The Game

It’s easy to setup an online brokerage account. Within minutes, you can buy and sell securities, opening the possibility of profiting from the greatest financial system in history. It’s an exciting prospect and easy to assume that all the other market participants are just like you: an individual, sitting in your den, watching CNBC, and trying to find a good investment.

But that’s not what most investors look like. Instead, they are large financial institutions investing pools money on behalf of their clients—think of banks and hedge funds like BlackRock, J.P. Morgan, and Bridgewater that manage investments and pensions for the largest companies and government agencies in the country. They are well financed, well researched, and well connected.

But this reality has not always been the case. According to a study by two professors from the Wharton School of Business, “The proportion of equities managed by institutional investors hovered around five percent from 1900 to 1945. But after World War II, institutional ownership started to increase, reaching 67 percent by the end of 2010” (“Institutional Investors and Stock Market Liquidity: Trends and Relationships,” Blume & Keim 2012).

In other words, over the last fifty years, the market has shifted from mostly individual investors to mostly institutional investors, making it increasingly difficult to gain a competitive edge. These institutional investors have droves of analysts and researchers looking night and day for investment opportunities, and they are armed with enough buying power to move the market.

So how do you take on Wall Street? How do you beat them at their game? You don’t—you join them. And I don’t mean by buying their expense funds. I mean you buy the market through low-cost ETFs. That way, as a passive participant, you benefit from the long-term growth of the economy through individual and institutional investment across the market, cutting Wall Street out of the process altogether.

You will never experience the excitement of finding a “tenbagger,” which is an investing term for a position that appreciates to 10 times its purchase price. But you will also never experience the anguish of perpetually not finding a tenbagger and losing all your money. Instead, you will stumble your way through years of boredom and suddenly realize that you are a very wealthy person.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Buffettism

Buffett has said many influential things over the course of his career. His annual reports for Berkshire Hathaway are widely circulated, and people from across the globe come to Omaha each year for his annual shareholders’ meeting. But this quote is probably my favorite: “It is not necessary to do extraordinary things to get extraordinary results.”

Now, it seems appropriate that this extraordinary man, who is worth over $70 billion, also famously enjoys the unextraordinary things in life—his favorite meal is a cheeseburger with a Cherry Coke. He is a living contradiction, so it’s unsurprising that he would say something like this. But what does he mean? How can you expect extraordinary results from ordinary actions? The answer: consistency.

Many people want to hit a home run with a one-time investment, so they try to predict the next Apple (up 4,700 percent since its IPO) or Google (now Alphabet up 1,700 percent since its IPO). But as you know if you’ve read Moneyball by Michael Lewis, it’s much better to just consistently get on base. So what does that look like in your financial life?

Save a little bit of money every month, invest that money in a balanced and efficient portfolio of stocks and bonds, and then wait—and that’s the most crucial part. Compounding interest and capitalism are the two most powerful tools in creating wealth, but they don’t work overnight.

As Buffett also says, “Our favorite holding period is forever.” It’s so simple, yet people find it incredibly difficult to just wait on their investments to grow. Naturally, they feel like they should be doing something, but inaction is often the most powerful move. In fact, even if you had terrible timing and entered the market in 2008, if you just invested in an S&P 500 index fund, you would be up over 100%.

The plan is simple--consistently save a little over a long period of time and watch it grow. If you do that, you will eventually become an extraordinarily wealthy person.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Don’t Abandon Your 401(k)

In our modern economy, it is normal for people to switch jobs several times along the course of their career. Whether you’re seeking to acquire a new skill, live in a different city, or receive higher pay, changing companies is just part of the new normal. So it’s easy to leave a string of abandoned 401(k) plans in the wake of your career trajectory.

So what to do? You essentially have three options: leave it, roll it into an IRA, or roll it into your new employer’s 401(k) plan. None of these options is bad, but there may be one that fits your objectives best. So here’s a quick rundown of their pros and cons:

Leave It

This option is probably the most common choice but only because it’s the no-action default. And that may be just fine, especially if you really like the investment options and have easy access to track progress. But the worst thing that could happen is that you have a large balance in a legacy account that has terrible investment options, and you completely forget about it for years. This outcome is totally avoidable, so don’t let laziness win out.

Roll it into an IRA

This option is the most flexible, and you don’t need to already have an existing IRA—you can open one specifically for a rollover. You can use any institution or financial advisor, and you can invest in virtually anything. So if your former and current 401(k) plans are restrictive (e.g. they only allow you to invest in annuities from an insurance company), you may want to use an IRA to provide better investment choices.

