Bob O'Brien
Head Instructor
bobrien@mywealth.com
I am serious, this is an incredible exercise! Stock pickers and investors will not buy stocks that do not control their spending, have a lot of debt and fail to plan properly. When I was a Financial Planner, I would often have clients that made a lot of money, but they where a mess with their finances. They wasted a lot of money on fancy cars, expensive vacations and homes that were much bigger than what they needed. There is absolutely nothing wrong with expensive material things, but only if you can truly afford them!
I also had clients that did not make a lot of money, but they saved, invested intelligently, and where always seeking new information about taxes, investing and the economy.
It’s been my experience as a Financial Planner that many people value the size of their salary far more than their net worth or future net worth. Keep in mind, that if it was just about salary and revenue, GM would be a great stock. They are still a leader in the amount of cars sold in the world which generates a lot of money in the form of revenue, but GM is not a great stock. In fact the stock may go to $0, because of all their expenses and poor management.
Here is just couple of questions you would ask before you invested in a stock?
How much debt do they have? Do they make the most of their resources? Are they flexible and innovative? Are they diversified? Good Management? Are they changing with the times?
What other questions do you think are important to ask of yourself and a company you may invest in?
As a Financial Planner, I have seen the inside books (budget, net worth, portfolio) of a lot of people, and I can tell you more often than not, the people that valued their money when it came in as much as the size of their salary would easily have a higher net worth in 10 or 20 years. The people that made more money seemed to think that as long as they were focused on making more money they had it “made in the shade” and that there would always be money coming in for them. They did not pay a lot of attention to taking care of the money they were making, and where not thinking about their financial futures rationally.
I remember very clearly a day two years ago when I worked with two very different clients that really make my point: Client in A in the morning and B in the afternoon. Client A and his wife made about $250k per year combined with no dependent children and client B made about $80k with 2 dependent children. After working with both of these clients there was no doubt in my mind that client B will be worth more money in 10 and 20 years. If they where stocks on the NYSE I would have bought B and not A. That’s right client B earning about $170k less than client A!
Here where a couple of the major differences between the two clients:
Client A was arrogant and thought he knew more about Financial Planning and Investing than everyone.
Client B knew a lot more about Financial Planning and Investing than client B and yet he was still a sponge for new information.
Client A was not organized and just seemed to think that someone else should be taking care of this for him.
Client B was very organized and engaged in the process and when it came to his finances he knew that no one would care for his money more than him.
Client A did not even want to attempt to understand taxes and it was his largest expense!
Client B understood taxes pretty good and maxed out his 401k and was asking me questions like should I be doing a Roth IRA or my 401k?, and other good tax questions.
Client A’s net worth was heavily invested in the company that employed him, and since that time the stock is down close to 90%.
Client B was diversified and had a balanced investment portfolio, he took a hit in 2008, but will rebalance from bonds to stocks and take advantage of the stock market lows. He invested in the company’s stock, but when it reached 25% of his portfolio he brought it back to 10% to 15%.
These are just a couple of differences, but the national statistics such as a 0% savings rate and herd like bubble investing prove that Clients A is not just a couple of people. It's more like the average American. The year 2008 does not have to be remembered as a year when a lot of people went broke, but as a year that was a huge eye opener for many people, that created a even more prosperous future!
I wish you much prosperity in 2009 and long beyond.
Don't forget to check out our courses!
Bob O’Brien
Sr. Instructor
