How to Start Investing With Just $100

Investing your money into the stock market and bonds isn’t something you do later; it’s something you start doing as early on in your life as possible. Why? To give your money the most amount of time to work for you.

You see, if you save $100 in your sock drawer, 30 years from now when you go to check on it, you will still only have $100. Conversely, if you invest $100 in a mutual fund, even if you never made another investment, with a 7% annual return it has the potential to grow to $761.23 after 30 years with the help of compounding interest.

This amount is clearly not enough to retire on, but the point is to illustrate that by doing nothing at all your money can get to work and grow for you over the long-term if invested. Which is why investing is such a powerful tool to help you reach your financial goals and enable you to save enough to support your lifestyle and needs in retirement. 

How Does Investing work?

Here’s what every new investor needs to know and how to get started:

Investing 101: A Brief Background

You understand the benefits of investing, but how exactly it works can be summarized like this. Investing is simply putting your money to work for you. Here are the core types of investments any new investor should be familiar with:

When you invest in stocks, you are taking a bet on capitalism for lack of a more eloquent definition. You essentially become part owner of the companies in which you own stock. You invest in companies over the long-term. As a company grows and becomes more profitable, so do you because the stock price rises and profits may also be distributed in the form of dividends.

When you invest in bonds, you are also investing in a company or government, but you are more specifically lending them money, in which they pay you back eventually in the form of principal plus interest. These are considered safer investments and will yield a lower return rate than stocks. (For related reading, see: The Basics of Bonds.)

When you invest in mutual funds or exchange traded funds (ETFs) you are investing in a group of both stocks and/or bonds. By owning a share of a mutual fund or ETF you are owning a piece of all of the stocks and bonds that are held in that fund, allowing you to be more diversified than owning a single stock or bond. This is generally less risky than buying just one stock or bond.

Getting Started in Investing: What’s First?

Now that you understand the different types of investments that are appropriate for the new investor, getting started is easier than you might think. (For more from this author, see: 4 Steps to Help You Build Wealth Right Now.)

For most people just starting out with minimal assets to invest, there is a lot you can do on your own with the help of technology and online tools. Robo-advisors are automated, algorithm-based online wealth management services that provide portfolio management based on your responses to a simple risk tolerance questionnaire. They use the same software as financial advisors, but they only focus on portfolio management and don’t offer holistic financial planning services that account of other aspects of your financial life.

This is perfectly fine to get you started and get you invested. Once your money and your income grows to a point that feels more complicated to handle on your own, you can always seek out a financial professional to help you. But to get started, here is a list of a few solutions you can check out:

• Betterment
• Wealthfront
• Charles Schwab
• WiseBanyan

Final Thoughts

If you’re ready to take charge of your financial life, you’re already on the right track. Long-term investing can only benefit your financial life if you start. So, start where you are and do what you can. Establishing this important habit of saving and investing has the life-long potential to increase the quality of your life in retirement.

CR: https://www.investopedia.com/advisor-network/articles/022417/how-start-investing-just-100/

The 3 Biggest Money Mistakes Millennials Make

Did you know you’re primed for financial success when you’re in your 20s and 30s? You’re in the best position to build and grow wealth because you have time on your side. Now is when you should start saving and investing a percentage of your income to give your nest egg time to benefit from compounding. Of course, you can lose ground on your path to financial success if you make big mistakes along the way.

Dealing with Money Mistakes on the Path to Progress

It’s not necessarily the end of the world if you slip up and make some money mistakes as you go. A few mistakes probably won’t derail you from where you want to go. Even something that feels like a really big slip-up today might just look like a blip on the radar when you look back in 30 years. In fact, mistakes can be good for you if you learn something about yourself, your money or your life. This is a positive way to look at mistakes, but in addition to being optimistic, we need to be realistic. And the reality is, there are some big money mistakes a lot of Millennials make. These are the kinds of things that can seriously impact your financial situation in the long-term if you don’t address them now. 

Here are 3 of the most common money mistakes Millennials make, followed by some suggestions on how to fix them and get back on track immediately. 

1. Spending on Status Symbols

There’s a quote you may have heard, which is frequently attributed to the writer, Robert Quillen: “Too many people spend money they haven't earned to buy things they don't want to impress people they don't like.” It’s been credited to everyone from Will Rogers to Will Smith, but regardless of who said it or how exactly it was worded, it contains a great bit of wisdom. Spending on stuff is not going to make you happy. Spending on stuff because society says you should? Now that will leave you downright miserable. That’s not to say you should never spend on luxury items or use your money to buy things you will use and enjoy. But if you take it to an extreme, you’re going to have a lot of stuff and very little wealth to show for all your hard work. (For related reading, see: 5 Ways to Stop Emotional Spending.)

As one Quora user put it after she realized she had squandered thousands of dollars on useless items, “I wasted time, effort, and mental energy on caring about material goods and the superficial pursuit of looking rich. Ironically, my efforts to appear rich actually had a negative impact on my actual wealth!” One potential solution to this mistake? Stop spending to impress other people. Reduce how much you spend on stuff. Focus on spending time doing what you love with people you care about instead.

2. Throwing All Your Extra Cash Toward Student Loans

Let’s say you have a $250 student loan payment you need to make every month. But this debt drives you crazy, and you hate that you’re spending money on interest. You know if you can just pay off the loan, you’ll be free from your debt and you’ll also save money, since the faster you pay it off, the sooner you can stop paying that interest. So you put $500 per month toward your loan instead. You can’t save or invest any money, but you’re on the fast track to being debt-free.