Roll it into your new 401(k)

If your new 401(k) plan has great investment options, then this option is best because it’s easier to manage just one account—easier to monitor and easier to implement one cohesive investment strategy. Additionally, while you must reach age 59 ½ to make penalty free withdrawals from an IRA, if you retire, you can access your 401(k) earlier at the age of 55.

Note that these same basic options apply to 403(b) and 457 plans as well. And whichever option you choose, just make sure you monitor its progress and include the balance in your overall retirement planning.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Money Mastery: Part II

When kids don’t understand something, they ask about it. But along the way to adulthood, we become self-conscious—we fear judgment for our ignorance, so we stop asking questions. And until I started reading Mastery by Robert Greene, I never realized how much of an impediment to learning this fear can be.

With all things money, adults feel like they should have it mastered. After all, we use it every day. But did you study personal finance in college? Grad school? Did your parents teach you? I would venture to guess that an overwhelming majority of Americans would answer ‘no’ to all three of those questions. So why do we build up a wall of arrogance as if there is nothing more for us to learn?

Greene writes that humans have an unlimited ability to learn, but we also unwittingly damper the process by putting up barriers. He explains, “These include a sense of smugness and superiority whenever we encounter something alien to our ways, as well as rigid ideas about what is real or true, often indoctrinated in us by schooling or family.” So instead of asking questions, we pretend to already know the answer.

We pretend because we hate the feeling of being lost. Unfortunately, that pretense greatly impairs our ability to learn. In contrast, Greene explains, “Children are generally free of these handicaps. They are dependent upon adults for their survival and naturally feel inferior. This sense of inferiority gives them hunger to learn.” Kids have no shame in asking because they don’t feel like they are expected to know the answer.

So the next time you are confused about your finances, taxes, or anything else in your life, push back against that uneasy feeling and find an answer, even if it means asking an “embarrassing” question. You’ll actually learn something, plus, chances are that everyone else is asking themselves the same question.

Green prompts, “Understand: when you enter a new environment, your task is to learn and absorb as much as possible. For that purpose you must try to revert to a childlike feeling of inferiority—the feeling that others know much more than you and that you are dependent upon them to learn and safely navigate your apprenticeship.”

If you don’t know what’s going on, good—that’s an opportunity to learn. Replace that self-conscious feeling with a desire to absorb new information and learn something, especially when it comes to money. You’re only hurting yourself by embracing ignorance.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Money Mastery

I am currently reading Mastery by Robert Greene, which analyzes the training of some of history’s greatest masters—Einstein, da Vinci, Mozart, etc. He recounts their lives to gain insight on the process of becoming a master: how they started, what influenced them, and why they were ultimately so successful.

But the process that Greene reveals can apply toward any skillset, including personal finance. You hear people say, “Oh, I’m just not very good with money,” as if there’s nothing they can do about it. But it’s clear through this book that anyone can become a master, it just takes time and practice, and you can start with these two ideas:

The first is that you should master what you already know. Greene writes, “Direct yourself toward the small things you are good at. Do not dream or make grand plans for the future, but instead concentrate on becoming proficient at these simple and immediate skills.” Little wins build confidence, and that’s what this part of the process is all about.

So if you make a lot of money but have a huge spending problem, start by tracking exactly how much money you bring in every month—you’ll eventually be disturbed by how little you keep. And if you’re great at negotiating, call your cable company and talk them down to a lower monthly bill.

The second idea is about desire—you can’t master something unless you really want to. Green observes, “This intense connection and desire allows [masters] to withstand the pain of the process—the self-doubts, the tedious hours of practice and study, the inevitable setbacks, the endless barbs from the envious. They develop a resiliency and confidence that others lack.”

Mastery is not easy, so you have to really want it to be successful. In the realm of personal finance, you will have setbacks that make you want to give up. An unexpected bill will come your way at the worst time, or an income stream will dry up just when you started to depend on it. But you need the confidence to take it in stride, adjust your plan, and continue toward your goals.

You may never develop a Nobel Prize winning physics theory or create priceless works of art, but you can master the skills necessary to restore order to your financial life. It just takes small steps and determination.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Get Off the Sidelines

Needlepoint wisdom is full of contradictions. Some caution, “You have to wait until the time is just right,” while others say, “There’s never a better time than now.” Both sayings are good advice—depending on the situation, but in the realm of investments, I have to go with the latter.

