Sometimes Never is Better than Late

I lifted that title from Bro Tips, but it is not just applicable for parties, it can be used for your finances as well.

Now I am most certainly not talking about paying off debt, LATE is better than NEVER, however, being on time is the right answer.

Hour Glass

Time Waits For No One But Sometimes NOT Doing it is Better!

In investing being “late to the show” sometimes it is better to just ignore it, and try to find something else. If you bought into the Tech Boom in 1999, you most likely lost your shirt, if you didn’t bail out quick enough, however some folks who were in at the ground floor, might only have been lightly singed by the great drop.

If your friend invites you over for “just a party” but you get wind of it being an Amway recruiting party, never is a better choice.

Certainly with Ponzi Schemes Never is better than Late.

Where else in money is NEVER better than Late ?

 

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Investing and System Backups the same?

That is my premise, that if you do back up your computers and such, it is much like investing your money in the market. I know you are thinking maybe I had an odd weekend, and I have gone off my financial nut here? I may have but allow me to elaborate on this a little.

Backups for your system are great ideas and very important to do (as I mentioned a while ago), however, if you cannot restore the data from these backups it ends up being a futile procedure. Mrs. Michael James had this very issue arise, where she was told all of her data was being backed up, however, when her system failed, the I.T. group sheepishly pointed out that they couldn’t restore her data from the backup tapes that they had. You really do need to test your backups to make sure that you can use the data in the backup data archive.

Now This is a Real Back Up Tape (9 Track Reel)
Now This is a Real Back Up Tape (9 Track Reel)

Investing your money is always interesting, you diligently put your money away in Index Funds, Stocks or maybe you have money in Stock Options and many folks speak of how much money they have by quoting the value of their Stock or Investment Holdings, however, until you have that in Cash (or available to you to buy a Chocolate Bar, say) you really have nothing.

Yes I know, if your money is in an Index Fund, GICs or Bonds the chance that their value will disappear is miniscule, but how about those Stocks? Do you know how many Millionaires (on paper) that I knew at Nortel, that are still working now (and have incredibly large debt loads, or were forced to declare bankruptcy)? Far too many.

If you are quoting your “wealth” by Stock Options from your firm, you are living in a fool’s paradise. Until you cash those options in, you have nothing. Yes, many people have become rich on Stock Options, however, many folks have assumed their wealth without cashing their options, and seen their wealth evaporate like a fart in the wind.

What is the Bottom Line?

The bottom line for both is simple: ” Backups are only successful when you actually Restore the data from them and similarly Investing is only successful once you get the money out of it (and start living on it)”

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March Madness in Finances

For a while I have tried to write something that points out that watching past performance isn’t going to predict the future in finances (and the stock market in specific). This weekend I had an epiphany about how the NCAA Men’s Tournament is exactly like stock picking. Bracketology and stock picking are so similar yet no one talks about March Madness in Finances ?

March Madness in Finances

Will She Make This Shot? She made the last one, but does that matter?

The the tournament you might see a #2 Seed fall in the first round of games or a #1 seed fall in the second round. For those not familiar with the tournament mechanics, before it starts all the teams that are participating in the tournament are split into groups of 16 and then ranked 1-16 in that grouping, based on their season performance. Every year a new school looks great,  however, usually they don’t go far disappointing those who assumed they would win. This is an example of past performance meaning nothing in terms of future performance (in sports and in investing).

The same thing happens in the stock market in specific  and investing in general . Simply because a stock or ETF has done well in the past is not the single best reason to buy more of that stock, or assume it will continue to go up. Past performance should almost be ignored, if you ask some real experts like Larry Swedroe. What a stock did in the past is an excellent index to see past performance.  It has no bearing on the future value of the stock.

This one is really hard to latch onto as an investing concept, but trust me, I have been absolutely eviscerated (on the stock market) by following this exact idea (read my top 5 investing regrets for all the details).

Past Performance ⇒ Future Value ?

What predicts the future value of a stock? No one knows the answer to that question. Future value has nothing to do with past performance.