You might think you’re doing the right thing by trying to pay off your student loans as fast as you can. But have you considered you might be missing out on an opportunity to build wealth with some of that money? If your student loan debt interest rate is around 4%, you might be better off putting your money in the stock market and investing for a better return. If you can earn a 7% return, for example, you’re financially better off if you continue to make your $250 student loan payment and put your extra $250 into the market. You need to make at least the minimum payments on your debt, but if you have money left over, consider investing it so you can build wealth while also paying off what you owe. (For more from this author, see: Crush Your Student Loan Debt With These Tips.)

3. Avoiding Investments Altogether

You could be making mistake #2 because of mistake #3: fearing the stock market. This is understandable because you probably saw a lot of people, your parents included, suffer during the Great Recession. Millennials were between the ages of 10 and 25 when it hit—prime formative years for our ideas about money. You may feel like there’s no way you’re going to let Wall Street take your money, too. The thing is, investing in the stock market isn’t all like how they portray it in The Wolf of Wall Street or other Hollywood movies. Yes, there are a lot of ways to lose your money in the market. But smart, strategic investors who invest rationally, and avoid get-rich-quick schemes, can build wealth over time by investing appropriately for their own goals and time horizon.

Even if you are very familiar with the 2008 financial meltdown, what you may not realize is the people who got burned the worst were the ones who sold when the market bottomed out. What about the people who held on to their assets between 2008 and today? Their wealth grew, because they never sold and actualized their losses. Until you sell, your losses are unrealized – which is why it’s so important to stay invested for the long haul, even through turbulent times in the market. If you’re still not convinced you can manage risk and invest strategically, consider this: you might take an even bigger risk by not investing at all.

Say you save money in a savings account where it earns 1.6%. Better than risking it all in the market, right? Well, not really. Over time, inflation will erode the value of your money and leave you with cash that’s worth less in 30 years than it is today. Inflation tends to increase at roughly 2% every year. Compared to your interest rate, the money you put in this year will actually lose purchasing power over time. So take the leap into investing—just make sure you’re doing it right.

If you've recently graduated from college and landed your first real job, saving and investing for your future may be the last thing on your mind. But setting aside some of your hard-earned money where it can grow, and avoiding these three money mistakes, will make the rest of your life more enjoyable.

CR: https://www.investopedia.com/advisor-network/articles/3-biggest-money-mistakes-millennials-make-and-how-fix-them/

How Financial Mistakes Can Lead to Future Success

Sometimes I feel like we are scared of a good fight. I’m not talking about fisticuffs. I’m talking about the everyday struggle that we all have.

I’ve learned that when you start a business, there are days when you wonder why you didn’t start earlier and there are days you wonder if you’ve made a mistake. I’ve been fortunate that most days are positive, but I’ve also learned that there is value in the days of struggle. It might not feel like it when it’s happening, but learning to embrace the days when things aren’t going well is an important part of becoming a better person.

When creating your financial plan, you’re bound to realize you’ve made a few missteps along the way. When you make a mistake, instead of letting it affect the future of your financial plan, think about how you can do better next time. How can you change the way you do things, so you don’t make that mistake again? I’ve always believed that mistakes are free lessons on how to improve. When it comes to creating your financial plan, it’s not your ability to avoid mistakes that is going to make you successful; it’s your ability to learn from them. (For related reading, see: The Way You Think About Money and Your Finances.)

Financial Planning Is Not Always About the Numbers

You can’t have a financial plan without numbers, but you are able to choose how important those numbers are to you. When we become too fixated on the numbers, we forget the reason for having a financial plan. When you make financial decisions based only on the numbers instead of the outcome you wish to accomplish, you open yourself up to mistakes.

Here are some questions to ask yourself when making financial decisions:

1. Is this something that is an important part of who I am and who I want to be?
2. Will using these resources provide me with greater satisfaction and happiness in the long run?
3. Will this decision get me closer to what I value most in life?

By asking yourself these questions, not only will you learn from your previous mistakes but you will avoid making those mistakes again.

When I first started my career as a financial advisor in 2006, I had to pay to get my securities licenses. I gladly maxed out my credit cards to do so. I didn’t think about what that meant for the future, or if this was something that I wanted to do long term. I just wanted to be able to say that the four years I spent getting my education at Northern Michigan University meant something. That I had a real job and the success that came with it.

What I soon realized was that short-term thinking caused me a lot of long-term suffering. It took me over a year to pay off those bills, and there were times when they weren’t getting paid at all. It was a mistake that I vowed not to make again, but it was also a mistake that I wouldn’t erase.

Learning Financial Mistakes the Hard Way

Sometimes we make the same mistakes over and over again. It’s not that we don’t know that we shouldn’t make those mistakes, it’s that we haven’t learned a better way.

No one enjoys budgeting, saving money, or controlling spending. Some of us do it out of obligation and some of us don’t do it at all. To understand our feelings towards money, we need to look back to when we first learned about money. By understanding how we developed our feelings about money, we can begin to learn from our mistakes. (For related reading, see: The 3 Most Important Tips for Your Financial Plan.)

