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What’s Your 500 Year Plan?

To quote the (for this week) popular meme: Well, that escalated quickly. A 500 Year Plan. Even without any details, that’s a proclamation that’s simultaneously captivating and intimidating. After all, how often do we really hope to establish anything in our lives that will still impact the world five hundred years from now? Aside from the few whose names will grace the pages of history eBooks, we generally don’t hold much hope of actually accomplishing any such thing.

And yet, maybe we can. Maybe we don’t have to stand tall on the world stage for the impact of our lives to still be felt by our far-off descendants. Even if you can’t change the world, you can still change your family tree. It’s all about legacy. That, and a whole different way of looking at investing.

I had the pleasure of meeting another coworker late last week, and we had some very interesting conversation. This was one of the topics discussed: Oftentimes those who have been diligent to save and invest and spend wisely come to the end of their lives still owning much more than they will ever need. Understandably, their wish is often to pass this wealth down to their children and grandchildren. They want to leave a legacy.

This isn’t an unknown idea in the financial world. Far from it. The 500 Year Plan is a quote attributable to the Green family, owners of Hobby Lobby and Mardel’s. Dave Ramsey talks about The Legacy Journey. Other financial  figures have their own ways of expressing it. It’s an awesome idea, but it’s relatively rare to come across a nuts and bolts discussion of what it means to leave a financial legacy.

Consider our elderly patriarch/matriarch. Most likely, their investments have gotten pretty conservative in recent years. It’s a standard practice for many people to cut back on risk as they become elderly.

That plan definitely has its place. In fact, I would say that’s what most people need to do. Everyone needs to do it to at least the extent of being able to be sure they’ll have enough to live on even if the market goes south.

And yet, is that all there is? Does it really make sense for everything to get pulled out of higher earning investments and stuffed into bonds and CDs because that’s just what you do when you hit 65?Maybe not- at least, not if you have enough stored away to take care of yourself and to set aside a legacy for your family. What I mean here is this: if the money isn’t really for you or for your benefit anyway, why would you invest with it as if it were? If it’s for the benefit of your children or grandchildren or every generation of your family for the next 500 years, why are you calculating the risk you can take based off the assumption that you’ll kick the bucket sometime in the next decade or three? It doesn’t make sense, and it could seriously impact the future earnings of the investment if it’s treated that way.

The risk you are willing to take and the return you desire to make should be determined by the purpose of the investment itself, and the circumstances surrounding that purpose. If the investment is separate from your life, treat it like it is. If it’s designed to make the rest of your life easier, treat it appropriately for that purpose. Just always be ready and able to step back and take a good, hard look at what you’re doing with your investments and whether or not that matches up with the supposed purpose for which each investment exists.

Thanks for reading,



What Really Matters in Investing

Many people shy away from personal finance topics almost instinctively, and if you put yourself in their shoes it’s a pretty reasonable reaction. For most people the world of personal finance is a labyrinth of strange concepts and confusing formulas. It’s intimidating and confusing, and no one wants to too publicly point out their own ignorance. So we back off and do our best to ignore the whole idea.

That’s pretty understandable- I’ve been there myself. A few years ago I gained access to the small stack of cash some relatives gave me at birth to someday put toward college. There I was, not even 20 yet, armed only with the desire to not waste it and barely a clue as to what I was doing. So I gathered my shaky confidence and invested it. Since then it’s gone down and it’s gone up, and as a pleasant surprise it actually hasn’t done too badly. It’s not going to pay off my student loans by any means, but I haven’t lost my shirt either.

This illustrates to me what’s really important in the world of personal investing. We have this perception that we need to be experts before we make any moves, but that’s just not true. Over the last couple years I’ve come to agree with what I’ve heard several personal finance experts say: personal finance is 30% head knowledge, 70% attitude. Sometimes they even go in for a 20/80 split.

