Yes, Money Matters

by Roger Reid

When I ask folks what they regret most in their lives, I get the usual, expected responses—

“I wish I’d spent more time with my family.”

“I gave up too soon on something that was important to me and now I wonder . . .”

“I wish I’d taken better care of my health.”

And then . . . they talk about money.

I want to make it clear these are not death-bed confessions, but responses from those in the fourth-quarter of life—active seniors who are still very much concerned with the responsibilities and obligations of life.

Many wish they’d been more frugal in their youth, or started investing at an earlier age, or been less gullible when they were talked into buying a ten thousand dollar collection of Beanie Babies, because “the value was sure to double in a year.”

The overwhelming consensus? Regardless of how we pursue our career goals—as an employee or an entrepreneur—there’s a need to build financial security as the years pass so we can ultimately reach a point when we no longer need to worry about how we will pay our bills and provide for our families.

Yes, I hear the argument from those quick to point out there’s more to living a successful life than the acquisition of wealth. But that premise assumes there is money—maybe not a fortune, but the minimum amount necessary to pay for food, shelter, clothing, and transportation—essentially the basic necessities of life. The idea of relegating money to a lesser priority is easy when you have it. A friend of mine suggested an attitude of indifference over money is just as often the result of having made a killing in the stock market as it is an ill-conceived smokescreen to conceal the fact that you’re broke.

Giving money a respectable priority in your life doesn’t mean compromising your values. A lot of the advice trending within the transformation and human potential community is focused on living a more balanced life—dialing back our obsession with wealth, and re-directing our attention to the often ignored aspects of health, spiritual awareness, and personal relationships. And while this makes sense in theory, it draws its premise from the assumption our passion for money is driven by an unhealthy desire for material possessions, conspicuous consumption, or outright greed.

But what if our motivation for money is fueled by need, to establish financial security, to insure basic survival and attain a minimum level of comfort for an unpredictable future? The key is not to confuse realistic ambitions with insatiable materialism.

So in spite of all that advice telling us to keep our priority on money and wealth-building in balance with the other aspects of our lives, we can’t escape the truth: For most of our lives, money must matter.

The number one reason to keep financial goals at the top of your list?

Nobody wants to work forever . . . because they have to. And yet, I see it every day—men and women in their mid-seventies employed as cashiers in supermarkets or working as clerks in big box stores.

Yes, a few are still performing hourly work because they enjoy it, but they’re far from the majority. Curious about what motivates them to keep working, I often approach obviously older workers to ask them how they like their job or how long they’ve worked there. Invariably, the conversation turns to why they’re still working full-time at such an advanced age.

The answer never changes . . . “I need the money. I can’t make it on social security alone.”

Many of these folks previously held professional jobs and received relatively high incomes—until they reached retirement age and were discharged due to social stigma and age discrimination. Others were heavily invested in real estate or specialized securities, and lost the bulk of their savings just as they were transitioning into retirement, requiring them to go back to work.

I met one man who had been a pilot for a major airline for over thirty years and had been looking forward to filling his “golden years” with hobbies, cruise vacations, and spending time at home with his wife. After discovering his retirement fund had been completely wiped out, he was resigned to spending his days helping customers at the local Home Depot. Too old to resume his job as a commercial pilot, he found his skill set reduced to that of an entry level employee one-third his age.

Here’s the take away:

The importance we place on money—and its absolute value (what we ultimately use it for)—changes as we age. In our youth, we tend to believe the money will always come, and that we still have years of earning potential ahead of us. We also believe our income will increase over time, making it easy to push the idea of serious investing into the future. But nothing is guaranteed, including our career or earning potential.

Regardless of how you make your living, a portion of your income should be earmarked for saving and investing. Very few companies offer the traditional retirement benefit plans that were common thirty years ago. And there’s plenty of “retired” employees who counted on receiving a monthly retirement check after working for thirty to forty years, only to learn the company benefit fund was either underfunded, leaving them with far less income than they expected, or broke, leaving them with nothing. For them, retirement now means working a new full-time job to make ends meet.

I’m not a financial advisor, stockbroker, or professional investment counselor. The following suggestions are based only on my personal experience—what I did right, and what I would change if I could go back and make a few adjustments. Maybe you’ll find them useful. Maybe not. Think of what follows as basic advice from someone who has nothing to gain or lose from the way you decide to manage your money.

Think long-term. If you’re going to invest in securities, don’t allow quick swings in the market to prevent you from making clear, objective evaluations and decisions. And that applies to both buying and selling. Your age is the number one determining factor in calculating the effect of market cycles. Gains and losses during a five or even ten-year cycle are not significant milestones to someone in their twenties. However, a sixty-five-year-old will definitely be concerned about market timing and should have this parameter built into their exit strategy as well as their choice of investment product. If you’re concerned about volatility, here are two basic strategies that have served many investors well: When buying into a new or unproven company, use a stop-loss to cut losses and take profits by selling half the stock’s value after it doubles.

Use reasonable and intelligent diversification. If most of your earning years are ahead of you, you may choose to divide your funds between conservative investments and higher risk alternatives. It’s not rocket science, and you don’t want it to be. The main purpose for diversifying is to balance the risk and reward among different industries or types of products, preventing a severe loss to your portfolio if a single industry experiences a melt-down (as real estate did in 2008-2011).  Depending on your goals (and your age), you may want to consider a portfolio that provides income and equity buildup. For example, I often see a mix of blue-chip stocks and rental real estate.

A 401K plan is your best friend. If your company offers a 401K plan, contribute the maximum amount allowed. Mine permitted up to twelve percent of my income, with six percent matched by the company. I know several people who did nothing more than utilize their company sponsored 401K to create a comfortable retirement income.

Preserve your principle. If you use a professional investment advisor, make this your mantra. Under no circumstances should you invest in anything that has no intrinsic or salvage value (unless you have a built-in stop loss).

And stay away from salesmen hawking sure-fire, guaranteed return, alternative investments. By alternative, I mean things like artwork, rare coins, books, guns, antiques, and anything that eats or requires veterinary care. I realize some of you may collect coins or stamps or have a china cabinet full of plates and figurines. But unless you’re an expert in the field and have lots of experience trading in those specific wholesale markets, you have a hobby, not an investment, and you should discipline your purchases accordingly.

Avoid investments you don’t understand or that have no “core value.” Years ago, so called “tax shelters” were sold as investments. They used loopholes in the tax law to generate income. Most have been eliminated, but once in a while, I’m presented with a “leveraged opportunity” that has no core value, or in which the actual market value of the asset is kept at arm’s length from the investor. I’ve seen privately managed funds created to invest in commercial real estate, rare coins, used blue jeans, a men’s magazine, restaurants, Salvador Dali prints, leased train boxcars, and custom homes to be built on speculation. In my experience, those who “invested” in these ventures lost their money.

Know exactly how fees, commissions, and other charges will be calculated and assessed. For example, if you decide to invest in stocks or mutual funds, get full disclosure about all fees, including account maintenance and termination charges. If the broker or sales representative balks or says they’re minimal or standard for the industry, find another broker.

Don’t confuse passive investing with participating in a business operation. Often described as a method of creating a second income stream, these schemes usually give themselves away by requiring the purchase of inventory, stock, or samples. If you have to recruit others, promote, sell, or endorse the product or company to achieve or raise your equity participation, you’re not investing, regardless of what the pretty brochure says.

That’s it! A few simple rules to help guide you in setting up your own investment plan to fund your future. The main thing to remember is to start putting away money now. The sooner you start, the more time your money will have to grow.

The alternative? Cross your fingers and hope that Home Depot is hiring.