Here are some questions to help you understand your earliest feelings about money:

1. What is your first memory of money?
2. What money lessons did you learn from you father?
3. What money lessons did you learn from your mother?

The things we learned about money from a young age often lead us into making mistakes as adults. By understanding why you make mistakes, you can start to learn the valuable lessons to move forward.

Mistakes as Part of a Brighter Financial Future

When it comes to changing your money habits, I am a big fan of goal setting. We need a deep understanding of your values and experiences to start building your financial plan. By setting goals tied to what you value most in life, you give yourself the ability to learn from your mistakes. It also becomes easier to make the changes necessary to achieve those goals.  

Having more money doesn’t solve most problems. It’s what you do with the resources you have that leads to a rich and fulfilling life. By viewing your mistakes as learning experiences to create a better life, you better your chances of accomplishing the goals you have set. (For related reading, see: Make Better Financial Decisions With These 3 Tips.)

CR: https://www.investopedia.com/advisor-network/articles/010617/how-financial-mistakes-can-lead-future-success/

4 Steps to Financial Independence

Financial success is rarely the result of one defining event in a person's life. Rather, it’s more likely the result of good money habits over months and years. It's not complicated: people can achieve financial success by demonstrating a few smart behaviors.

Here are four smart money behaviors to help you achieve financial success:

1. Discipline and Commitment to Financial Goals

Long-term financial success doesn’t happen overnight. In fact, lasting financial success is usually the result of being disciplined with your money and committed to your financial goals.

Achieving financial goals, similar to reaching physical fitness goals, happens when you commit to a plan of action and stick to it. It will require a time where you say no to certain types of spending to prioritize larger goals. When it comes to your money, it’s a zero-sum game. Each dollar you make can only be either spent or saved, which means you can only allocate toward one goal at a time. You have to stick with the plan and make the tough choice. (For more from this author, see: 3 Crucial Tips for Living Within Your Means.)

If it feels hard, it’s because it is. If financial discipline were easy, everyone would be able to do it.

2. Patience in Investing

Patience is a key behavior of the financially successful. Why? Because when you are patient and stick with an investment plan, you can trigger your greatest advantage as an investor, compound interest. The problem with compound interest is that it takes a long time for the real benefits to kick in. It doesn’t happen overnight. In fact, your dollar begins to exponentially grow after years 35 and 40. That’s a long time to invest and ride the ups and downs of the market. But it’s worth it. (For more from this author, see: Understanding the Power of Compound Interest.)

3. Motivation to Reach Financial Independence

Along with being disciplined and patient, the road to financial success is filled with motivated individuals who are enthusiastic about reaching their vision for financial independence. Motivation is the characteristic that will help you continue to push forward even when your financial path is inevitably impacted by unforeseen detours.

Negative events like the loss of income or illness can affect your personal finances, even when you are prepared with an emergency fund or adequate insurance coverage. Positive events like the birth of a child or a need to relocate with a new job or promotion can also create speed bumps on your path to financial success.

The path to your financial goals will not be a straight line. It will be filled with loops and even a few steps backward. However, remaining motivated to reach your financial goals and making necessary adjustments to your moves along the way can only help you achieve the long-term financial success you seek.

4. Keep Calm

The investment world, despite what you see on TV, is a place for calm deliberation, not emotion-fueled decisions. This can be a difficult lesson for some people to learn, especially those who are passionate by nature. But there's nothing more important to your financial success than exercising objective decision-making.

The market is going to fluctuate whether you want it to or not, so you have to be prepared to stay the course until it becomes stable again (and it will). The same thing applies when sudden spikes occur. It's important not to act in a reactionary way to either of these conditions. Stay calm and confident no matter what happens and you'll maximize your success over the long haul. (For related reading, see: Logic: The Antidote to Emotional Investing.)

It’s when people feel insecure about their finances and want instant gratification that they wind up chasing returns and trying to time the market that financial missteps occur. 

Winning Financial Behaviors Lead to Your Goals

It's an uncertain world, especially when it comes to finances. It's natural to experience doubt and trepidation when considering your financial future. Fortunately, this anxiety doesn't have to consume you or force you into poor decisions. By following these guidelines for winning financial behaviors, you’re that much closer to reaching your financial goals. 

(For more from this author, see: 4 Steps to Help You Build Wealth Right Now.)

CR: https://www.investopedia.com/advisor-network/articles/increase-your-financial-success-these-3-winning-behaviors/

Financial Advisor: The Most Misunderstood Title

Most professions have a measuring stick to quantify a reputation or skill set. Medical degrees, law degrees and teaching certificates represent recognizable benchmarks for their professions. Our proud service men and women use a chain of command that instantly indicates their level of responsibility. So why is it so difficult to determine whether or not a financial advisor is worth their salt?

The term “financial advisor” may very well be one of the most misrepresented professional titles. Reason being: Almost anyone can call themselves one. Don’t get me wrong, the financial services industry puts numerous exams and stipulations in place to license and track advisors, but just like any standardized test, a passing score isn’t necessarily a great barometer for quality. According to WalletHub there are over 250,000 advisors across the country. Thankfully, there are ways to help you to determine the background, experience and type of advisors out there.

Professional Designations for Financial Advisors 

Designations such as the CFP (certified financial planner), CFA (chartered financial analyst) and the already recognizable CPA (certified public accountant) give consumers a basic understanding of the training someone has endured. In any vetting process, educational background combined with a professional designation is one of the first things to look for. It’s not to say the absence of one is bad. I know many advisors who do a good job for their clients and don’t have letters after their name, which brings me to my next point. (For related reading, see: A Guide to Financial Designations.)

