (among many positive reviews, I’m grateful to report) the primary criticism was two-fold: the book didn’t go into complicated investment stuff like contrarian investing and how to read the financial news, and it ‘borrowed heavily from New Age ideas.’ Therefore I wasn’t, the critics suggested, taking women or their needs seriously.
People: the complicated investment stuff isn’t in the book because it isn’t important to know. The result of knowing it is this:The most educated investment professionals on the planet underperform the stock market most of the time.
That means that wise investors (those that value their time as much as their money, and see managing risk as a fundamental component of achieving returns) can outperform the most complicated investment strategies by investing in a portfolio of index funds or in a diversified portfolio of growth stocks.
As for the financial news, here’s my best advice on the subject: ignore it.
Invest in a conservative, diversified portfolio on a monthly basis through boom and bust. Rebalance your portfolio once a year. If you need help, get coaching, not investment advice, from an advisor you like, trust and feel understood by. Pay them for their time, not for selling you stuff.
And here is the thing about New Age ideas: again, if you are a student of personal finance for 10 years or more, you’ll figure out that people do not succeed or fail because of what they know, but because of what they feel. Our beliefs create our feelings and determine our behaviour; our behaviour creates our reality. You can call it “New Age ideas” or you can call it behavioral investment science, but whatever you call it, it is the foundation of financial success.
All the knowledge on the planet cannot help you if you make bad decisions, and until you figure out who you are as an investor and what you want from your money, you’re likely to make bad decisions.
OK, that’s enough of my rant for the day. The thing that brought all of this on was a great article by Rob Carrick in the Globe and Mail on putting together an ETF portfolio. (If you don’t know what ETFs are, visit Moneysense at the link below for more information.) For many years now, I’ve recommended that investors consider the couch potato portfolios promoted by Moneysense Magazine and/or the growth stock portfolios offered by Canadian Shareowner. (Full disclosure: I do some copywriting, not much, for Shareowner Magazine.) But I’m particularly excited about Rob’s article because it provides an option for people who want to invest in a socially responsible ETF portfolio.
So, skip the complex and go for the useful, here:
To find out why an index fund portfolio should be the primary investment strategy of Canadians, please (really, pretty please) read about the Couch Potato portfolios at Moneysense.
And if you’re interested in spending a bit more time on your investments, would like to invest directly in stocks and would like to know what does matter when you do, or you’re looking for an very inexpensive way to trade in ETFs or stocks, visit Canadian Shareowner.
Now, all of this begs the question — if it can be so simple, why is there so much complexity out there? Why do most of us wander through life feeling as if we need to be Chartered Financial Analysts in order to invest well? In part, I think, the answer is attributable to human nature — some of us just really like complexity and competition. We’re happy to spend hours a day or pay thousands of dollars in commission if we can beat our neighbour’s returns by a few percent. (Odds are we won’t, but the thrill of possibility is worth the risk.) The other answer is probably simpler: fees and commissions. Need I say more?
365 days to your richest life: Conclusion to Varieties of Risk
In 1994, author Graydon Watters (Financial Pursuit) wrote that 8 out of 10 Canadians had never invested in the market. By 2000, research revealed that almost 50 percent of adult Canadians owned stock directly or through mutual funds.
One of the risks wreaking havoc in the current interest rate environment is “reinvestment risk.” When we invest in bonds and/or GICs to achieve security of capital, at some point, our terms will mature. If we rely on those investments for income, we may find ourselves living on substantially less than we were prior to maturity. A study by Fidelity Investments of the 34-year period ending in 2002, for example, found that GIC investors received 214 percent less on their reinvested term, on average, than when they initially invested. Ouch!
In the late 70’s and early 80’s, inflation risk was a predominant factor. Somewhat predictably, when interest rates were at their highest, inflation was too, with purchasing power falling by as much as 12.5 percent in one year (1981). Today we have much greater confidence that economic and politic powers can effectively combat hyper-inflation, and demographic trends are also in our favour, i.e., an ageing population consumes less, and lower consumption lowers prices. However, there are still certain wild cards – like oil and gas prices – that are both unpredictable and unmanageable. Unlike market risk, which is reduced with time in the market, inflation risk increases with time. The younger and healthier we are now, the greater the influence of inflation during our lifetime. We can minimise the impact of inflation on our lives, very simply, by owning assets that go up in value as inflation rises – unlike cars, GICs, bonds, and money itself.
Finally, there is shortfall risk—the risk of running out of money before we die. My experience has been that far more Canadians damage their quality of life by worrying about running out of money than actually experience that remote eventuality, but since the antidote for one happens to also be the antidote for the other, I’m happy to help you overcome both.
Although the straight-forward, laddered GIC portfolio many risk-averse investors have chosen may seem like the lowest-risk way to build wealth and prepare for retirement, it really only provides protection from two of the six kinds of risk we face. A truly low-risk strategy is one that balances all of these risks, providing as much protection as possible against them all. That’s what we’re here to do.