Many investors and advisors set aside cash for “tactical allocations,” and that sounds very impressive—like Seal Team 6 is pulling security for your portfolio to ensure its success, but I assure you that’s not the case. In fact, you are way more likely to miss out on stock market rallies if you are just sitting on the sidelines waiting for the perfect time.

In Burton Malkiel’s classic A Random Walk Down Wall Street, he writes, “An investor who frequently carries a large cash position to avoid periods of market decline is very likely to be out of the market during some periods where it rallies smartly.” And to prove his point, Malkeil discusses two different studies.

In the first, Professor H. Negat Seybun of the University of Michigan found that 95% of gains over a 30 year period came from just 90 of about 7,500 trading days—that’s just over 1% of trading days. So if you are trying to time the market, that’s a pretty narrow margin for error. If you were not invested during those specific 90 days, you essentially missed out on 30 years of growth.

Second, Malkiel cites a study by Laszlo Birinyi in his book Master Trader. The study showed that $1 invested in the Dow in 1900 would be worth $290 in 2013. But, if that investor missed the five best trading days each year, that same $1 would be worth less than a penny over the same timeframe.

In other words, trying to time the market can be devastating to long-term portfolio growth. You think you’re exercising patience, but you’re only eliminating opportunities for growth.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

#BRK2017

Last weekend, Warren Buffett and Charlie Munger hosted the 2017 Berkshire Hathaway annual shareholder meeting in Omaha, Nebraska.  The duo dazzled and charmed 40,000 attendants in the CenturyLink Center for hours on Saturday—answering questions, telling stories, and imparting a great deal of wisdom along the way. Here are a few highlights:

Buffett on Bogle

Jack Bogle, founder of Vanguard, was in attendance, and Buffett had him stand for an applause from the crowd. Buffett went on to say, “Jack Bogle has probably done more for the American investor than any man in the country,” which is a bold statement from a man responsible for minting countless millionaires himself.

Meanwhile, Morgan Stanley just announced that they are dropping Vanguard mutual funds as an investment option for its clients. They will continue to provide access to Vanguard ETFs, which are growing in popularity, but the exclusion of Vanguard mutual funds seems like an overtly insecure move by the Wall Street giant.

Lesson from Aunt Katie

Buffett told a story this year about his Aunt Katie, who had money in Berkshire Hathaway. But she lived modestly and worked her whole life, and even though she was worth millions, she would write her nephew every few months asking if she was going to run out of money.

Now, there’s something endearing about a frugal aunt writing to her nephew, Warren Buffett, about money problems. But as Buffett advises at the end of the story, “There’s no way in the world if you’ve got plenty of money that it should become a minus in your life.” Be frugal like Aunt Katie, but don’t obsess over a problem you don’t have.

The Team

Buffett has used this joke before, but he opened the meeting Saturday by saying, “That’s Charlie. I’m Warren. You can tell us apart because he can hear and I can see.” Now, that casual remark is telling in a couple of different ways. First, it highlights his humility—Buffett has all the notoriety, but Charlie Munger has been his business partner for years. Even so, Buffett introduces Munger first and just casually uses their first names.

Second, it’s self-deprecating. This meeting represents the easiest opportunity for Buffett to just bask in his own glory—he could spend the whole day talking about his accomplishments and receiving praise from all his investors (read: fans). Instead, he makes fun of himself and brags on what great managers he has. It’s no wonder his employees never leave.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Rookie Lessons

Last week, the 2017 NFL minted a new class of overnight millionaires, and I’m sure more than a few unwise purchases have been made since. Now, you may never sign a four-year, $30 million contract with the Cleveland Browns, but you very well may receive an inheritance or, in the case of almost all doctors, go from making $50,000 to $500,000 after residency.

With that comparison in mind, I thought it would be fitting to share some lessons that Mark Doman, a financial advisor who specializes in serving NFL players, recently gave to GQ magazine. If they are simple enough for a 20 year-old, millionaire athlete, they should be simple enough for us all:

Lesson 1: Triage, triage, triage

Separate your needs from your wants, and within your wants—keep it reasonable. One thing that Doman suggests is thinking about leaving room for “shinier” purchases in the future. If you buy your dream home at 25, what’s there to look forward to in the future? Instead, buy a nice home, and then make a plan to save for the dream house in years to come.

