I address my words today to the younger generation, those who still have time left to prepare for their retirement. You are growing up in a confusing world but there are some facts of life that do not change, and if you are to survive and thrive, you need to accept them.
I begin with the pile of participation trophies that cover your dresser. I know your coaches wanted you to feel good about yourself but let me tell you something from a business owner’s perspective. In the adult world, no one will pay you just to show up. If you don’t bring valuable skills and a solid education to the table, you will have great difficulty finding an employer willing to offer you a decent job. The soccer coach didn’t want to hurt your feelings by saying you weren’t really good enough for the team. Any good company will have no problem sending you packing if you don’t bring value to their team. And if you want to be paid more, become worth more.
Next, the country in which you live provides many safety nets to prevent you from falling into total disaster. Be aware that a safety net is just that; a bare minimum system put in place to keep you alive. If you think retiring on social security or whatever other assistance program the government may offer is the American dream, you have been sorely misled.
Young marrieds often tell me their budget is too tight to set aside money for retirement. They say they need every dollar they make. This is false and dangerous thinking. The truth is that one day you will no longer be able to work and the cost of those retirement years is just as essential today as your food and power bill. You simply must include it. We all know the story of the ants and the grasshopper. It is as true as it always was that the winter absolutely will come. When it does you will need to have set something aside.
During the hurricanes last year, I saw a disturbing scene on a news report. A lady was leaving a cleaned out grocery store when she began screaming at a reporter saying, “They have no water. How can they not have water? How am I supposed to survive this storm without water?” I felt sorry for her but was amazed that a person could live in a disaster prone area without even having a couple days of water stored. Maybe she thought her budget couldn’t afford it.
My young readers, there are many systems and people in place to help you through your lives but ultimately, you must take personal responsibility for your own future. To coin a phrase from your generation, you need to “own” your future. It’s your future and no one will care more about it, or be more affected by it, than you. The good news is; you have time to do this if you start now.
After school one day my friend and I were bored so we slipped over to the Circus Circus casino to play some slot machines. For high school kids raised in Vegas in those days this was not an unusual activity. My friend was very tall and easily passed for 21, but at 16 years old I was only 5’ 1” and weighed just 85 lbs. I could barely pass for 12 so I watched jealously from the corner while he sat at the 21 table with the adults.
As I waited, I noticed right next to me an electronic keno machine that was calling my name. I looked around and saw no casino employees paying attention so, acting like a secret agent I snuck over, slipped in a quarter, hit eight quick numbers and then retreated quickly to my innocent spot in the corner.
Much to my surprise, I watched as the machine began to hit my numbers, first one, then three, then six of the eight lit up. The bells started ringing, the lights flashed, and 100 quarters poured into the tray that, as everyone knows, is designed to make the most noise possible. I was filled with both elation and sheer panic as I rushed to scoop up my winnings before someone caught me. The only thing greater than my fear was the thrill of all that free money. I couldn’t believe my good fortune. While leaving the casino a little later I was sure every security guard I passed could hear those quarters jingling in my bulging pockets.
I went home that evening and laid out my treasure on my bedroom floor. I counted it again and again, carefully stacking each coin and running them through my fingers. For two weeks I counted those coins and relived with great excitement that moment in my mind. But unfortunately my victorious adventure had a final chapter. Some weeks later I returned to that same keno machine, determined to turn my 100 quarters into a thousand, but instead I watched as that same machine gobbled up every single one of them. I went home that night a sorrowful young man who had learned some very painful lessons.
One of those lessons is that when you have a profitable investment or a succesful year, there can be great value in taking some of those profits off the table and putting them elsewhere. Had I done that after my Circus Circus experience I might have at least had a record album, a new shirt or even a bag of treats to show for my success and to enjoy for some time to come.
The investing markets in recent years have been good for many and we are hopeful for more, but I think this may be a good time to consider taking some of those profits off the table and putting them elsewhere. I wasn’t very happy while learning that lesson at 16, but today I am thankful I did.