Experience

Type can often be more valuable than tenure. While it’s comforting to see lots of years in the industry, that experience may not add up to a whole lot of knowledge. Here’s a shocker: Some financial services organizations allocate more resources to sales training than education. A good way to decipher experience from fluff is to interview. Just like any job interview, pointed open-ended questions help to uncover details. What types of clients have you worked with? What is your investment philosophy and why? Situational inquiries such as, “Tell me about the message you were sending to your clients back in 2008 and 2009 during the financial downturn,” provide a window into what the experience and expectations could look like.

Background

Finance is one of the most regulated industries on the planet, largely because it involves money management. A background check is a great way to examine an advisor’s experience, licensing and whether or not any complaints have been filed against them. FINRA (Financial Industry Regulatory Authority) provides a great reference tool.

Hint: It will also help you to recognize the different types in the next topic.

Fiduciary vs. Suitability

There’s a difference between suitability and fiduciary. Similar to the Hippocratic oath to do no harm that a licensed physician takes, a fiduciary is bound by law to act in your best interest. Believe it or not, this isn’t a requirement for most financial advisors. Reason being: If they sell commission-based products, the only obligation is to make sure the product is suitable for the investor. The phraseology here is interesting. If you were to ask an investor which they would prefer—something that was in their best interest or something that was merely suitable for them—you would likely receive resounding support for the former. (For related reading, see: Choosing a Financial Advisor: Suitability vs. Fiduciary Standards.)

Consider the idea of a doctor being solely compensated based upon the treatments or medicines they recommended. The conflict of interest would instantly be apparent. Entering into an engagement with an advisor whose compensation is based upon the commission from a product sale isn’t a heck of a lot different from this scenario. The incentives often work in the opposite direction of what's in your best interest, even if they're trying to do the right thing.

As fiduciaries, fee-only registered investment advisors receive zero commissions because the only product they have to sell is their expertise, something that is quantifiable and transparent, as opposed to sales commissions, which are often wrapped into the complexities of a financial product's expense.

It’s important to point out the dilemma fee-based advisors face. Namely, when is it appropriate to sell products to a client based on a standard or suitability, and when is it appropriate to provide advice as a fiduciary acting in their best interest? Many see this as a contradiction. Why wouldn’t someone want to act in my best interest all the time? It’s the critical question that should be asked of every financial professional. (For related reading, see: Fee-Based Brokerage: Will They Work for You?)

Hopefully this sheds some light on a confusing topic. A word of advice would be to know what type of advisor you are speaking with before you even interact with them. Due diligence up front is key because in a business populated by a litany of salespeople, judgment can sometimes get cloudy after a face-to-face meeting.

Financial professionals are always being mischaracterized, partly due to an industry that intentionally blurs the lines. Most true fee-only financial advisors loathe being inadvertently called brokers, and brokers often do little to clarify that they aren’t actually acting in a fiduciary capacity. I’m not sure if we’ll ever get away from blanket terminology, but I am sure that individual investors are better served when they’re empowered with the knowledge to make informed choices.

(For more from this author, see: The Bull Market Anniversary and Long-Term Investors.)

CR: https://www.investopedia.com/advisor-network/articles/financial-advisor-most-misunderstood-title/

Why Investors Need Advisors Who Are Fiduciaries

Pity the average investor looking for the answer to the question we all face: "Will I have enough?" With millions of baby boomers now facing the challenge of retirement and the desire to maintain a hoped-for lifestyle, the search for a competent advisor who will put the interest of the investor first is not one that can be easily undertaken. Yet, the new administration's campaign to disrupt the status quo and remove the new Department of Labor regulation requiring advisors to act in the best interest of the client in regards to retirement accounts is very bad news.

Over my decades in the industry, it has become abundantly clear that most individual investors are clueless about how to go about finding a proper advisor. Although the major brokerage houses and insurance companies will happily sweet-talk you with offerings that are best positioned to improve their own bottom lines, the odds of finding the right person are not good.   

In the absence of a fiduciary requirement, all that's required of the non-fiduciary financial advisor is that the product or service being offered is suitable. And, no surprise, the definition of suitability is so broad that almost anything other than the Brooklyn Bridge might be appropriate. Add a slick presentation, a big smile and lavish offices, and you have a package that has all the hallmarks of something worthy. Which is why many investors end up paying more and getting less than they should.

Not only that, but there's an alphabet-soup range of designations for financial advisors. Most are rubbish. Indeed, some are available as a low-cost purchase online to almost anyone. So when you see a long list of letters after someone's name, think of Campbell's Soup. The two that are meaningful are CFP (Certified Financial Planner) and CFA (Charter Financial Analyst). The others are either insurance salesmen or traders in snake oil. (For related reading, see: A Guide to Financial Designations.)

All of this is shocking since we all know that MD means doctor. So why not have a designation like FID for financial advisors who are fiduciaries? Wouldn't that make it easier and reduce the abuse?

Abuse by advisors has continued for years. The best of times for stockbrokers were before that dark day in 1975, when discounted commissions on stock trades began. Before that, commissions on individual trades often ran $100 or more. Fast-forward to today, when commissions are typically $10 or less regardless of how many shares are being traded, and you begin to get the picture. (For related reading, see: Investors: Don't Let Fees Reduce Your Returns.)

