Tag Archives: planning

Putting Fun Into Finance

Can personal finance be fun?

Photo: Melodi2. Source: Morguefile

For most of us, money matters are unpleasant. They involve budget issues and trade-offs and hard choices that frustrate everyone. So we need to encourage ourselves, to set up some kind of incentive program.

For example, estate planners say you should update your will every three years or so. So: think about what would be a special treat—like eating at a favorite restaurant, or going to a special show—and reward yourself when you update your plan. Similarly, you should look at how you are doing against your budget quarterly. Find a special activity that you can look forward to, and treat yourself when you do a review. (Just be sure it doesn’t break the budget.)

This may seem hokey, but it works. We like to do things that are fun for us, and we avoid the stuff that’s unpleasant. If couples fight over money, they tend to avoid dealing with those issues, which usually makes any problem worse. If they can find some way to make money matters less daunting or more enjoyable, they’ll probably address these problems more faithfully.

Photo: Pexels. Source: Pixabay

Not everyone finds balance sheets and cash-flow statements boring or intimidating, (although most folks do). But everyone responds to incentives. By encouraging ourselves to act responsibly, personal finances can change from being a chore to being something to cheer.

Douglas R. Tengdin, CFA

Health Care, Wealth Care

What are you doing to stay healthy?

Photo: Seeman. Source: Morguefile

This may seem like a strange question from a financial professional, but our bodies and our finances are connected. Health is an integral part of our lives, just as money is. And finance is a lot like medicine: there are lots of technical issues that require specialized training, but applying them is often pretty basic. Health-wise, we should stay active, eat well, and get enough rest. Financially, we need to spend less than we earn, have clear objectives, and don’t panic during the occasional market downturn. Simple advice, but not always easy.

Moreover, both financial and medical professionals have fiduciary duties to their clients. If your doctor or financial advisor suggests a course of action, you shouldn’t have to wonder if their advice is tainted by their personal business interests. And it would be wrong for them to mention your affairs outside of their offices. You expect loyalty: your concerns come first.

Taking care of ourselves—both financially and physically—is a long-term process that requires careful planning along the way. It’s one more reason I’m a little skeptical of robo-financial advisors, the same way I’m skeptical about robot doctors. Our health is highly personal, and doesn’t fit into standard cookie-cutter models.

Probably the most important service any advisor—medical or financial—can perform is to help us see the world as it is, not as we would like it to be. After all, getting honest, caring advice is one of the healthiest choices we can make.

Douglas R. Tengdin, CFA

Chief Investment Officer

On Tips and Tipping (Part 2)

On Tips and Tipping (Part 2)

Everyone wants a tip. What’s the best way to make money?

Photo: Nick Stanley. Source: Life of Pix

Profitable investing starts with a plan. It starts with investors reviewing their goals, their fears, how much time they have, how much access to their money they need, and other circumstances. No one plans to fail, but many people fail to plan. And if you don’t know where you’re going, any road will do.

But once you have a plan, what do you do? Investing is a prospective activity. The results depend on things that we don’t know. What will the economy do? What will the Fed do? How will company managers respond? What conditions will change—politically, technologically, socially, geopolitically? We don’t know the future. The best we can do is make educated estimates.

The rational response to in the face of such uncertainty is to spread the assets around: different asset classes, different industries, different capital structures, different places in the economy. At a minimum, a portfolio should have securities that do well if the economy accelerates, if it keeps going the way has it has, and if it slows, or even contracts. There should always some assets that perform well under widely different scenarios.

In this way, diversification reduces risk. If different parts of the portfolio go in different directions, they cancel each other out and the volatility of the entire portfolio is reduced. It’s not a free lunch, but diversification is a cheap snack.

Planning comes first. But the second tip? Diversify.

Douglas R. Tengdin, CFA

Chief Investment Officer

Getting Going

How do you get started investing?

Photo: Tyler Main. Source: USMC

I got involved with investing via a different route. I had studied computer modeling in college in the early ‘80s. While looking for a job, I met with a bank manager who had a computer model for the bank’s earnings and balance sheet, but didn’t have anyone that could run the model. Tentatively, he hired me to implement the computer simulation. I got the analytic software to work much faster than expected, so he put me onto different tasks. I quickly learned how important investments are on a bank’s balance sheet—how they can be used to help a bank match its assets to its liabilities.

Essentially, I came to investing by studying liabilities. And that’s not a bad approach. The reason we invest is to meet future financial needs—our future liabilities. For example, at some point, most of us want to retire. We’ll need a source of income to live on. That future demand is a liability, so we save and invest now in order to meet that need. The amount of time we have until we need the money will help determine how much risk we can take—how much volatility we can put up with in our portfolios.

Every investor is different. We all have unique needs, wants, and dreams. We also have varying resources: our jobs, skills, and relationships. These combine to create a distinctive asset/liability structure—our extended personal or family balance sheet. Your investments are just part of this picture, and the part you probably have the most control over. That’s why investments are like clothes—there’s no “one size fits all.” They have to be cut and fit to match the unique size and shape of your individual balance sheet. (It’s also why I’m skeptical that robots will turn out to be very good tailors. But that’s a different discussion.)

Tailor’s shop. Photo: Wolfgang Sauber. Source: Wikipedia

The first rule of investing is to “know yourself.” Before we buy a stock or think about asset allocation, we need to understand what we own and what we owe: our assets and liabilities. Only then can we match our investments to our lives—and have portfolios that fit.

Douglas R. Tengdin, CFA

Chief Investment Officer

Stop It!

What should investors stop doing?

