Ruly Recap, Reader Feedback and Organizing News: Think Like an Investor

It’s a bit past the end of March but time to recap March’s posts on the investing mindset as well as highlight favorite comments and recent organizational news stories.

This month, we discussed several facets of the investing mindset—strategies to organize your thinking about your finances to make good decisions that result in financial rewards.

1) Invest in what you know. We started off with a reminder that when you are trying to invest in something you don’t understand, you are likely to make mistakes. So when you are faced with a situation you have no experience with, you need to make the time to do your research and learn as much as you can to make informed decisions. Never assume that you can just guess and coast by or follow what everyone else is doing.

Anonymous commented:

“The only person looking out for your interest when it comes to your money is you.” Well put. Yes, finances can be complicated, but not necessarily incomprehensible. If your banker or financial advisor isn’t willing to take the time to explain things and help you make the right kind of risk decisions that allow you to sleep at night, it’s time to make some changes.”

Matt commented:

“As always, solid, lucid advice. I think it’s also important to remember that ordinary people in the investment market are competing with professionals who devote their careers to it. We can take advantage of their skills but it will cost us. Or we can concentrate on understanding a specific sector and place our own bets. There it’s no easy, simple way to beat the market.”

2) Always remember the difference between shopping and investing. We looked at the recent resurgence in couponing and discussed several other examples where people try to use shopping as a “savings” or “investment” strategy.

Ruth filled me in on an aspect of couponing I did not understand:

“. . . a girlfriend printed like 80 coupons for KY Jelly that was on sale–something most of us do not need 20 of! Well, at the commissary (she checks every place you can buy stuff on earth thru site shopping and also various websites)–with the coupoon price she could actually get $.80 back because the coupon was worth more than the original price in this case—so she used the rest of the money on groceries. So the goal is NOT to buy your core staples–it’s to “make money” on oddball stuff so you don’t have to pay for groceries. MOST people actually end up donating the extra unneeded items to shelters etc. And then they know which stores on which days double coupons, etc. It’s truly an art!!”

Angela commented:

“I have also heard the goal of couponing is not to save on stuff you do want, but to make money on other items you may or May not want/need so you can spend THAT money on wanted items… But, since I place a value on my time, the hours I’d need to learn to play / prepare to shop / that game do not equal the ‘savings.’ I realize that once you figured the system out and it (maybe) equalized time spent vs money saved, there might be real savings to be had… But I just find other stuff I’d rather be doing with my time!”

This month as I followed a coupon blogger I learned quite a bit about how couponing works for an expert. Essentially, you need to clip and save high dollar value coupons and hope that there is a massive sale before the coupon expires. You can then use the coupon to get either free or heavily discounted items. In March, this particular blogger got contact lens solution and dog food totally for free with coupons. For my shopping style, I have yet to be convinced that coupons are a winning strategy for me but if I see a rare coupon that is for something I actually buy, I make sure to use it or stock up when non-perishable items are on sale.

3) Maintain a healthy skepticism about all things. Particularly when it comes to money, you always have to stop and think about what is motivating someone to make a particular recommendation. We also have to be realistic and know that when it comes to money, there are many cases where people don’t play by the rules and you need to be alert to looking for fraud or other unethical manipulations.

Lou commented:

“There are so many stories of this nature out there that are quite frightening. I have stopped reading about them for a while, and am not sure when I will resume. For those that don’t play by the rules, I wish there were faster ways to catch them so as to prevent any loss to those playing fairly.”

4) Good investors are always open to learning math and calculation methods. Yes, math is not just for school students. We all need to keep our math skills sharp. I gave an example from The Wall Street Journal showing a common error made when estimating returns on a portfolio.

On this front, this month I learned about a website called Bedtime Math Problem that encourages parents to tuck their kids in at night by reading a story AND doing a simple math problem! It’s a simple but brilliant concept. We have started doing this at our house. You can sign up here for their free email list.

5) Restate a complex investing scenario into something you do understand. It is all too easy to just give up when trying to understand something requiring detailed focus and concentration like money management. But we don’t have to give up. There are many ways to look at any situation and even the least sophisticated among us can have at least some understanding of what is going on. We took one of the most complicated financial situations out there, the U.S. government’s financial situation, and proportionately scaled down the numbers to reflect what the government’s finances would look like if the government was a typical middle class family.

