The richest life

Not too long ago, I wrote about the way I believe we get it wrong when it comes to financial advice. If you didn’t read that post, you can find it here.

Then, in last month’s issue, the Canadian version of More magazine included advice from some female financial experts — something along the lines of ‘what can we learn from the pros.’ It was a good example of this misapprehension that the pros know what it takes to build wealth, and it was interesting to learn that these ‘financial heavyweights’ made some of the most common mistakes — getting over their heads in debt and acting on inappropriate advice.

But if you need yet further evidence, here is an article from today’s Globe and Mail that I think speaks for itself.

These are turbulent times in financial markets. So now, more than ever, we should be putting our faith in analyst recommendations instead of trying to pick stocks ourselves, right?After all, analysts are paid generously to spend all day scanning company financial statements, so of course they’re in a better position to know which stocks will rise and which will sink.

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.

But in the short term, you may need to ration!

Get the details here…

but only if you’re spending it on someone else.

Read about the research in the NYTimes… 

Barack Obama addresses the paradox of racial tension and hope…

Another example of complexity gone wrong!

Rob mentions it only briefly here, but a simple way to get the benefits of principle protected notes without the high fees and small print is to invest the bulk of your principle in a GIC (guaranteed investment certificate) for five years and a comfortable percentage (five to 25 per cent, depending on your risk tolerance) in equity ETFs. See the previous post to this one for details on ETF portfolios.

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:

Read Rob Carrick’s article in the Globe (it’s worth paying for if you find it’s unavailable in full at this link)

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?