Lesson 2: Pay attention to where your money is

Often, individuals will hire a financial advisor after they receive a windfall and leave everything up to them. And that’s a good first move, but it’s even better when you understand what they’re doing with your money. What type of investments do they recommend? Why do they recommend them? How are they paid? Financial education is a large portion of an advisor’s job, so if you don’t understand, it’s because the advisor isn’t doing their job.

Lesson 3: Have an actual strategy

Developing a strategy is what financial advisors do—we create an investment portfolios and financial plans to achieve long-term financial goals. The key to executing a strategy is sticking with the plan and having a long-term outlook. It does NOT entail chasing the hottest stock mentioned in the latest issue of Money Magazine.

Lesson 4: Avoid banking on things that aren’t actually investments

When you come into a lot of money, “friends” will come out of the woodworks. And if they don’t want straight up handouts, they may have some great “investment” ideas they want you to consider. Usually, there is nothing but upside for them, and you assume all the risk. If you do want to indulge them, keep in mind that it is an actual indulgence, not an investment, and you should budget accordingly. In other words, treat it like an expense, not an investment.

Lesson 5: Have some damn perspective

This is my favorite lesson, and it reminds me of a scene in The King of Torts by John Grisham where a bunch of trial attorneys fly out for a meeting, and the youngest among them is embarrassed because his jet is the least expensive one parked in the hanger—Don’t be that guy. Keep things in perspective, and don’t treat life like a competition to spend the most money.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Sorry About Your Refund

Last week marked the end of another tax season, and I’ve heard a lot of people talk about the size of their refund: some disappointed and others thrilled. But the true winners are those who owed and received nothing. They managed their withholding and estimates correctly, and here’s why:

It’s Your Money

You have probably heard the argument that you’re giving the government an interest free loan, and it’s true. But because people trick themselves into thinking it’s an “unexpected” windfall, it feels like a gift from the government. But what if I told you that if you give me a few hundred dollars from every paycheck, I’ll hold onto it until April? Oh, and I’m not going to pay you any interest. When you put it in that context, it sounds absurd, doesn’t it?

It’s Easy to Spend

The estimated average federal refund for the 2016 tax year is about $3,000, which is $250 per month in tax overpayments, but you are way more likely to blow the refund. First, it’s easier to spend someone else’s money, so if it’s “unexpected,” then there’s less guilt. Second, you can do a lot more with $3,000 than you can $250. If you’re walking around with that much cash burning a hole in your pocket, you’re going to spend it.

But It’s Better to Save

Let’s assume you don’t go full lotto-winner crazy and spend it all, but instead, you take this one behavior modification seriously: you change your W-4 and put back the $250 per month difference into an investment account. This change should not drastically affect your lifestyle—Your monthly take home pay will remain the same; you just won’t have that April windfall to spend. If you start at the age of 25 and assume a 6% average return on your money, when you turn 65, the account will be worth $500,000.

I know it feels good to get back a tax refund, but that doesn’t mean it is good. It’s your money, so why not keep it and do what’s best for you?

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Money Monarch

In a recent interview with Tim Ferriss, Brazilian businessman Ricardo Semler remarked, “The world is a monarchy, and the king is money,” which we bristle at as Americans because we define our country by freedom and democracy. But as individuals, he’s right—we forsake all that and take up money as our monarch.

Semler further explained that when you get in the mindset of accumulating money, you can’t see or value anything else. And you forget that it’s taking away from some other area in your life, whether it’s time with family, recreational activities, or much needed sleep. Unless you actively pursue something else, money becomes the default mission.

This discussion reminded me of a story I heard about a fisherman who lived on an island in the Caribbean. And one day an investment banker from New York visited the island for vacation and saw how skilled the fisherman was at his trade. But at noon, the fisherman went home, had lunch with his wife, then took a short nap before spending the rest of the afternoon with his friends.

The banker advised him that if he kept working through the afternoon, he could quickly earn enough money to buy a bigger boat and hire a crew. That crew would allow him to earn even more and eventually purchase a whole fleet. Then, of course, he could bring on investors to scale the operation internationally. At that point, the banker told the fisherman that he could take the company public and sell it.

The fisherman meekly asked the banker why he would sell it after all that trouble, and the banker quickly told him that the sale would provide him enough money that he could sit back and enjoy life—leave work at noon, have lunch with his wife, take an afternoon nap, and spend the rest of the day with his friends. 

Money was the banker’s monarch. He couldn’t see that the fisherman didn’t need more money to live the happy life that he already had.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Battle Plan

I just finished Eric Blehm’s The Only Thing Worth Dying For, which tells the story of an Army Special Forces unit that helped local militia overthrow the Taliban in Afghanistan. It’s really about heroism during the early days of the war on terror, so I certainly did not expect to read anything worth mentioning in a financial blog.

