Thursday, April 12, 2012

My Contribution to Financial Literacy Month

With April being financial literacy month I wanted to add my own two cents to the mix in the form of a public service announcement. In the usual loving way that I am used to writing, I want to make you aware of the potential wolves, scoundrels, blathering idiots and various miscellaneous jerks that you should be on alert for out there in the financial world, so without further adieu:

Mortgage Lenders
Collectively these scoundrels have spent hundreds of Billions of dollars over several decades to convince us that debt is a way of life and that we need to rush to their offices on hands and knees, to beg them to let us buy from them. Debt is a product, period! It is in these guys’ interest to pitch you a mortgage with a low monthly payment, a low interest rate and a LOOOOOOOOOONG mortgage term. The longer you keep your mortgage alive, even with a low fixed interest rate, the more money they make.

Mortgage lenders have created, implemented and push ARM(s) to transfer the risk of lending to the consumer, and they market Home Equity Lines of Credit (HELLs, they leave off one L) to improve their bottom line; not yours. They’ll charge fees just to setup bi-monthly payments, and when they say they say, “creative financing,” they really mean that they are working every angle they can to siphon off every penny of your income that they can get their hands on.

 CFAs & CFPs (Either way they can be BSers)

I’ve come to find that the more letters you have at the end of your name, the least I expect you to have common sense. I come down harder on these geniuses more than anyone else because they know better (or do they??). Nobody spouts money myths with greater snobbery than these doofuses. Some of their gems include: debt is a tool that is used to create prosperity, invest in ETFs/Hedge Funds/thesesuckymutualfunds/thelatestandgreatestinvestmentthatwillmakemetheMOSTcommissionoffofyou, borrow against your home/401k for the low interest rate and invest, buy single stocks, basically these guys can vomit everything that I find repulsive and stupid in the finance world.

Gold Diggers

If anyone approaches you saying anything close to the phrase, “You HAVE to have gold in your portfolio,” you immediately HAVE TO punch them in the face, run away, and keep them as far away from your dollars and cents as possible. As a long term investment gold has struggled to keep pace with inflation.

During “the lost decade,” gold has enjoyed the benefits of a soaring price rise, that still does not make up for a historic run of mediocrity. Gold rises when investors are fearful, and it falls when consumer confidence rises. Gold has no intrinsic value and when you “invest” in it you are wagering against the tides of consumer confidence. This is called gambling. The money that you work hard for deserves to be invested in something of value, not wasted on chance.

But what if we have a complete and total geopolitical and catastrophic societal meltdown? Trust me, if our world devolves into, “Mad Max,” a gun with ammo, blue jeans, gasoline and bottles of water will instantly transform you into the new Bill Gates, not gold nuggets.

Day Traders

I think I would have more respect for these clowns if instead they went out and bought lottery tickets. Their “sophisticated” methods and tools like: implementing a stop-loss, futures, options, puts, calls and swaps are all facades that “intellectually” mask the fact that these guys are actually more like drug addicts looking for their next high. Day traders are swinging for the fences and are the epitome of trying to “get rich quick.” They’re looking for the next Apple or Microsoft, and have wasted their time, energy, talents and resources chasing after a rainbow.

Whole/Variable Life Insurance Agents

Yes it’s important to carry life insurance and yes it’s important to save for retirement, but putting these two things together through these types of life insurance policies are the wrong way to do it, unless of course you’re goal is to help build the trash insurance company’s revenue for the year, in that case whole and variable life insurances are exactly what you want.

For the most part with whole/variable policies you pay a high premium for the policy and have savings built alongside it. When you die your beneficiaries, thru these products, receive only the face value of the policy, the savings you built alongside – the life insurance company keeps. And even when the savings vehicle lets you save with great mutual fund options, Consumer Reports notes that your average annualized return is somewhere between 6 – 9% after fees paid to the insurance company.

Term life is the way to go. Premiums are low and you are on your own to save and invest for your future, without paying some a fee for the privilege. Ideally it’s best to go with a 20 year level term policy with a face value of roughly 10X your gross income. In my life, if something happens to me my wife can take the paid face value and pay funeral expenses and set aside two or three years worth of my lost income in a liquid account, and with the remainder invest in my four favorite categories of mutual funds, and with the growth and returns she can replace my income. If we outlive our term policies we will have already been for several decades on Dave Ramsey’s baby step 7, debt free with fully funded retirement and college savings set up along with an emergency fund to cover one year’s worth of expenses, so if I die she can handle associated costs out of pocket. There is nothing “permanent” about the need for life insurance.  

But Wait…There’s Light at the End of this Tunnel…I promise!!

PSAs aren’t always squeaky and clean. This one has been harsh and direct in conveying that there’s a ton of wolves out there. About 85% of people in the finance world will approach you with the heart of a salesman. 15% will do it with the heart of a teacher. Your job is to find the 15%. Those are the ones that you learn from, they don’t talk down to you and they convey thoughts, ideas, concepts and strategies in a way that you understand. These are the ones that care about you and your financial well being and do a good job at it.

Meaningful and sustained wealth, where you live below your means, live on a budget, value relationships and experiences over the superficial and give like no one else along the way, this kind of wealth is built in slow, steady and gradual steps. The tortoise is our mascot! And when it comes to finding trusted advisors, Proverbs 11:14 says it best: “Where no counsel is, the people fall: but in the multitude of counselors there is safety.”   

So when it comes to finding finance professionals to help you through, screen ‘em like a mutual fund. Take them and their spouse out to dinner. Ask to see their personal rates of return. Get to know them and their values. And for God sakes pray about it! J Once you surround yourself with intelligent people with the heart of a teacher whose values align with yours, the sky is the limit.

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