Want to get rid of commissions? Get a wrap account if you can afford it. Wrap accounts began to appear when brokerage houses looked for a new source of income. In the interest of providing an apparently more palatable option to investors, they developed an all-inclusive, fee-based product that provided guidance, commissions and hand-holding. The earliest of these were expensive, typically an annual fee of 3% of assets under management. So if, for example, the annual gross returns on your account were 6% a year, the brokerage house became an equal partner. As investors got smarter, wrap fees came down. Even so, they are still in the area of 1.5% today, which, in my opinion, is overpriced by a third.

But there's more. Think about mutual funds. When mutual funds first came on the scene, there were hefty sales charges, or loads, attached. Yes, they certainly were. In those days, the loads ran as high as 8%. As time passed, some came down to 5% while others came along with no sales charges. These days, funds with no sales charges are the rule, not the exception. Even so, should you choose to visit a nearby brokerage office for help, load funds will probably be on the menu. 

Think about whole life insurance. That's the one where you keep paying premiums, build up cash value and provide protection for your family. What could be better? The answer: term insurance, which is considerably less expensive. Why? Because when you buy whole life, a hefty chunk of the premium goes to the salesperson as a thank you for his efforts. What's more, the buildup in cash value over time is usually less than what you could have earned in a properly created and monitored investment account. 

How to protect your loved ones? Get a level term insurance policy to cover specific risks, such as college tuition and mortgage payments.

All of this gets back to the fiduciary issue. The challenge facing investors seeking guidance is difficult enough. But in all cases they need to find out exactly who they are dealing with: someone who's on their side of the table or someone who's looking for another easy mark. (For more from this author, see: The High Dividend Stock Strategy: Pros and Cons.)

To find the help you need, go to www.findanadvisor.napfa.org.

A stockbroker is someone who invests your money until it's all gone. - Woody Allen

CR: https://www.investopedia.com/advisor-network/articles/021317/why-investors-need-advisors-who-are-fiduciaries/

Set and Achieve Your Goals in 2017 the SMART Way

It just happened again, 2017 is here and just like last year it seems that time is passing by faster and faster. If you haven’t already, take a moment to reflect on where you were at the beginning of last year. Not literally where you were, but how you were feeling about your current situation and the year ahead. Maybe you were starting a new job or moving to a new place; were you happy, excited, anxious? Now think about your New Year’s resolutions for 2016. How did you do?

New Year's Resolutions

Last year, on New Year’s Day, I was on the phone with my mom and we talked about making New Year’s resolutions. She felt that making a resolution was just a promise that will be broken later in the year. I told her I thought that view was cynical, but agreed. For many the new year is symbolic, it’s like pressing the reset button for a fresh start, out with the old and in with the new. But January 1 is just a point in time, no different than any other day, so succeeding with your New Year’s resolutions shouldn’t be any different than setting out to achieve other goals. (For related reading, see: Achieve Your Financial Goals With a Financial Plan.)

My buddy and I joke about how the gym is busier than usual the first few months of the year. In fact, I went to the gym this morning and it was packed, the regulars were there along with many new faces. Each year this trend is consistent. By April the crowd subsides and who’s left are mostly the regulars. That’s not to say that everyone ditches their New Year’s resolutions, but all too often we do. I’m guilty, which is why I agreed with my mom that resolutions are often broken.

Take Your Resolution to the Next Level—Set Goals 

Think about it, have you ever heard someone say “I achieved my resolution”? Probably not. But simply making up goals isn’t good enough, we need to be smart about the goals we set and have a plan to achieve them. What works well for me is the SMART goal formula—a simple way to help you develop goals and chart a path to accomplishing them. So, what is a SMART goal? Besides being a smarter way to achieve your goals, SMART is an acronym for specific, measurable, actionable, realistic and timely. Let’s dive into each step and I’ll share one of my SMART fitness goals for 2017 to demonstrate.

SMART Goal Steps

• Specific – When our goals are well defined we have a much better chance of achieving them. This is the “who” and the “what” component. Instead of saying “I want to get in better shape,” I’ll be more specific and say “I want to increase endurance to ride my bike more.”
• Measurable – It’s important to establish criteria for measuring progress towards our goals, this helps us stay on track. Think in terms of how much or how many, and when possible use numbers. Instead of saying “ride my bike more” I’ll say that I want to “pedal 600 miles total” and “cycle three times per week.” (For related reading, see: 4 Steps to Creating a Better Investment Strategy.)
• Actionable – Goals should always be action oriented; think about what you need to do to achieve your goals. It takes action to make progress towards our goals. To increase endurance on my bike I can “mountain bike, cycle in the gym, and do more leg exercises.”
• Realistic – This one can be tricky. We want to aim high when setting goals but being overly ambitious can lead to paralysis in getting started, or worse, demoralizing if we don’t achieve it. At the same time, we don’t want our goals to be too easy to achieve. Find a balance. For example, depending on your current level of fitness a realistic endurance goal could be to “complete the LA marathon” or maybe “walk up the six flights of stairs to the office without getting winded.” Since I already ride my mountain bike at least once per month and use the stationary bike at the gym quite often, pedaling 50 miles each month is realistic if I stay disciplined. (For related reading, see: How to Stay on Track With Your Budget.)
• Timely – Arguably the most important component of any goal, is when we will accomplish it. Without setting a timeline or due date we are more likely to procrastinate. If you take goal setting a step further you may find yourself creating several smaller goals to complete before you can accomplish your ultimate goal. In these cases, our timeline should have several milestones (these mini-goals or steps along the way). I highly recommend this approach because it helps us expand on our goals and makes us more accountable to completing the multiple steps required to succeed. In addition, achieving these milestones is added motivation to propel us towards accomplishing the rest of our goals. Ultimately, my goal is to complete the 600 miles of pedaling before the end of 2017.

