One thing you’ll quickly realize in your personal finance journey, is that everyone has an opinion on the matter. Well, I guess everyone has an opinion on everything, even if they state “no opinion”. Nonetheless, people are very vocal about personal finance. You can probably compare “my investment guy is the best, you should talk to him”, with “we’re not like a normal church, it’s completely different here!” Here are some of the “opinions” you can expect to hear.
- I have a “money guy”, he’s great. I don’t know what I would do without him. Would you like to give him a call?
- If you’re not buying [insert stock here] you are crazy! I made $2,000 last month and it was EASY!
- Why are you in the stock market, you know you could lose everything, right?
- I only lease vehicles because I like driving a new one all the time. Why would you ever buy?
- If you care about your family, the first thing you should do is buy a nice universal or whole life insurance policy!
- The market is going to collapse, it is way overvalued.
- My friend in real estate said there will be a foreclosure surge by January, if you have a second home, you should sell it! Oh, and if you are thinking of buying rentals, DON’T!
- Real estate is time consuming and you shouldn’t invest in it unless you want a second full-time job.
- Tom Brady is the GOAT.
Okay, the last one is actually true. Not debatable!
You guessed it, I hate every one of these (minus the last one, again). In fact, I had to take a break from writing this to rip one of my doors off of its hinges and throw it in the fire pit (kidding). The above opinions are why people are scared of personal finance. They are meant to impose a singular thought, that oftentimes, isn’t correct by itself, much less when you add some other pillars of personal finance to it. Below, we’ll talk about the value in developing a plan, sticking to that plan, and IGNORING THE NOISE, and yes, STAYING THE COURSE!
Develop a plan you are comfortable with
The most important part of your plan is that you are comfortable with it. You should clearly lay out your end goals for 10, 20, 30, etc., years from now, and then build your plan to reach them. If using any retirement or brokerage accounts, you’ll want to assess the asset allocation (AA) you are comfortable with. This is normally expressed as a stock to bond split and will be shown as 70/30, with the first number being stock and the second being bonds. In this case, it signifies 70% stocks/30% bonds. This is a general picture of how your stock investments are allocated. This overall plan should also incorporate real estate holdings, pensions, modest social security, and any retirement accounts. This is a huge part of the plan for a lot of people, and appropriate forecasts should be made. Remember, your total financial plan shouldn’t be short term, you should be playing the long game to retirement. If you have short term goals, that’s fine, and they can be included, but make sure you forecast far enough into the future.
The bucket strategy
I won’t lie, I’m not 100% sure this term was made up by me. Okay, so I’m pretty certain it was not, but it’s certainly worth repeating so I’m going to lay it out for you! The bucket strategy is a thought process that revolves around having multiple ‘buckets’ of income at retirement. The more buckets you have, the safer you are. The more buckets you have, the more failsafe your plan is. These buckets can include pensions, social security, vacation rentals, long-term rentals, retirement plans, side hustles, and more! By creating diverse streams of income prior to retirement, you’ll be better prepared to weather the storms that may come. And if no storms come, you’ll be viewing the shores of Greece and Italy from your Viking Cruise ship.
Stick to the Plan
This closely ties with ‘Ignore the Noise’ below, but I’ll separate them for emphasis. Developing a plan is fairly simple. After all it’s a “plan”, you haven’t actually done anything yet. Sticking to that plan when the market drops 25%, or when foreclosures hit an all-time high, or when your spouse is unexpectedly pregnant, is another story. Hall of Fame boxer Mike Tyson said it best when he stated that “everyone has a plan until they get punched in the mouth”. This could not be more accurate when it comes to personal finance.
Control what you can, don’t react to what you can’t. Can you move the stock market? No. Can you prevent a housing collapse? No. So why try? Instead, have a plan that can weather these events. Maybe your plan is to purchase another rental property in the future, and the mass foreclosure event makes this more attractive than ever. Maybe you have $50k in an EF that you no longer need $25k of, so you can buy your favorite ETF or Mutual Fund at a very low price. These are the moves that prepared, rational, individuals make during adversity. The inverse reaction is panic. Sell everything. Sell all your index funds and take a flyer on GameStop (too soon?), trade in the Mercedes for a KIA Soul (I hate this car), give the dog to the shelter, or trade in the beach house for a duplex in a small town. Whatever knee-jerk reaction you can think of, someone has done it!
There are some guarantees in investing. If you buy a total stock market ETF in 2020, it’s nearly guaranteed that it WILL be worth more in 2050 (if it’s not, we are all in trouble). If you put all of your money under the mattress, inflation WILL start to devalue your investment. If you buy 10 rental properties and also hold equal amounts of stock, you ARE more diversified and more likely to weather the storm. And finally, if you stick to your plan, you ARE far more likely to succeed. Stay the course!
Ignore the Noise
Now let’s talk about all of your friends, family, and acquaintances, who clearly know everything about personal finance, NOT! They will have all sorts of opinions ranging from every end of the spectrum. One friend will tell you to go all-in on Tesla, while another will tell you to buy gold bullion, all while your crazy uncle is telling you to buy antique spanish typewriters. This is America, her best quality is that everyone has a voice. I’m just telling you to ignore that voice when it comes to personal finance. And for the love of God, don’t let someone introduce you to their financial advisor, AKA “money guy” that wants to invest your assets for a borderline criminal fee of 2%. Friends don’t let friends pay 2% fees. Full disclosure – I did let AJ Sheff talk me into buying rental properties, but this was after much research and years of built up trust with my fellow Wealthy Idiot founder!
Have you turned on any of the major news network programming regarding the stock market? You should give it a try for educational purchases. On Tuesday, they’ll say, “stocks are at an all-time high and are significantly overvalued. We have to expect a large correction soon. Investors should be cautious”. On Wednesday they’ll say, “Stocks are soaring today on consumer optimism, why this could continue into 2021!” I know, conflicting storylines. This is literally every news website that reports anything on the markets and personal finance. You are best to ignore it, and instead, stick to your predetermined plan.
Develop a plan. Stick to the plan. Ignore the noise. Stay the course – do this, and you should be able to realize your own financial destiny.
