The Investment U E-Letter: Issue # 104
January 15, 2002 Knowing Your Financial Situation: Making Sense of It All
Dr. Steve Sjuggerud, Chairman, Investment U
"People who spend a week choosing a furniture refinisher will sign up the first financial planner who calls. People who circle junkyards for matching hubcaps will buy mutual funds without reading the prospectus. People who check the expiration date on cottage cheese wouldn't think of investigating the background of their broker. They know next to nothing about whether the broker has made or lost money for clients, whether he's been reprimanded or sued, or how long he's been in the investment business." --"A Fool and His Money" by John Rothchild, 1988 "I don't know what to do about my financial situation right now," my computer consultant friend complained to me on the golf course over the weekend. "I've got to raise some money quickly for taxes. I'm vested with company stock, so I know I can get money from there." He was baiting me for advice on what to do in his financial situation. Rule # 1 in the Financial Advice World For future reference, rule number one in the financial advice world is: don't give your friends and family financial advice. If the advice works out, you don't get any credit - it's what they expected you to do. But if the advice doesn't work out, you'll get all the blame, and worse, you'll quite possibly lose that relationship. I was taught this on "day one" as a broker a long time ago. But sometimes it's hard to stick to. So I gave my golfing buddy a harmless suggestion on managing his financial situation… "You've got a lot of equity in that nice house of yours don't you? And you don't want to take the big tax hit from selling that stock, right? So have you thought about some type of home-equity line instead?" Right now, though, he's worried about his job. Quite frankly, even though his consulting company is continuing to pay his salary, he hasn't been on a job in weeks. He could open up a line of credit while he still has a job, as it'd be easier to get. No cashing in stock, no tax hit, and he said he has plenty of equity in his home. After a lot of talking, I figured that even with his job on the line, he's just so averse to anything that smells like debt, he couldn't tap his home equity. He couldn't even consider establishing a line of credit. He wanted to go home and run the numbers. But the answer was obvious to me… Your Financial Situation Should Make Sense To You I told him that it was more important for him to sleep at night than to run the numbers. While establishing a home-equity line might make FINANCIAL sense, it didn't make EMOTIONAL sense. The only way he could sleep would be to sell his stock. Ultimately, the only person who knows exactly what's right for your financial situation is you. One of the early lessons I learned is that everybody is different about money. My friend is so afraid of debt that he would rather spend his last penny than open a credit line while he still can. (In some ways it's admirable. In other ways, it might not be so smart.) My friend will sell his stock, I'm sure. It's what's right for him, emotionally, to solve his financial issue. He knows this is right for him (which means that he's better off than most of us), but I think he just wanted to "talk it out" aloud. What's the right thing to do in this situation? This is the hard part. This is the question you ask yourself every day. Unfortunately, to do it right, there are no short cuts. This means that you can't just hand your life over to a financial planner and tell him to "make it okay". It means you'll have to do a little homework (which, if you're reading this, is exactly what you're doing). Do You Know Enough about Your Financial Planner? Speaking of your financial planner, what qualifications, if any, does your financial planner have? Did you know that to become a financial planner all you need to do is hang a shingle? I'm not making this up! No different than a used-car salesman, there's no test, no skills, and no experience necessary. All you need is the ability to get somebody to hand over all of his or her money. And as John Rothchild shares his own embarrassing tale in his book "A Fool and His Money," you can see this is easy: "In the past, my wife and I had chosen our various brokers as follows. At a party, we'd run into friends who'd be bragging about the money they'd made in the stock market, and we'd get the name of their broker. The next business day, we'd drive to Dean Witter or whatever firm their broker represented, to tell him or her the sad stories of our previous brokers and how we deserved better. The new broker would nod sympathetically. After a 15-minute chat, we'd hand over all our money. That's the truth, and I doubt it's unusual." Folks, this is your life. This is your future. And ultimately, only you know what's best for your own financial situation and what allows you to sleep at night. Not me, not some financial planner, and not anyone else. I can give you every pearl of investment wisdom I know to make you a better investor. But in order for you to achieve your greatest success, you've got to remain in the driver's seat. Like my friend, you've got to make the decisions that make sense for you. So soak up as much as you can in these Investment U E-Letters. I promise I'll still be right here with you, dishing it out in a no-nonsense way. But never forget who's in charge of every financial situation, and never give all your control away. If you do, it may just be the worst financial decision you make. Today's Crib Sheet - It's important to remember that YOU are the only person who knows exactly what is right for your situation. The only way you can achieve financial success - with or without a financial advisor - is if YOU make decisions about what you are comfortable with.
- Maintain an active relationship with your broker or financial planner. Even though you may hand over your money to an "expert," you are not handing over absolute responsibility for your finances.
- You should feel certain that you know your financial planner's background and qualifications. To check out your broker/planner's record, visit www.nasdr.com. It's important that you confront him with any blemishes you find. If you're not satisfied or comfortable that he's telling you the whole truth, it's the perfect excuse to move your business somewhere else.
Good investing, Steve Related Articles: Financial Planning Help: 3 Easy Steps Return to Archives
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