So there you have it, to be successful we need to achieve goals, make them more than just a resolution. I just created one of my SMART goals for 2017 – increase my endurance by cycling at least three times per week, totaling over 600 miles pedaled before the end of 2017.

Now it’s your turn. You can use this worksheet to help you develop SMART goals in every aspect of your life. Make it your goal to stop setting resolutions and start planning goals with intention—the SMART way! (For more from this author, see: Credit Report vs. Credit Score: What You Need to Know.)

CR: https://www.investopedia.com/advisor-network/articles/012617/set-and-achieve-your-goals-2017-smart-way/

Financial Services Studies: Can You Believe Them?

Recently we reviewed reasons why people are skeptical when they hear various claims made by so-called research studies. Now we'll try to answer: Should we believe the science? Science is awesome. There are amazing things being studied and discovered all the time in many fields. The question is, how do you find the real science given an environment where there’s so much sensationalism and spin to present a specific and salable answer?

It can be tough with both the media and corporations preferring emotionally-charged buzz words and images that attract an audience and help to sell things.

The only thing we as consumers and investors should ever care about is the empirical evidence from the study. We want proof of the claims using real-world examples. And not just any proof, but empirically-validated proof. This means studies that, when conducted by others, generate similar results (Remember the scientific method?). (For more, see: Financial Services Studies: How Reliable Are They?)

Dangers of Trend-Hopping 

In our modern society, we always seem to be looking for the secret or magic pill that leads to easy success right now; quick, fast and in a hurry. We have become overly impatient and extremely fearful. From a personal finance perspective, this combination often leads to creation of the investment or insurance product de jour. Inevitably this leads the investor or purchaser to regrettable decisions and disastrous consequences.

So, instead of employing logic and being patient, the masses jump from trend to trend. Then they wonder what went wrong, but continue to behave as if they didn’t learn the lesson from the last disaster. Or they become too afraid to act even when the evidence is clear.

Looking for evidence and being patient is the logical and intelligent approach. No initial scientific study or theory ever has empirical evidence from the start. In financial science, studies of the capital markets and well-vetted and scrutinized long-term research have discovered factors of investment returns and a good deal more about the best way to invest over time. It has taken decades and lots of additional studies for the empirical evidence to validate the science.

Whenever I see a story or someone challenging the well-vetted research, it becomes clear that they have never bothered to read the actual research studies and are operating on hearsay. Or, more likely, they have something to sell. Investors have no trouble finding money managers that claim to be able to time the market and to figure out in advance what is most likely to outperform in the future. Mounds of evidence suggest otherwise. (For related reading, see: The Importance of Life Insurance for Lost Income.)

Looking Past the Hype

Yes, I understand consumers and investors want it now. But for an average person, patience and logic make much more sense. Empirically-validated evidence can make life much easier. In the case of financial science, someone else has devoted his or her entire career doing the work, we just need to read it in its entirety. Most of us don’t—maybe it’s due to the human condition to search for the simple and easy. So we opt for unproven hype instead of rationale. The media and corporations know this and use it to their advantage.

When we base our decisions on the long-term empirical evidence, it really doesn’t matter what the media tells us. We can easily look past the hype. Embrace the simplicity of proven scientific evidence and just roll with it. Keep rolling with it until real science suggests something better.  Remember, science, by its very definition, can always change.

Let others be the financial guinea pigs so you don’t have to be. That is unless of course you’re willing to accept the downside risks and you have enough resources or multiple lifetimes to recover. (For related reading, see: The Most Common Pitfall I See in Personal Finance.)

CR: https://www.investopedia.com/advisor-network/articles/112916/financial-services-studies-can-you-believe-them/

Every Investor Should Know This Boring Financial Term

It’s been said that risk and reward constitute a double-edged sword, inseparable and ever-present in all aspects of life. We make daily decisions with our health, relationships, time, and more that in some way demonstrate a tradeoff between risk and reward. These decisions, while seemingly trivial at times, are mental calculations that attach probabilities depending on the gravity of each situation.

So how do we calculate the inherent relationship between risk and reward in our investment portfolios? I know financial jargon is dull to most people, but this term’s impact shouldn’t be. It’s called standard deviation, and few investors have a clue as to what it means to their portfolio. (For related reading, see: Financial Concepts: The Risk/Return Tradeoff.)

Standard Deviation and Volatility

First, higher isn’t always better. Double-digit returns feel great. For risk-averse investors, double-digit standard deviation does not! As a historic volatility measurement, think of standard deviation as a thermometer for risk, or better yet, anxiety. The higher it goes, the higher your blood pressure rises during volatile times. Portfolios that report large standard deviation numbers have experienced wide fluctuations in returns, both positively and negatively, around the average return. Those with a lower standard deviation have been able to mitigate volatility, meaning the up-and-down swings of the returns aren’t as wide. (For related reading, see: Where Do Investment Returns Come From?)