This is why I got into passive investing, predicting stock prices is a mug’s game (IMHO) I’d rather not play that game any more. All I need do is look at my prognostication skills at March Madness to remind me the dangers of stock picking.

Anyone care to disagree?

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Dear Market Gurus: How do I get 7% growth?

This is an oldie but goody from 2007, back then folks were promising the moon, I suspect it still goes on. Remember if it sounds too good to be true, it just might not be! Remember Bernie Madoff .

Investment Strategy it’s Important

If you are expecting an answer to the Question in the Title (i.e. how do you get a 7% yearly growth) you are asking the wrong guy that question, I am not a financial investment guru, and any money I have made over the years has mostly been by accident, not by some grandiose investment strategy. When I was a younger man, I fooled myself into believing I knew what I was doing, but at the end of it, I didn’t (remember my comments about my tech investments here).

I would say that right now my investment strategy is to use index funds and slow growth bonds mostly, just because I am old enough now that I don’t think I can afford another massive hit like I did in 2000. Should you do this? Have you not been reading, I am saying, GO and find out what YOU should do, I am simply telling you what has worked for me.

Remember a few important points:

  • The more the risk, the more the potential gains, but I am here to tell you that RISK sometimes is a bad thing too (remember Slim Pickens riding that h-bomb).
  • If you are younger you can afford to take risks, because you have time on your side to recover, if you are older, you shouldn’t be risking money you can’t afford to lose.
  • If you use Index Funds and/or Mutual Funds, research them well, and try to buy ones with low management fees, and no entry or exit fees. Don’t buy Mutual Funds solely on the say so of a co-worker or friend, research them, at your library or on-line.
  • If you are going to buy stocks, be careful, because no matter what stock you buy, you are at Risk. I have shares in Financial Institutions because they are making so darn much money, but if the housing BOOM turns into a BUST, these stocks are going to take a hit.

You have time if you are young, create an investment strategy but don’t fool yourself into procrastinating, remember:

If it weren’t for the last-minute, I wouldn’t get anything done. ~Author Unknown

Is not the credo to live by in your financial planning and investing lives.

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Investing Mistake: Too Many Eggs in One Basket

I am reading Larry Swedroe’s book Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals (I will be writing a review about it soon), but an excellent point made in the book is not putting too many eggs in one specific basket, and it was an investing mistake that I made in my younger days.

investing mistake

One of the biggest investing mistakes I made while working for Nortel was that I was far too heavily invested in the company. Simply put:

  1. I was receiving a salary from the company, and that was my primary investment with them
  2. Bought Nortel stock as part of a stock purchase plan (where the company kicked in a $1 for every $2 you put in).
  3. Had a few stock options (no, nothing of great value but it was there)
  4. My Disability Insurance was with Nortel (I didn’t know this one at the time, turned out to be a very bad thing for some very unlucky folk)
  5. My Pension was with the company (again, I thought the pension was a safe thing, turned out that was not the case)

All of those eggs sitting in one basket is a very risky thing. I was betting on Nortel for my Present (salary), Future (Pension), Health and Safety (disability) and my savings (Stock), which was way too damn much (and yes I paid dearly for it).

At the time a few smart folks said things to me about being too vested in one Company, but in the late 1990’s, who thought it was all going to come crashing down? Who indeed! Did someone say “too big to fail”?

What Should I Have Done ?

No matter what, I should have divested myself in some fashion. Ideally I should have:

  1. Sold some or most of the stock and put it in Index Funds, Bonds or GICs, to lower my exposure there
  2. Couldn’t do anything about the options, the only time they were above water it was only for about $350
  3. Used my savings and RRSPs to diversify where my money ended up

Now, I work for the Federal Government. I am highly invested in them for about the same list as above (but no stock or stock options). I have divested in some ways with RRSPs, so if anything happens to my pension I do have some retirement savings.

Do you have too many eggs in your employers basket? This could be a lethal investing mistake in your financial life.

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