Invest for Tomorrow and Today

I recently read stories about two people who took entirely different approaches to their finances and investments and, as a result, ended up in two entirely different places. I’ll take a leap here and say that neither result is what you want. Here are their stories and my suggestion for a third, better approach, to enjoying today while investing for your future self.

First, Grace lived what appeared, from the outside, to be a sparse, meager existence with no frills and little, if any, fun – at least the way most of the people I know would define fun. Orphaned at age 12, Grace never married, never had any kids, lived most of her life in a modest, one-bedroom house and worked her entire life as a secretary. (And, yes, back when she worked they were still called secretaries) Her sparse lifestyle made the revelation upon her death in 2010 that she had left $7 Million to charity all the more surprising. $7,000,000? Where the heck did that come from?

Well, there wasn’t any fascinating story of a get-rich quick scheme or an inheritance. Grace lived beneath her means, not much to begin with, saved and invested it and saw it compound for 80 years by investing in the stock market. She was the epitome of the Millionaire Next Door. The only problem, in my opinion, is she never seemed to enjoy the fruits of her good habits. In fact, even if she had no desire for worldly possessions or adventure, she didn’t even experience the joy of giving all that money away since it went to charity after she died. What a shame!

Now, the story of Richard. As the father of a friend of mine used to say when he screwed up, “Well, at least you can serve as a bad example.” Richard is, indeed, our bad example. After reaching the pinnacle of his profession – a profession that should have taught him better – as head of one of the major investment bank’s international units, he retired in his 40’s. Ostensibly to pursue personal and charitable interests he apparently only focused on the personal. Two homes – one of them 20,000 square feet with a $66,000 per month mortgage – and a lavish lifestyle led him in the opposite direction of Grace. So, the same year the former secretary died and left $7M to charity, Richard the Harvard-educated investment banker, declared personal bankruptcy.

Well, the middle ground here is as big as Texas so where should we aspire to land? If you’ve read the description of this blog you already know I subscribe heavily to the ethos of the Millionaire Next Door.

Wealth is not the same as income. Wealth is what you accumulate, not what you spend. If one earns a high income and spends it all, one isn’t getting wealthier, just living high. So, those of us who live beneath our means, save our money and invest properly get wealthy the old-fashioned way: steadily, over many years.

My Suggestion

Incorporate short-term, or even regular, goals into your financial plan. Recently, some clients wanted to include saving for every-other-year international trips. Great idea! So, first we determined how much they should pay their future selves – for retirement, etc. Then, we included a regular contribution to a separate account for their trips. A separate account means they won’t dip into it because it’s marked for travel. And saving a relatively small amount but, on a regular basis, means it will add up to their goal of a major, overseas trip when it’s time to go.

Don’t be Grace and surely don’t follow Richard’s lead, invest for tomorrow and today at the same time. After all, most of us won’t accumulate Grace’s $7 Million without planning to do so. Then again, maybe $5 Million is enough for the future and we’ll plan for some great experiences along the way.

The Story of the $9 Million Secretary

Earlier this week, the New York Times ran a front-page story on Sylvia Bloom, the recently deceased legal secretary from Brooklyn who bequeathed $6.24 Million to help disadvantaged students afford college. Ms. Bloom was the epitome of the Millionaire Next Door and readers of this blog know I believe strongly in the ability of us “regular folk” to become one too by following a few simple rules: 1) Live beneath your means; 2) Save for your financial independence; 3) Invest; 4) Get wealthy the old-fashioned way, steadily over many years.

The Times article described Ms. Bloom’s relatives as shocked that she had amassed such a fortune. She never talked about her wealth because, according to her niece, “I don’t think she thought it was anybody’s business but her own.” In other words, her wealth wasn’t amassed to impress her friends or to purchase expensive earthly possessions. She, apparently, wasn’t motivated by nice cars, fancy vacations or a large, Manhattan apartment.

We will probably never know what truly motivated Ms. Bloom, but we can learn from her wealth accumulating strategy. “She was a secretary in an era when they ran their boss’s lives, including their personal investments,” recalled her niece Jane Lockshin. “So when the boss would buy a stock, she would make the purchase for him, and then buy the same stock for herself, but in a smaller amount because she was on a secretary’s salary.” Morgan Housel from The Motley Fool says, “…you can build wealth without a high income, but have no chance without a high savings rate, it’s clear which one matters more.” Ms. Bloom didn’t make big money, but she still accumulated big money.

A child of the Great Depression, Ms. Bloom and her husband, a firefighter, lived modestly and, according to her niece, “…she knew what it was like not to have money.” I suspect that she was motivated to save money for the same reason a lot of us are – because savings offers some peace of mind in a very unpredictable world.