How Standard Deviation Works in Practical Application

For this example, we’ll use 2x standard deviation. All that means is we’ll be multiplying the standard deviation by 2 (known as the 95% confidence interval, which basically says that 95% of the time we can expect the return to lie between these two numbers in any given year). From the beginning of 2007 to the end of 2016 the S&P 500 average annual return was 6.95%. The standard deviation was 15.28%. Simplifying the numbers: 15 x 2 = 30. Now we just add 30 to the 6.95% average return to get 36.95% and subtract 30 from 6.95% to get -23.05%. In summation, with 95% confidence, we can expect the S&P 500 return to fall between +36.95% and -23.05% in any given year based on historic volatility over the last 10 years.

Typically, as exposure to assets that tend to fluctuate more (i.e. stocks) increases, so does standard deviation. Therefore, if well diversified, a 100% stock portfolio will likely have higher historic volatility than 80% stocks, 80% higher than 60% stocks and so on. However, it doesn’t stop at the portfolio level. The underlying funds that make up your portfolio also exhibit volatility characteristics based on their makeup, sort of like a portfolio within your portfolio. For instance, you should generally expect an emerging market fund to have a higher standard deviation than a U.S. large-cap growth fund because of the historically high volatility associated with emerging markets as an asset class. Why is that important? All else being equal, two portfolios that appear similar from a general stock-to-bond ratio will likely have vastly different experiences if one has 20% more exposure to emerging markets than the other. (For related reading, see: The Risks of Investing in Emerging Markets.)

Returns should always be discussed in context of the level of risk it took to achieve them. When it comes to measuring volatility, the more years of data the better. Standard deviation shouldn’t be measured over a period of less than three years, with a preference being the inception date of the portfolio or fund. The concept of risk and reward is ever-present in our daily lives. Understanding the true level of risk in our portfolios only serves to reinforce expectations and strengthen the discipline of long-term investors. (For related reading, see: The Anatomy of Exchange-Traded Funds.)

CR: https://www.investopedia.com/advisor-network/articles/012517/every-investor-should-know-boring-financial-term/

3 Habits Happy People Use in Financial Planning

“Money can’t buy you happiness.” Chances are you have probably said this phrase in conversation. It is for the most part accepted as gospel, isn’t it? Do you know why you said it? Have you ever questioned it? Should it be gospel or is it possible that this statement has been fundamentally wrong as long as it has been around?

I propose, like others, that money can buy you happiness. But it also can buy you stress. It just depends on what you are buying with it.

Your Relationship With Money

Let’s first briefly chat about what money is. Money is a tool – a tool we can use in exchange for things, services, philanthropy and experiences. Unfortunately we are never really taught this. Most of us grow up seeing money as something to covet, strive for and to accumulate so we can then use it to buy things so others know we have money, which gives us the prized status we all think we need. We think this will make us happy. But does it?

As a CFP professional, I have been helping people with their money for over 10 years. Over the course of 5,000+ meetings I have gained some insight on the different relationships people have with their money: how they view it, what they do with it and which ones appear to be happier than others.

The book, Happy Money, suggests that money can buy you happiness. The authors’ theory is if people use money to buy experiences (like traveling, climbing a mountain and a million others), and to use it for the benefit of others (like buying a stranger a cup of coffee, clothes for those less fortunate or numerous charitable activities) that money can indeed “buy” you happiness.

The theory continues to suggest people who buy things (cars, boats, bigger houses, etc.) may benefit from happiness initially, but this happiness is short lived. These things, and the debt that accompanies most of them tend to increase stress, not happiness for people. (For more, see: Sudden Wealth: How to Handle a Cash Influx.)

Although most of us will never admit it outwardly, this stress eats us up inside, yet we continue to buy things for show so we appear to be happy and content. I believe so much in the authors’ theory that I give the book to all new clients. It helps educate and put them in a mindset that is conducive to feeling good about yourself, your money and your financial plan. This is a great frame of mind to be in when doing your financial planning.

I have helped people in financial situations ranging from those with next to nothing to those who have more money than they could ever need or spend. While taking them through the financial planning process there are three habits that I kept seeing in the people who were most happy. They also happened to be in comfortable financial situations. I suspect this is more than a coincidence. Perhaps, if you embrace the following three habits you too can be happier and more financially sound.

Focus on Experiences

Although things can give us some instant joy and happiness, it is usually only temporary. After the luster wears off of the new sports car, big house or expensive handbag, people become burdened with these things. They will never admit it. Instead they work harder to have more things because it gives them status. Status makes us happy, right? It is a vicious cycle that actually buys you stress. Perhaps it is a self esteem or ego thing, where we are struggling with an internal dilemma and need to put a Band-Aid on by buying things. (For more, see: The Virtues of Being Financially Organized.)

My happy clients see things as a burden, not a status symbol. Instead, they focus on experiences. In other words, they do things that give them great memories that can bring them happiness over and over for many years every time they think of it. Here are some of the traits I see in those that look for experiences:

• They live way below their means.
• They save.
• They focus on constantly learning and improving.
• They read.
• They travel.
• They keep an open mind.