And then I came to chapter ten, where everything falls apart, and it begins with a quote from General Dwight D. Eisenhower:  “In preparing for battle, I have always found that plans are useless, but planning is indispensable.” And that quote really struck me because it simultaneously acknowledges the futility of planning while stressing its importance.

Obviously, battle is an extreme—few of us will ever face those horrors. But there is a useful parallel between planning for battle and planning for anything, especially financial goals. So let’s break this quote down into two different pieces:  plans are useless and planning is indispensable.

I’m sure Eisenhower saw enough battles to know that the chaos of war upends even the most well thought out plan. Battle is unpredictable and full of surprises—much like our financial lives. The moment you develop a concrete plan, an expensive emergency will bring you to your knees. But that doesn’t mean that you’re doomed to never achieve your financial goals—it just means you pivot.

Your original plan may be useless, but since you took the time to dig into your finances and come up with a plan, you now know what it takes to be successful. You understand the details of your financial life, so you know where to find flexibility and room for adjustment. That is why planning is indispensable.

Only through that process do you learn enough about your financial situation to be able to adapt to whatever is thrown at you. Your plan will be a straight line toward your goal, but that never actually happens. You start with one trajectory, and as your situation changes, you adapt and pivot to take on a new trajectory—all the while heading toward success.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

The Someday Lie

There is a tendency to react to the urgent instead of planning for what’s important. We let our inbox determine the flow of our day and spin our wheels putting out fires instead of making true progress toward things that are important to us. We are easily distracted, constantly derailed, and rarely productive.

This dilemma is not new. It’s something that we recognize, feel momentary conviction, then return to life as usual because it’s an easy cycle to fall back into. This pattern happens with all goals, but obviously, I’m most concerned with financial goals. So let me give you a tool to combat this unproductive cycle.

Joshua Millburn and Ryan Nicodemus of “The Minimalists” wrote a post called “Someday” that I think is a great place to start. They urge you to write a list of “big ticket” items that you would like to accomplish someday—start a business, lose weight, pick up a new hobby, etc. Then flip that sheet of paper over and write another list of everything you have done in the past day.

If you’re like me, none the items on these two lists were related. Millburn and Nicodemus comment, “Sure, many of the items on this second list are necessary, or even urgent. But just because something is urgent doesn’t mean it’s worthwhile; in fact, misguided urgency is often the enemy of progress.” We garner an undue amount of satisfaction from dealing with the urgent—like scratching an itch, but it doesn’t get us anywhere.

Important goals take a lot of time and patience. Millburn and Nicodemus further observe, “For most of us, someday is the single most dangerous word we utter:  it grants us the illusion of future possibility without having to focus on that which is important today.” In other words, you give yourself credit for something you’ve never even tried to do.

So don’t fall into the lie of someday. Prioritize accomplishing small, incremental steps toward big goals, and let go of the “urgent” busyness that fills your day.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Personal P&L

Every year, public companies must put together a big report with all their financial information called a 10-K. It’s shared publicly so that investors are informed about company performance and financial standing. Of course internally, companies monitor performance throughout the year, tracking budgets and expectations every month.

So what about you? How often do you evaluate your performance against budgets and expectations? I am not making an indictment against those who don’t have a budget. But I would like to point out that, if you haven’t already, you will soon have to create your own personal financial report in the form of an income tax return, so since you have to do it, you might as well learn something from it.

For starters, do you know how much money you make? Most people at least have a rough idea, but many people don’t know down to the thousand. And if you’re self-employed, chances are even lower. So when your return is complete, look on the first page to see exactly how much money you make and where it all comes from.

Is that more or less than you thought it would be? Does the financial pressure in your life feel commensurate with that level of income? Or is money somehow tighter than it probably should be? It’s easy to get wrapped up in month-to-month living and covering your bills, but when you see your annual income, it’s a good practice to re-examine your lifestyle to see if your monthly expenses are justified.

Now look at your deductions, especially mortgage and student loan interest. You know what’s better than getting a tax deduction? Keeping your money. So what’s your plan to pay down that mortgage and student loan balance? Early payoffs can save you tens of thousands of dollars in interest. Do you know what your interest rates are? Maybe you should consider refinancing.

These questions are just a few that can be easily answered from your tax return—it can give many more insights, so take advantage of the opportunity. No one enjoys the tax filing process, but you should at least learn something from it.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Should You Buy It?