I won’t ever discount creature comforts like a nice home, a functional car or a fun vacation – those things are important. But, savings provides us value too, the value of control of our time. It’s not easy to measure something that we probably won’t use until years later, but how valuable is flexibility? The flexibility to maybe take a few years off work when your kids need you the most; the flexibility to maybe take a job with a lower salary but more purpose; the flexibility to maybe leave a lasting legacy of a college education for people you will never meet – like Sylvia Bloom did.

To quote Morgan Housel again: “In a world where hard skills become automated, competitive advantages tilt toward nuanced and soft skills – like communication, empathy, and, perhaps most of all, flexibility. Having more control over your time and options is becoming one of the most valuable currencies in the world. That’s why more people can, and more people should, save money.”


Would You Trade A Bad Season For a Final Four Next Season?

If you looked at Twitter or Facebook after UK lost two games in a row last week – on the road to South Carolina and, even worse, at home to Florida – you would think the season was over. Distraught exclamations like, “I’m off the bandwagon”, “Cal’s one and done system doesn’t work” and “We’ll never make the tournament now” dominated the comments. There is a psychological term for this called Momentum Bias. Simply put, we tend to believe when things are going poorly they will continue to go poorly. Similarly, when we’re on a roll, we expect that to continue too. This same behavioral bias affects people’s views of the stock market. These emotions are quite normal and explains part of the value a good financial planner provides – we help remove the emotion from saving and investing by helping clients focus on their long-term goals.

Now, it’s easy to get frustrated with this team. They are talented but terribly inconsistent. Mind-boggling defensives lapses follow occasional flashes of offensive brilliance. We know they are the youngest team in the country because Cal reminds us of this fact whenever he can but compounding this have been injuries to Quade Green and Jarred Vanderbilt. As a result, at times during the Florida game there were players on the floor who hadn’t played as a unit before in a real game….ever. But, this isn’t news to you, dear reader. Even though we know these facts, however, our minds ignore them and only focus on what is in front of our faces – the mistakes and the losses. That is what is called Availability Bias. That is when we focus on the most recent data that is readily available to our brains, rather than taking into account all of the data on this team and this season. Let’s face it, if we beat West Virginia on the road Saturday, the Florida loss will be a distant memory, right?

Momentum Bias and Availability Bias both affect our views of the stock market too. As we watch our accounts grow each month it is quite tempting to believe it will continue that way. Let’s face it, we’re well into a 9-year Bull market. If Availability Bias limits our brains to the most recent data, it is easy to see why we only remember the up and focus less on the possibility the market will decline.

Little more than a year ago a friend of mine moved half of his investments, about $350,000, into cash the day after the election. He was scared to death of the affect he thought a Trump presidency would have on the market and didn’t want to lose money when the market dropped after he took office. In other words, Availability Bias focused him on that small piece of data and he let that data control his emotions. And that focus steered him away from the entire data set showing the economy was already doing well, companies were earning money and he had a long-term goal, not just a one-year window. I told him in the fall that, had he been a client at election time, we would have advised him not to sell his investments and to maintain his course. If he had listened to us, he would have earned about an additional $45,000 during that period.

As financial advisors, we focus on the long-term goals of our clients so they can ignore the daily bombardment of short-term noise we all hear. In short, we help remove the emotion from decisions. Our clients don’t have to worry because they know we’re handling it.

So, listen to me when I say…this team will be just fine. How many of us would gladly accept a loss in the 2nd round of the NCAA Tourney this year if it would mean a Final Four next season? I know I would. So, look at the broad picture, stay calm and focus on the ultimate goal – a 9th National Championship.


Moneywatch Advisors is Female-Owned – Does It Matter?

I have a distinct memory of my 7th Grade Social Studies teacher, Reva Hoyt, telling our class that there would never be, nor should there ever be, a female president. Now, this was the mid-1970’s so, clearly, times were different back then. But, I remember being taken aback by her statement even then. She reasoned, in part, that women didn’t have the emotional temperament to lead the country. While I disagree with her reasoning, Ms. Hoyt’s prediction has certainly held true for the last 40 years.

However, our President is Ramsey Bova, who owns the majority of our firm, Moneywatch Advisors. She has 20 years’ experience as a financial planner, learning the business from the ground up from her father, Bob, who started the firm in 1980. She also holds the highest designation in our profession, as a Certified Financial Planner. Unfortunately, only 23% of Certified Financial Planners are female.

While I am confident Ramsey will be very uncomfortable when she reads this post, I believe it is an important story to tell. To be quite candid, however, I am struggling with WHY this is so noteworthy. A 2014 study by the Certified Financial Planner board asked 657 men and 572 women to determine their preference for male or female advisors. Guess what? Very few people gave a hoot either way. Only 11% of both men and women indicated that the gender of their advisor was either “somewhat important” or “critical” in their choice of an advisor.