What does that mean? For investing it means you can be successful without knowing everything, because the knowledge is not what’s most important. Yes, try to do your due diligence in researching before you make a move, but your attitude is what really counts. Here’s how you do that:

  • Commit to being disciplined. Consistent investment is what pays off in the long run, so commit to investing the same amount every month. Resist the urge to stop your investment contributions “temporarily” to buy that new car. Make it a priority so it becomes a habit.
  • Don’t watch your feet. By this I mean that you need to take the long term view. Most of us are still decades from retirement, so what the market is doing right now is almost completely irrelevant to our plans. If the market crashes, don’t give in to panic. Instead, realize that you can buy a lot more stock for the same amount of money. Long term, stock you picked up cheap during a crash may be the best thing that ever happens to your investment portfolio.
  • Put your eggs in several baskets. Okay, technically this one is about knowledge. But this isn’t some technical mumbo jumbo. It’s just a simple principle: if you have a variety of investments, the failure of any single investment won’t hurt you as much. It’s common sense, really.
  • Never ride a wagon. If everyone is excited about a given investment, it’s probably too good to be true. This goes back to being disciplined: stick to your plan. Trendy investments often create bubbles that will hurt you in the end. Gold, for example, has lost 13.8% of its value over the past 30 days after enjoying a recession-driven run of popularity.

Flipping Houses and Fortunes?

With the recession and depressed housing markets, we’re in a time period of great opportunity for those with the financial strength to Buy. If you’re planning on building a real-estate portfolio and becoming a landlord, now is probably the best time to do it.

But there’s another type of real-estate investment out there, and it’s one that has been popular for quite a while now: “flipping houses.” The basic premise here is to buy a fixer-upper (often using large amounts of debt) and then use your spare weekend for a few months to make repairs before selling the house for a profit. While the stagnant housing markets we’ve seen recently might make this iffy on the short term, anyone who’s willing to landlord and wait a few years may stand to make a killing with this.

Of course, that assumes they can do it. It sounds like a great idea. After all, how hard could it be to fix some leaky pipes and paint a few rooms? All too often, however, house-flipping hopefuls find themselves in over their heads dealing with more severe problems than expected. Soon they’re sinking far more time, money, and stress into the project than they ever thought possible.

It’s entirely possible to do this well, of course. Just be careful. Fortunes will be made from this housing market, but fortunes (and houses) will also be lost. And if there’s too much debt in an investor’s house-flipping strategy, those lost houses might even include their own.

Thanks for reading,


Retirement for the Millenial Generation

It’s never too early to begin thinking about, planning, and investing for retirement. Not even for 20-somethings like myself. Actually, it may be more crucial right now for my generation to do this than for any other generation to do so. I’m not making light of the retirement crisis many Baby Boomers are staring in the face. That’s very real, and the need for them to ensure they do retire is very real also. What I’m saying is that their options are limited. Once you’re closing in on retirement, the most important factor in investing for retirement is gone: time. All you can do is invest (much) more and hope you picked your investments wisely.

That’s not where I and the other Millennials stand right now. We’re at the beginning of our working lives, and time is still on our side. But it won’t be forever. Therefore it is absolutely essential that we get engaged, right now, in making the right financial decisions.

Here’s some perspective for my fellow Millennials:

A $50,000 a year income is a comfortable standard of living for a married couple right now, in 2012 dollars. So, to get that each year, you need to invest $500,000 at a 10% average rate of return. But let’s fast forward, say…forty years? Welcome to retirement, my fellow Millennials. It’s 2052 and crunch time is here. (Oh, and forget about Social Security. In their history classes, our grandkids are studying why that program collapsed thirty years ago.)

Let’s say the average yearly inflation was 3% over these last forty years. In order to retire with a standard of living comparable to the $50,000/year in 2012, you need to have $1.6 million invested at that same 10% average interest rate. That $50,000 worth of goods now costs roughly $163,000.

Inflation sucks, doesn’t it? Here’s the bottom line, my fellow Millennials: We can’t consider millionaire status to be something out of reach. If we do, we’ll probably die relatively poor and miserable. I don’t know about you, but I’d rather not do that. So change that attitude. Millionaire status is out there for the taking- now it’s up to you to go out over these next forty years and kill it so you can drag it home for dinner. Sic ’em!

Thanks for reading,