Perhaps more difficult to embrace than financial planning is the art of negotiation.
Growing up, I saw two very different approaches to personal finance. Both of my parents were good savers, but that is were any similarity between their approach to finance ended. Dad’s investing style: calm, disciplined, balanced, thoughtful, intuitive, enthusiastic, and confident. Mom’s investing style: undisciplined, impulsive, emotional, intellectually-detached, and timid. Over the years I saw another difference: Dad’s approach was extremely successful and Mom’s was, well, not.
One quick example. Dad was buying a new SUV. He found one he wanted and was negotiating on price. He was making headway getting a $1000 off then another $1000. The sticker price was a joke. They started perhaps $4500 apart and whittled the difference to about $2000. The car salesmen was starting to make pained expressions, but I could tell that they were not genuine. Dad would walk away and the salesman would chase him down like a puppy, only his tail wouldn’t wag. Then Mom lost it. She got mad and told Dad to quit beating up the poor salesman. She said, “Our SUV is shot; we’re stuck here and we need a vehicle today.” OMG, Dad dutifully took the current salesman’s offer. I was stunned. In 30 seconds Mom had managed to turn Dad’s hard-earned position of strength 180 degrees. I had seen my Dad negotiate before and I wanted to see if he would get the full $2000 or just settle for $1500. On the way out the door, while Mom was out of earshot, Dad said, “You know, Mom just cost us $1500?” I nodded yes. I was still in mild shock, but I knew he was correct. I was attending a 12-round prize fight and Mohammad Ali’s corner had just threw in the towel — in the 3rd round!
To be continued…. So many stories. Next story: Making personal finance personal.
P.S. — Cover your eyes, a tiny bit of math. Let’s say that in 30 seconds $1500 was lost. That $3000 in a minute, or $180,000 lost in a hour. Perhaps an odd way of seeing things, but that’s how my mind works. And there is a kernel of Gestalt truth to it.
I went to a get together tonight with some friends, and talked about all sorts of topics. The least popular, by people’s reactions, was personal finance.
People, in my experience, find Madoff somewhat interesting. They sometimes find a bit of Wall Street bashing a bit entertaining. And they find John Bogle and ETFs plain boring.
My issue is that I find the details of ETFs, markets, exchanges, and bonds fascinating. I want to get inside of people’s heads to understand just why is finance boring or even vaguely repulsive? My first thought is that somehow people feel that making money from investments is less morally redeeming than through work. Another thought is that “respectable people don’t talk about money.” Perhaps they find finance and all its jargon overwhelming. Perhaps they have other more important things to focus on than their portfolio.
My mission with this finance blog is to find ways of helping people make better financial decisions. A secondary goal is to bolster confidence in these financial decisions; to help people sleep easily at night with their financial strategy. Finally, if possible, I would like to help people see finance through my enthusiastic eyes… as the minor miracle that it is.
The first two goals seem very achievable, while the third seems ever remote. Really making sound financial decisions, and feeling secure in those decisions is important. Perhaps, making finance interesting is not so important. There are a handful of people, like myself, who find finance intrinsically interesting, while the vast majority of people could care less about money, investing, stocks, commodities, ETFs, options, futures…. hey, you in the back, quit snoring… mutual funds, gold, ETNs, annuities, insurance, loans, equities… oh, crap I think I might have dozed off a bit myself.
My employer has generously given our lab the day off to celebrate some of our recent successes, giving me a four-day weekend. What a precious gift — time. Time to relax and see a concert, time to clean the house, time to blog at balhiser.com. This gift off one day plus the Labor Day Weekend got me thinking about time and investing and how the two relate.
Time is a critical factor in investing. Interest and dividends are paid out over time. Inflation adds up over time, as does compounding. Annuities pay out over a lifetime. And, of course, pundits debate whether it is worth it to try to time the markets.
Time shows up in just about every financial formula, starting with the basic time value of money computations.
And, naturally, savings accumulates (or debts) over a period of time.
Putting this all together time is generally on your side as an investor. Especially if you are in your 20′s, 30′s, 40′s or even 50′s and investing in retirement. Having a 20-year plus time horizon is very likely to help smooth out the huge market ups and downs.
The biggest gotcha about time is inflation. Certainly inflation is my greatest concern. A dollar today is not worth what it was 10 years ago. I paid $1.00 for a Hershey Bar this week. 10 years ago I could have bought 2 for $1.oo. The other big gotcha about time is uncertainty. What will taxes be for IRA and 401(k) withdrawals? What will the economy look like? Will I have a job and will my pay keep up with inflation and taxes?
That said, I still believe time is on the side of long-term investors. Tax-deferred compounding of IRA and 401(k) assets is very helpful. The tax deferral of unrealized capital gains in taxable accounts is another investing boon. Finally the tax-free advantages of Roth IRA and 401K assets is another helpful option to help leverage the power of time.
Enough about that. A quick Crazy Ivan Account update: $21,750. Nice appreciation of late. Even my Barclays ADR (BCS) is up from the initial purchase price. Quite wild ride on the banks. The covered call I sold on SPY is in the red, but the 100 shares of SPY are in the black by more. That how covered calls generally work out — smoothing the volatility out of both the ups and the downs.