In order to give you a clear path once you begin, however, let’s start by clearing up some of the money and investment myths that may be standing in your way right now.
Totally spent … a borrowed way of life comes to an end
In this op-ed for the New York Times, Robert Reich, the author of Supercapitalism and a professor of public policy at the University of California explores the growing inequality of rich and not-rich in America as the source of the current economic woes.
In essence,his premise is that the consumer-driven economy of the last 40 years has been artificially driven, first by women entering the work force to prop up their family income, then by working more, then by borrowing.
While I agree with this premise, and see these trends as the primary causes of such widespread social ills as increasing obesity, depression and disenfranchised youth, I wonder if there isn’t more to be considered. A growing economy is seen as universally good, but what we measure is spending (trading our time, generally for stuff) and how quickly we’re squandering our precious and finite natural resources.
Perhaps there is an opportunity here for a deeper shift, as we take back our time (the one truly finite resource human beings are granted) and apply it to the quest for more meaningful experience and personal and social evolution. Perhaps it is time to begin defining ourselves as citizens again, rather than consumers.
Everyone needs useful work in order to be happy, but it does necessarily follow that we need employment. Freeing ourselves — to the greatest possible degree — from the borrow/spend/earn cycle is the first step in achieving independence. As you consider this thought-provoking article, I invite you to consider another idea: what really fulfills you, and how can you invite more of that into your life? I suspect it isn’t something you could charge to your line of credit.
Deja vu all over again?
From the Globe and Mail:
Back in 1980, when I was in B-school, the book, Japan as Number 1 was required reading. Japan was the world’s largest creditor, its people enjoyed the world’s highest quality of life, biggest per capita gross domestic product and longest life expectancy. Robots in Japanese factories were replacing U.S. rust belt manufacturing jobs. The economy was on a tear and the Nikkei index was soaring.
Day 15 Sleep-easy investing – taking back the power
(Continued from Day 14)
The aftermath has been painful. As a financial author and commentator, I hear almost daily from frustrated, disheartened Canadians. We want to be responsible, to live comfortably within our means, and to prepare for our retirements, but we are discouraged about our ability to do so.
This guide was designed to as an antidote for that discouragement, providing a series of easy-to-apply strategies to help you avoid risk (also known as losing your hard-earned money) and create wealth, without losing sleep in the process. And although it is really tempting to use big words and throw in every piece of information that has ever been written about the financial markets, we’ve made a real effort to keep it simple and relevant to the needs of individual Canadian investors. If it isn’t here, it’s because you can build wealth and generate income without it. If you want to learn more, either because you’re actually interested or because you want to impress other guests at cocktail parties, you’ll find a list of further recommended reading in the appendices.
We begin with strategies for building wealth, and then move on to strategies for creating income with that wealth. Through the liberal use of quotes throughout the book, we’ve let the experts speak for themselves. The tone throughout is conversational, because we believe that if you wanted a textbook, you’d read a textbook – and wherever we use a word that a beginning investor may not be familiar with, we’ve tried to provide a definition.
“When facing a difficult task, act as though it is impossible to fail. If you’re going after Moby Dick, take along the tartar sauce.” H. Jackson Brown, Jr. Life’s Little Instruction Book
Day 14 Sleep-easy investing – taking back the power
It is impossible to believe that Canadians – known for our prudence as well as our politeness – would choose to gamble away the savings we work so hard to accumulate, money that we will need to live on in what may be the longest retirements in history.
Yet from 1996 to the early months of 2000, that is exactly what many of us did. It is exactly what too many of us, dazzled by charts and sales pitches, continue to do. It’s time to stop the madness, and we are here to help.
Benjamin Graham felt so strongly about the difference between true investment and speculation that he begins his investment classic, The Intelligent Investor, with a two-page explanation on the distinction. In short, he says that a speculator is anyone who buys stock ‘on margin’ (with borrowed money), who buys a ‘hot stock’, who buys without a full understanding of the risks, or who buys “without proper knowledge or skill.”
In case you’re not familiar with Benjamin Graham, you should know that his most attentive student, Warren Buffett, has applied those early lessons to become the second wealthiest man in the world. Warren Buffett is also the only “investment guru” I know of who actually became wealthy by investing rather than by turning other people’s wealth into their own through fees and commission.
Graham’s definition reveals the tragic truth of the late 90’s – we thought we were investing, but we were speculating, gambling money we couldn’t afford to lose. Worried about retirement, tired of sitting on the sidelines while our friends and co-workers boasted of high returns, we cashed in our Canada Savings Bonds and GICs, even borrowed money, and moved into mutual funds, touted as the ‘safe’ way to invest in the market. With the full support of advisers who only got paid when we bought a mutual fund or stock, we bought companies we knew very little about at exorbitant prices, believing that the astronomical rise in their share prices was evidence enough of their success.