To back that up, clients who have chosen to work with Moneywatch in the year since I joined the firm want to know that the firm will help them plan for their futures, advise them on how much to save and how to save on taxes while doing it, manage their investments and, in general, provide the advice that is in THEIR best interests, not ours. Now, it isn’t uncommon for people to assume the person with the name Ramsey is male, but no one is surprised or disappointed when they learn she isn’t.

When I began writing this I toyed with a list of virtues or skills commonly attributed to women that might make them better financial planners. But, it didn’t take me very long to conclude a list like that would be as ridiculous as listing why women would NOT be good planners. I will say, however, that a study over the 2004-2008 time-period showed that companies with three or more female corporate directors significantly outperformed companies with no female directors. Just sayin’. More specific to the financial planning industry, the magazine “WealthAdvisor” wrote that only 10% of financial planning firms are women-owned but they make up 38% of the firms in the “Top Performer” category.

So, does it matter that Moneywatch is female-owned?

I don’t know, but here is my experience: Lisa and I were clients of Moneywatch for 25 years before I joined the firm. Ramsey and her dad helped us plan and invest for a day when we could be in the financial position for me to scratch that persistent entrepreneurial itch that I’d had for a long time. To have the financial freedom to take on a new challenge after age 50 was a dream of mine and they helped us make it possible. Now, I didn’t think that new challenge would be to work at Moneywatch but joining the firm has enabled me to work with Ramsey in her role as a leader, not just as a client.

After both experiences, I believe the reason Moneywatch’s ownership is noteworthy is because it is still so unusual. Why aren’t there more female financial planners; why are there so few women-owned firms? There are a variety of reasons, to be sure, but I believe the most telling takeaway from this discussion is it seems very few people care about their planners’ gender. All they care about is results.

I am interested in your thoughts. Please comment at the end of this Post or email me directly at

These Six Traits Predict Your Ability to Build Wealth

I have a distinct memory of sitting on a tractor on my grandfather’s Nebraska farm as an adolescent and telling my father and brother that I was going to be a millionaire someday. My Dad laughed out loud and asked how I was going to manage that? I shrugged and said, “I just will.” I never had a get-rich-quick scheme or a vision to create the next Pay Pal, I just kind of had a gut feeling that I would go to college, get a good job, and save. In fact, I already had a good track record of saving, reaching my parents’ stated threshold of $1,000 before they would allow me to invest in the stock market. Fortunately, my wife is also a good saver and – with advice as clients of Moneywatch Advisors for 25 years – that has resulted in an accumulation of wealth greater than we imagined possible.

But what makes a person a good saver? Is it an innate skill that we have or don’t have? Can it be learned? Can a spender become a good saver?

The book, The Millionaire Next Door illustrated that wealth is what you accumulate, not what you spend. Wealthy people have figured out how to turn their income into wealth – savings – that can be used on their future selves.

So, are there traits that wealth builders – savers – have in common? What makes some people good at turning their income into wealth?

Sarah Fallaw, daughter of the Millionaire Next Door author Thomas Stanley, and an industrial psychologist Ph.D., has researched and discovered six distinct and consistent traits that predict if someone will be good at wealth building. They are:

Frugality – your willingness and ability to spend below your means;
Responsibility – do you believe you have control over your financial outcomes or do you believe wealth just happens to people?
Confidence – do you have the confidence to believe you’re capable of improving your situation?
Planning and Monitoring – can you set goals and monitor your progress?
Focus – do you have the discipline to avoid distractions and stay on track to your goals?
Social Indifference – do you feel a need to spend to display social status or are you socially indifferent to the spending habits of others?

Clearly, most of these traits are either innate or learned behaviors by the time we’re income-earning adults. But, Dr. Fallaw’s research shows that we can improve these traits – sometimes by ourselves and sometimes with help.

In fact, the investment firm Vanguard’s “Advisor’s Alpha” study has researched financial advisors around the country and found advisors add, on average, 3% in incremental return to a client’s investment portfolio annually. This means clients’ annual returns are, on average, 3% better if they use an advisor than if they go it alone. More important to this conversation is that 1.5% of that incremental return is related strictly to helping their clients change and/or improve their financial behaviors. Advisors help them develop and enhance those six traits that are important to building wealth.

Need to be more frugal? Maybe assistance developing a budget will help.

Need help setting goals and monitoring your progress? A good financial planner will make that the first exercise in the engagement.

Do you have a desire to become a “millionaire next door”? If so, really think about those six traits and, as honestly and objectively as you can, ask yourself how good you are at each one. And, then, what areas would benefit from some help?