I first heard about Pete Adeney (AKA Mr. Money Mustache), about a year ago, and as with most things that come across as gimmicky, I stayed away. The name alone is absurd, and many of his ideas are presented in a way that are meant to be shocking—living on $25,000 per year, almost exclusively commuting by bike, promoting communal living, etc.

But after listening to an interview with him on the Tim Ferriss Show, I realized that Adeney has an extremely analytical mind and provides some very practical advice. I am not wholesale advocating his cult-like following, but I really liked learning about the process he goes through in decisions to spend money:

Procrastinate

It’s the one time procrastination is a good thing. When you are contemplating a purchase, procrastination buys time to talk yourself out of it. Shiny new things often lose their luster before you even buy them. Technology and styles change so much that you may have moved on to the new, new thing, or you just realize that you didn’t want it that badly in the first place.

That’s why Amazon has one-click purchasing—sure it’s convenient, but it also eliminates those extra fifteen seconds you have to change your mind when it’s queued up in the cart. You see that shipping costs a little more than you thought it would and remember you actually bought something similar last week, then without another thought, you hit ‘Cancel.’

Where will it go and what if it breaks?

When you buy something, it physically comes into your life. It’s not just there when you want it—it’s always somewhere in your house, car, or office. It’s easy to get wrapped up in the idea of something without fleshing out the details, so make sure you have space and are willing to give up that space for a purchase.

Secondarily, are you willing to deal with this purchase if and when it breaks? Will you stay on the phone with customer service, take it to the shop, or pay for replacement parts? Some things just aren’t worth the trouble, so it’s better to never spend the money than have a broken toy that you can’t play with.

Is this removing a negative?

Studies have shown that we gain more “happiness” from removing a negative than we do from creating a positive. So placing greater weight on purchases that eliminate an inconvenience will maximize the happiness money can bring. That sounds counterintuitive, but it actually makes a lot of sense.

For example, if you cannot find anything in your closet or garage, you will probably gain more happiness from spending the time and money to organize it with new shelves and storage containers than you would buying new clothes or tools. Organizing relieves stress and anxiety from being unable to find the things you already own, which is a greater value than just more stuff.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Ego & Money

I just finished Ego is the Enemy by Ryan Holiday, whose work has become extremely influential in the worlds of business and sports. He is one of those college dropout prodigies that went on to amass great success—first as a media consultant, then as an author. In this book, Holiday cuts straight to the heart of how our egos get in the way of success.

Holiday makes great points throughout the book, but one section from the introduction encapsulates his central thesis:  “We can seek to rationalize the worst behavior by pointing to outliers. But no one is truly successful because they are delusional, self-absorbed, or disconnected.” As it relates to money, this statement plays out in two different areas:  spending and investing.

Spending

I have said before that the purpose of money is to enrich your life. You should maximize the happiness that each dollar can bring you. Instead, we tend to spend money on what makes others happy. For example, if your neighbor buys a new Porsche, he’s the outlier—spending money on an exotic car is not a good investment, so don’t buy one out of jealousy.

On the other hand, if you’ve wanted a Porsche your whole life and finally reached a place where you can easily afford one, then buy it guilt free. It would be delusional to think that everyone of a certain status deserves a Porsche, but if you are self-aware enough to understand why you are buying the car and know it’s just for you, then you can indulge yourself and know that you’re not just giving into ego.

Investing

With investing, it’s hard for people to accept that, like most, they are average investors—meaning that market returns is probably as good as they can get. They get excited about the sexier side of investments like using short sales and options, thinking they are the next George Soros or Bill Ackman, but those who find long-term success beating the market are outliers.

They don’t read about the droves of unsuccessful hedge fund managers who have closed their doors in the past few years because that’s not a fun story. The result is what’s known as survival bias, which is a psychological trick that emphasizes those who “survived” over those that did not simply because they are known. So don’t let your ego fool you into thinking you will survive through Mr. Market and become one of the winners.

Ego is the cause of many poor decisions, so it’s always important to keep it in check, especially when it comes to your money.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Invest Internationally

Investment abroad is very much like traveling abroad:  fear of the unknown prohibits many people from valuable enrichment. But what many people don’t realize is that over half of the world’s market capitalization is made up of non-US stock. In other words, if you only invest domestically, you are missing out on half of the world’s innovation.