Photo: Kevin Connors. Source: Morguefile

Often, improving performance is a matter of ending bad habits. This is true in many areas of our lives. If we want to have better relationships, then it’s a good idea to stop avoiding difficult conversations. If we want to have better personal finances, we should stop buying major items without a plan. If we want to be better tennis players, we should stop jumping when hitting the ball.

So here is a list of bad investment habits. Any one of these could be a performance-killer.

Stop focusing on your cost-basis. The only reason to worry about where you bought an investment is when you’re figuring out your taxes. A stock doesn’t know you own it, and it certainly doesn’t care where you bought it.

Stop chasing the latest hot investing idea. Hot trends come and go. When they’re hot is often when they’re the most overpriced. Often they’re just marketing buzz-words. But even sound investment strategies fall in and out of favor.

Stop trading excessively. The market may offer nonstop action, but that action won’t necessarily help your portfolio. Excessive trading not only generates more transactional costs, it also increases the chances of chasing a hot trend.

Stop ignoring risk. A stock may be up a lot, but if the underlying company doesn’t have any earnings, it’s not going to stay that way. Similarly, bonds may be boring, but if they help you meet your needs, then boring can be beautiful.

Source: Lewis Capital Management

Stop worrying about everyone else. It doesn’t really matter if your neighbor made a pile on some biotech wonder or a social networking stock. What matters if whether your portfolio is on-track to satisfy your financial needs.

Finally, stop ignoring why. We focus too much on the what of investing—what stocks to buy, what asset allocation to have, what our investment return is. But we ignore the why—why are we investing, why do we have this money set aside in the first place. What questions engage us—why questions challenge us. Maybe that’s why we avoid them.

Replacing bad habits with good habits isn’t easy. Habits are unconscious patterns of behavior and thinking that occur again and again. It’s our habits that make us who we are. Good habits—and good investments—don’t happen by accident. They take disciplined, careful focus. Fixing mistakes isn’t very exciting or make great cocktail party chatter. But it’s a sure way to improve. And isn’t that why we’re invested in the first place?

Douglas R. Tengdin, CFA

Chief Investment Officer

Growth Investments

Is investing like gardening?

Global Market Update - Growth Investments
Source: Johnny’s Selected Seeds

Both require planning. Both encourage diversification. In both cases, time is your friend. Successful investors and gardeners look past their current circumstances to discern the underlying trends. And both have to watch out for pests and poachers who can steal what you’ve cultivated.

Continue reading Growth Investments

Thinking About Investing (Part 2)

How can we be more intelligent investors?

Global Market Update - Rodin The Thinker
Rodin, The Thinker. Source: Metropolitan Museum of Art

Investing is a mental exercise. Form a financial plan, then implement it, then review it. These are all conceptual activities—physical prowess is not required. But investing isn’t like studying philosophy or engineering. It engages our emotions. And our emotions habitually make us act less intelligently.

Continue reading Thinking About Investing (Part 2)

The Emotional Investor (Part 2)

How do we manage our emotions?

Source: Behaviorgap

Investing is challenging. It brings out the worst in us. When the market is running, we just want more. And when the market goes down we’re tempted to sell just when things are bottoming out. It’s been shown that money goes into and out of mutual funds following the market. As a result, these investors typically underperform their funds by a lot—often by two to three percent. Three percent may not seem like much, but over time it really adds up. An 8% return grows five-fold in 20 years; 5% grows about half that much.

Continue reading The Emotional Investor (Part 2)

Cash: Trash or Treasure?

What good is cash?

Central banks around the world have pushed interest rates to zero. In Europe, short rates are negative. Most bank deposits and money market funds pay almost nothing. Why should investors hold cash?

Cash used to be thought of as a weapon, or a market sector. Mutual funds held up to 10% of their portfolios in cash. After all, cash allows managers to move quickly when they see opportunities. And when the market falls, cash looks pretty good. It may not earn much, but at least it’s stable.

But that changed in the ‘90s. An ebullient market raised the cost of cash. From 1995 to 2000 the stock market tripled. A 10% allocation to cash cost investors 6% of their portfolios, or 1.5% per year. Consultants told institutional investors, “We don’t pay you to manage cash.”

But then came the dot-com crash, 9/11, the housing boom-and-bust, the Euro crisis, and so on. People with cash could respond to the market’s swings. Cash is an option. When the market is volatile, the value of that option rises. It protects investors in bear markets, and allows them to add to their holdings when the market falls. But in a bull market cash drags on returns.

Cash-management is an essential part of any investment strategy. Investors should plan ahead how much cash to hold and when to put it to work. Holding cash is frustrating during a bull run, but stocks don’t always rise. When they fall, a cash-stash will make you very happy.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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Odysseus: The Resourceful Investor

Investors need to be resourceful.

Whether it’s reading a set of financial statements or watching the Federal Reserve Chair talk about the economy, investors need to use all their wits to understand what’s going on. There are myriad difficulties and distractions that would keep us from accomplishing our goals. We have to think clearly and creatively.

The Greek hero Odysseus faced the same problem. After the Trojan war, each of the leaders headed back home. Odysseus faced one of the longer journeys, as his home island of Ithaca was on the other side of the Greek peninsula, over 500 miles away.

On the way back he faces storms, monsters, enchanted islands, hostile and menacing hosts, and other challenges. While the war demanded physical prowess, the voyage home required mental and creative energy. There were times when Odysseus just wanted to quit. But each test called for a new response, and he eventually got back.

In the same way, investors face all kinds of issues—both external and internal. There are monsters and enchantments that would separate us from our money; there are distractions and temptations to give up; economic and financial storms can blow us off course. It’s during such times that we need to remember where we’re going and how we plan to get there.

Investing is an odyssey that can take us to uncharted waters. As with Odysseus, it’s our planning and perseverance that will get us home.

Douglas R. Tengdin, CFA

Chief Investment Officer