6) A good investor makes decisions first by numbers and secondly by emotions. We again looked at the U.S. government’s financial situation and tried to understand why the budget numbers never add up. I summarized the three main budget proposals from Democrats, Republicans and the Tea Party. We also looked at statements from Comptroller Dodaro in the latest report on the government’s finances indicating that regardless of what budget measures are taken, the government has a lot of financial clean-up and organization to do.

7) Past performance does not guarantee future success but history is an excellent teacher. I took a look at how my 401(k) savings did last year and gave you a form that you can use to check up on your own investments.

Other posts:

A reminder about daylight savings time and taxes. I also gave a tax organizing tip to make filing next year a little less painful. For those with taxes still to file, we are now at 13 days and counting.

I continued my own investor education with reviews of two books:

First, I Will Teach You to Be Rich by Ramit Sethi. I think everyone should have at least one finance guru to follow. If Suze Orman does not excite you, give Ramit’s advice a try. He comes at financial management from a slightly different perspective and particularly appeals to a younger audience. He is going to start answering more questions from readers on his YouTube channel. You can watch his most recent (hilarious) answer here.

Second, I reviewed the book Aftershock with the ominous subtitle, “Protect Yourself and Profit in the Next Global Financial Meltdown.” I really hope that this situation never comes to pass but we can all learn a lot from the economic discussion in this book. We also have to learn not to be afraid of terrifying financial news and instead arm ourselves with a Plan B for when things don’t go as we hoped.

Fun posts:

I wrote a post about the 24 Hours of Le Mans race to be held in July as a treat for my Dad’s birthday.

I also showed you my children’s St. Patrick’s Day outfits this year that also saved me some “green” as I spent just $4.50 on accessories!

Ruly Ruth continued our healthy cooking series with a delicious pears with berries dessert review.

Money News

The Atlantic published a fascinating article called Prices Are People: A Short History of Working and Spending Money about economic trends since 1974. This article was part of a new series called The Money Report giving a consumer-eye view of the world. Article titles include: “How Investing Turns Nice People Into Psychopaths.”

Smart Money published a fascinating article “Fix Your 401(k)”about the myriad of problems in employer-sponsored 401(k) plans.

“I personally think the 401(k) should be abolished.”

–Matt Goff, a Houston financial adviser whose practice serves small-business owners needing help with their company retirement plans, quoted in “Fix Your 401(k), SmartMoney Magazine, March 15, 2012.

Politics aside, a beautiful piece of writing From George Will in The Washington Post about how trying to be too organized with the economy might be a problem and that we need to leave room for surprise and creativity. Love the highly quotable phrase “a ruinous itch for tidiness.”

“America now is divided between those who find this social churning unnerving and those who find it exhilarating. What Virginia Postrel postulated in 1998 in ‘The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise and Progress’ — the best book for rescuing the country from a ruinous itch for tidiness — is even more true now. Today’s primary political and cultural conflict is, Postrel says, between people, mislabeled ‘progressives,’ who crave social stasis, and those, paradoxically called conservatives, who welcome the perpetual churning of society by dynamism.”

–George F. Will, “The inexorable march of creative destruction,” The Washington Post, March 21, 2012

Money woes are clearly piling up around the globe. I learned via Twitter of the ongoing debate in Ireland over the “household tax,” which sounds similar to the U.S. property tax system. The economic woes in Ireland have led the country to impose a tax of roughly $133 per household. The New York Times reports that half of Irish homeowners refused to pay.

The biggest news in March, however, was the Supreme Court hearing on the Affordable Care Act. I found the Supreme Court testimony on all sides so incredibly beautifully argued. There was so much to think about and everyone was so excellently prepared. Truly, this was a law professor’s dream. It was also an excellent example of how people with very strong opinions can intelligently and respectfully have a productive conversation. Our Supreme Court justices earned every penny of their pay this week. Strangely, I put the audio on in the background and used it as motivation to do my own organizing. (Totally nerdy, I know.)

We are now (finally!) going to move on from money organizing. For me, it is time. While trying to organize my money mostly gives me a sense of control and confidence, this month’s discussion was the first time I found thinking about money a tad depressing. When I think too hard about retirement planning or paying down the national debt, I find it forces me to focus on my own mortality, which for a young person is just too overwhelming! But for 30 days out of each year, I force myself to take on all of these serious topics so that I can have full enjoyment of the rest of the year. I hope this month’s topics have caused you to do the same.

Please check back Friday when I will introduce a new organizing theme!