To that end, let me disabuse you of the notion that international diversification means shaky investments in third world countries. Here are just a few of the top holdings for Vanguard’s Total International Stock ETF:

• Royal Dutch Shell (Netherlands):  oil and gas “supermajor” and currently the fifth largest company in the world
• Nestle (Switzerland):  largest food manufacturer in the world
• Novartis (Switzerland):  one of the largest pharmaceutical companies in the world
• Samsung (South Korea):  multinational conglomerate that includes Samsung Electronics, which is one of the world’s largest tech companies
• Toyota (Japan):  one of the largest automotive manufacturers in the world
• HSBC (United Kingdom):  the world’s sixth largest bank.

These are not exactly rinky dink operations. And although the immediate assumption is that international investment creates greater risk, the truth is the opposite. As the saying goes, don’t put all your eggs in one basket, so if you are only invested in US stock, you are in just one basket, even if you’re invested across a spectrum of industries.

Essentially, international investment adds another layer of diversification. Non-US companies in Europe and Asia experience different economic and market forces, so there is not a perfect correlation between US and non-US market returns. So when things are not going well here in the US, your portfolio will be can be tempered by developed markets abroad.

In fact, over the past several decades, investors with a mix of US and non-US securities would have experienced about the same returns with much lower volatility. A Vanguard study showed that from 1980 to 2008, a 30% allocation to non-US equities would have provided the most volatility reduction and, consequently, the greatest diversification benefit.

The amount of your portfolio allocated to international equities is based on a variety of factors. But it should at least play some role in your long-term investment strategy.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Financial Introspection

Let’s assume you have a financial plan in place. When is the last time you gave yourself a progress report? Just because you created a plan does not mean the plan is working—you may find yourself in the habit of doing the same things over and over again, but it’s just as easy to automate bad habits as it is good. So it’s a healthy practice to engage in financial introspection.

A good example of this practice is a club called Tiger 21, and contrary to what you may be thinking, it’s not a group of financial novices stumbling through their half-thought-out plans. It’s a group of high net worth individuals (investible assets in excess of $10 million) who pay $30,000 a year to be members of this peer-evaluating network.

Tiger 21 is short for The Investment Group for Enhanced Results in the 21st Century, and they meet routinely to allow members to present and defend their investments, charitable giving, and estate planning in front of one another. In other words, this group of already extremely wealthy people pay a lot of money to stand in front of each and have their financial decisions critiqued by one another for improvement.

Now, I don’t know that I can get behind paying $30,000 for this type of experience, but you cannot deny the humility and willingness to improve this group shows. Aristotle said, “Knowing yourself is the beginning of all wisdom,” and I cannot think of a quicker way to really find out what you’re made of than baring all in front of a group of your peers.

Everyone cannot have this opportunity, but that doesn’t mean you shouldn’t make time for your own type of financial introspection. If you are working with an advisor, then they should already meet with you at least once a year to make sure your financial plan is on track. But if you’re not, then you should plan some type of annual financial checkup for yourself—every year ask yourself what’s working and what’s not.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

More Than You Need

You know I liked a book when I get two blog posts out of it, so here are some more thoughts on The Undoing Project by Michael Lewis:

Kahneman and Tversky covered a lot of ground, and one of their areas of study was heuristics, which are mental shortcuts. Often heuristics are very helpful like when you’re driving a car:  your brain reacts to road and car based off experience that frees up the rest of your mind to think about other things.

However, every shortcut excludes something, which leaves room for error. Kahneman and Tversky explored an idea they called “anchoring and adjustment” in which people take mental shortcuts to answer problems based on their relative starting points. To demonstrate this theory, they gave one group five seconds estimate the product of these numbers:

8 x 7 x 6 x 5 x 4 x 3 x 2 x 1

Then they gave a second group five seconds to estimate the product of these numbers:

1 x 2 x 3 x 4 x 5 x 6 x 7 x 8

The correct answer is obviously the same, so you would expect similar estimates from the two groups. However, the first group gave a median answer of 2,250 while the second group gave a median answer of 512. The difference is the result of a higher “anchor” for the first group where the string of numbers with led with 8 instead of 1.

So what does anchoring and adjustment have to do with your financial life? Virtually anytime you make a purchase, this heuristic plays a role. It’s why the sticker price at car dealerships are so high—everyone knows that’s not what you pay, but it creates a mental anchor. So any price below that point is a mental “win” for you, even if it’s not a good deal.