The National Board of Realtors reported that average home prices have finally returned to their 2006 pre-crash highs. That means theoretically speaking, that if you bought a home at the peak you are now back to even. This good news for the housing market is also a sober reminder of how long it can take to recover from a bad investment.
In an effort to chase hot returns, investors sometimes make mistakes that take years to recover. The math of investing works against you when you lose, meaning that if you are down 20% it takes more than a 20% gain to get back to even. With the stock market at an all-time high, it might be a good time to make some new year’s resolutions to help avoid another painful future event.
As I have stated before, I think 2018 has some big positives in its favor, but that is no reason to let optimistic expectations tempt us to abandon some basic principles of investing. Doing so is often the very essence of what precedes a crash. So here are some principles we might want to resolve to follow this year.
1 -Avoid investing in things you do not understand. New technologies are very tempting but remember the dot.com bust of 2000. Some of those companies have become huge but most of them disappeared. Be very careful as you delve into new investing ideas, no matter how much others may appear to be making on them. Understand the risks before you invest.
2- There is a reason why advisors have recommended for ages to follow an intelligent asset allocation plan, also known as diversification. Although diversification does not guarantee less risk, it has historically shown an ability to help weather market storms. During hot markets, many start to develop an “everything on red” attitude. If you do this you move from being an investor to a gambler.
3 – Think very carefully before borrowing money to invest. Mortgaging your home for speculation may not end well.
4 – Don’t chase returns. Don’t invest based on how well something did last year, or even last week.
When markets are hot, investors need to be aware of the risks of becoming over confident. Investing always requires careful thought and firm discipline, but great markets tend to make everyone think they are an expert. Be aware of the risk that greed may sneak in to your investment decisions in times like these.
The housing crash of 2007 was largely the result of a booming real estate market that investors allowed to get out of control, as they got caught up in the excitement. Today we see a similar situation developing in several investment markets. Investors will certainly want to thoughtfully consider the opportunities that exist, but with a keen awareness of the power greed has to overcome common sense. As we say in our office, “Be Wise,” especially in 2018, and stay true to the investing principles that got you here.
I start 2018 with valuable lessons taught me by two special individuals. One was the head waiter on our family Christmas cruise. Cruise ship employees tend to be good natured and service-oriented, but this man was above and beyond the standard. He was so cheerful and always willing to do whatever was needed to make our day pleasant. He was not our specific waiter but went out of his way to make sure one of our daughters, who had special dietary needs, was well cared for.
On the last day of our cruise I asked him why it was that he was always so happy. He responded that happiness had always been part of his nature; that when he awakes in the morning and sees that he is still alive, he knows it is going to be a good day. He is not from a country with all the great blessings we enjoy here, but he found joy in every moment of life and with his presence lighted the lives of all around him. He told me that his motto was, “Life is like a bowl of ice cream. You need to eat it before it melts.” This man had a great attitude, especially for someone who spent most of his Christmases away from his own family.
The second man is one I met on Christmas Eve. We had been travelling all day to get home from our trip and on the way out of Vegas we were so starved we stopped to grab something to eat. The best option we could find was a fast food restaurant in a less than desirable part of town. While standing in line inside the store for our hamburgers, a disheveled man came up beside me to await his order. I could tell by his appearance and smell that he was not in the best phase of his life. I began making some light conversation with the man and joked, “Look at us here, pretty sad we find ourselves enjoying our traditional Christmas Eve dinner at a cheap fast food restaurant.” The man smiled and surprised me with his response when he said, “I think this is a great place for a Christmas Eve dinner. I am sure there are many in the world eating much less tonight.” I have had many wonderful Christmas Eve dinners but I will always remember this one, and the smile that man had as he sat down to his feast.
So many investment mistakes come from greed or a desire to get too much, too fast. It is good to grow your wealth but if your happiness is based on your net worth, it is possible you may always be disappointed. Let’s make 2018 a year to begin our investing plans with gratitude for what we already have, then if something greater comes it will be all the more appreciated. Either way, if we start with gratitude, it will definitely be a Happy New Year.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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