Plan for the Worst, Hope for the Best

Most of us worry about a variety of things. It is only natural. However, I have noticed that my happy clients choose to think about life and all its twists and turns, with a glass half full attitude, not half empty. A strategy that embodies this attitude, and continues to work well for my clients, is to plan for the worst and hope for the best. In my experience in helping clients with their financial planning in this manner, they know that if the worst happens they will be okay. Anything better than the worst and they will happy. 

In planning for the worst case scenario you are essentially freeing yourself of all the what ifs. Combining this freedom with a focus on experiences appears to have a calming effect.

Give

Humans are selfish creatures. It is how we are wired. I suppose it goes back to our basic survival instincts. Yet people that make a conscious decision to be selfless, as much as we can be, seem happier than those that aren’t. (For related reading, see: 5 Financial Planning Decisions You Won't Regret.)

When helping people plan I always encourage them to be selfish first, then focus on giving to others. Why? Here is a simple analogy. If you have ever been on a plane, chances are you have heard the safety warning about how if the need should arise to use the oxygen masks above, to put yours on first before assisting others. This makes loads of sense. You can’t be of any help or service to others if you are passed out.

The same holds true for financial planning and, I believe, happiness. If your financial plan has not taken into account a worst case scenario and put strategies in place for it, then you are going to be a burden to the ones you love. The same could be said for happiness. If you are not happy within, then it is going to be very hard to make others happy.

Once you have taken care of number one (you), then it is so much easier to give to others. People that have prioritized this have been able to do so much good for others, which in turn increases their happiness. They enjoy giving money to their children. They enjoy giving to their church or a charity, etc. The point is they enjoy giving. They know they are going to be okay, so now they can focus on giving to others to make themselves and others happy. Everyone wins.

Money is a huge part of our lives. It is crazy to think that there is no real formal education for it other than watching what others do and blindly following them.  Money can indeed make us happy, but we need to shift our thinking. There is more than one way money can truly make you happy. 

The next time you are about to say “money can’t buy you happiness,” perhaps you will think twice and consider these habits as a way of making yourself, and others, happier using the tool we call money. (For related reading, see: Which Investor Personality Best Describes You?)

CR: https://www.investopedia.com/advisor-network/articles/091316/3-habits-happy-people-use-financial-planning/

The Best Identity Theft Protection May Be Free

Personal data breaches have become a part of our daily lives. It’s likely in the last few years that your personal information has been stolen via one. If you think you’re immune to identity theft or just lucky, let’s review some of the most prominent identity hacks of the past few years.

More than 70 million customers of Target Corp. had their identity compromised in 2013 through a card skimming fraud. The Home Depot Inc., in 2015, had more than 56 million of its customers’ credit and debit card numbers compromised. If you’re one of the many Boulder County (Colo.) residents who have applied for a government security clearance, you may be one of the of 21.5 million victims of data theft impacted by the recent breach of the Office of Personnel Management.

If you have had your personal information compromised, usually you are offered free identity theft protection for a few years. Beyond those free programs, there are countless identity protection services available for purchase whether it’s through your homeowners insurance policy or a standalone product such as LifeLock Inc. For about $10 to $30 a month, these services purport to put in place a secure web of protection around your identity. (For more, see: Identity Theft: How to Avoid It.)

How to Really Protect Yourself

Not only are these services expensive, but they may be giving you a false sense of security. LifeLock is well known for plastering the Social Security number of its CEO all over its ads. It turns out that the CEO’s identity was compromised many times, and LifeLock had to pay $12 million to the Federal Trade Commission and other authorities in a settlement surrounding false claims about its services. The FTC has more recently charged LifeLock with violating the agreement.

Fortunately, there is one low cost and effective step you can take to protect your identity on your own. Contact all three credit bureaus—TransUnion Corp., Experian, and Equifax Inc.—and put a credit freeze on your account. A credit freeze restricts access to your credit report and effectively prevents anyone from applying for credit in your name. It will not lower your credit score and will not affect the credit you already have in place. (For related reading, see: How to Build a Credit Report for Your Adult Child.)

Once you set up a credit freeze, each credit bureau will give you a PIN that will, along with other personal information, allow you to temporarily or permanently remove a credit freeze. Don’t lose that PIN as it’s your ticket to “thaw” your credit freeze quickly, which will allow you apply for new credit. As long as you have that PIN, you can call the credit bureau used by the company issuing the new loan or credit line. If everything is in order, you can thaw your credit in a matter of minutes over the phone. If you lose the PIN, it could take two weeks to make your credit available. (For related reading, see:How to Budget and Spend to Maximize Your Happiness.) 

If you have been a victim of identity theft and have filed a local law enforcement report, then there generally is no charge for thawing your credit freeze. That’s why you want to make a police report as soon as you have been notified that you’re an identity theft victim. If you’re not a victim, it will generally cost you—the price is determined by state laws—to temporarily thaw your credit with each agency. This is where your identity theft prevention dollars should go rather than on private services that may be less effective.

It’s also good practice to check your credit report regularly for signs of fraud, which can be accessed once a year with each credit bureau for free at annualcreditreport.com. Another good, free service funded by advertising is creditkarma.com. And more information on identity theft protection can be found at identitytheft.gov and clarkhoward.com. (For related reading, see: America's Epidemic of Financial Avoidance.)

CR: https://www.investopedia.com/advisor-network/articles/081716/best-identity-theft-protection-may-be-free/