Another example are signs at the grocery that say something like “Limit 12 Per Customer.” I assure you that the store is not worried about running out—they want to increase your anchor number from zero to twelve. Subconsciously, you want to take advantage of a deal, but in the process, you’ve allowed the grocery to decide how many cans of soup you buy.

There is no way to avoid bias in your purchasing. Some type of heuristic will come into play, but the important thing is to be aware of this process. If you know your brain is trying to take a mental shortcut, compensate by knowing ahead of time what you actually need.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

Everyone is Average

I just read The Undoing Project by Michael Lewis, which tells the story of Daniel Kahneman and Amos Tversky, the founders of what we now call behavior economics. Tversky died in 1996, but Kahneman went on to win the Nobel Prize in Economics in 2002. However, neither of these men is an economist—they are psychologists. But it is in the collision of these two fields that we discover why people make decisions that often make little economic sense.

For example, in one series of experiments they discovered that people often rely on certain factors to gain confidence in their predictions that actually lead to less accurate results. In the study, they would tell participants that they have selected an individual’s profile from a group of 100, which is made up of 70 engineers and 30 lawyers. When asked to predict the odds it was a lawyer’s profile, participants correctly answered 30%.

However, when given a detailed yet completely generic personal description of an individual named “Paul,” participants said that there was an equal chance of Paul being a lawyer or engineer. In effect, they completely dissociated their prediction from the known probabilities. Participants felt like they “knew” Paul, which made him special, but Paul had the same 30% chance of being a lawyer as any other profile. In other words, Paul was average.

Now, transfer this insight into how people pick investments. People pour over reports, ratings, and returns, for individual stocks and mutual funds, but at the end of the day, every fund manager is a Paul—they are just average. In the book, Lewis notes that, “Man’s inability to see the power of regression to the mean leaves him blind to the nature of the world around him.”

That’s not to say that there are no great investors. It’s undeniable that someone as consistently successful as Warren Buffett is absolutely a great investor. But there’s only one Warren Buffett, and there are countless fund managers, half of whom will beat the market and the other half won’t. So is it worth the cost of buying expensive and actively traded mutual funds just to have a 50/50 chance of beating the market?

I don’t think so, and neither does Buffett:  In his 2013 annual letter to stockholders, he wrote that, through his will, he has directed the trustee of his estate to invest in S&P 500 index funds. Buffett knows that active fund managers will always talk about “seeking alpha” and their “tactical allocations,” but they will all eventually regress to the mean.

It’s not sexy, and it forces investment managers to admit that we don’t have a crystal ball, but passive investing through a balanced portfolio of low-cost, index funds is the way to go.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.

The Dow: It’s Just a Number

You have probably heard a lot lately about the Dow Jones Industrial Average approaching 20,000. And by the time you read this post, it may or may not have hit that historic mark. But it doesn’t really matter either way because the Dow is a terrible indicator, and here’s why:

Only 30

There are 4,000 stocks traded on the New York Stock Exchange and NASDAQ every day, and the Dow tells us what just thirty of them are doing. That’s less than 1%. Plus, the thirty companies it does represent are mostly older companies like General Electric, Johnson & Johnson, and Exxon Mobil. It does not contain some of the more relevant companies like Alphabet (formerly Google) or Facebook.

Dated Calculation

The Dow is an average of stock prices, which may have been sophisticated back in 1896 when the Dow originated, but stock price only tells half the story—the other half is how many shares of the company are outstanding. The product of those two numbers, share price and number of shares outstanding, is the company’s market capitalization, and that is a much better indicator of a company’s worth.

For example, take two different companies with the same market capitalization of $100, but Company A has 100 shares outstanding valued at $1 while Company B has just 2 shares outstanding at $50. Now, say both companies increase in value by 10%, so they’re both worth $110. Company A’s stock will increase just $0.10 per share while Company B’s stock will jump $5 per share.

So even though both companies have experienced the same growth, Company B’s stock would have 50 times the effect of Company A’s on the Dow because it only looks at share price and doesn’t account for market capitalization. As a result, there are distortions in the Dow’s movement. In fact, 24% of the Dow’s 1,600 point rally at the end of 2016 can be contributed to one company—Goldman Sachs, the most expensive stock in the index.

If the Dow Jones Industrial Average is such a terrible metric, why is it quoted so often? Name recognition. People have heard of it because it’s been around the longest, so the financial media keeps reporting it. You should not track daily movements of your investments anyway, but if you feel the need, use the S&P 500 or Russell 3000. They are a much more accurate benchmarks for the overall US stock market.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.