The American Tailwind

In Warren Buffett’s latest letter to Berkshire shareholders, he devotes the last section to an idea that he calls The American Tailwind. It’s the idea that Americans are resilient and innovative, and no matter what obstacles we face, we always come through on the other side—better and stronger than before.

This positive message stands out in an era dominated by sensational headlines and alarmist stories, so it’s worth weighing the words of a man with such wisdom. Buffett writes:

“Our country’s almost unbelievable prosperity has been gained in a bipartisan manner. Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic, and a host of other problems. All engendered scary headlines; all are now history.”

In other words, every time you’re in the middle of a struggle, it seems like it’s the worst thing that’s ever happened. But invariably, American life goes on—and so does our economy. Certainly, there will be “breaking” news that upsets the markets, creating short-term pullbacks, routs, corrections, and recessions, but ultimately investing in American business is a solid bet.

Buffett ends his letter by saying that in the long term, “The major source of our gains will almost certainly be provided by The American Tailwind. We are lucky—gloriously lucky—to have that force at our back.”

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

Jack Bogle

I’ve written about Jack Bogle before, but if you don’t recognize the name, he is the founder of Vanguard and creator of the first index mutual fund. He died earlier this month at the age of 89, and while he is mostly known for revolutionizing the investment world, it also turns out that he was just a really good person.

Most tellingly, back in the 1970s Bogle did not charge the 4% commission, which was customary for mutual funds to reinvest dividends on behalf of its clients. He wanted to help people build wealth, so he waived the additional fee much to his own financial detriment. Not only that, but the mutual structure he pioneered kept him from amassing the level of fortune attained by his peers.

When asked about this reality in 2007, Bogle responded with a story about a famous writer at a party with a hedge fund manager: Someone asks the writer if it bothers him that the hedge fund manager makes more money in a day than the writer ever will from a publishing deal. The writer responds, “Yeah, but I have something he’ll never have: enough.” Then Bogle added, “And I have enough, too.”

Secondly, Jason Zweig of the Wall Street Journal called Bogle for career advice back in the mid-1990s. Zweig was anxious about taking an opportunity to work for a personal finance magazine, thinking they might take his integrity. Bogle quickly fired back, “If they can take your integrity away from you, it’s not integrity.” Well said, sir.

The financial world is littered with greed and corruption, so it’s important to acknowledge the life of a man who lived above the fray. Jack Bogle was a visionary and placed the needs of his clients ahead of his own.

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

Robinhood

There’s a new app for stock trading called Robinhood, and its tagline is: “Investing. Now for the rest of us.” While brilliant from a marketing standpoint, it’s terrible for the public on two main fronts:

First, day-trading from your phone while at work is not investing. It’s a hobby and a distraction that should only be taken as seriously as your fantasy football league. If you want to “play” with a nominal amount for fun, knock yourself out. But you don’t play with retirement money—you invest it. And that means creating a well-diversified portfolio that you hold for the long-term.

Second, the name “Robinhood,” along with its tagline, implies new access to something previously reserved for the wealthy. While you may be able to download a cute little app, professional traders pay $20k per year for Bloomberg Terminals, which provide real-time data feeds from exchanges and other professionals across the globe. So it’s not exactly leveling the playing field.

What’s worse is that Robinhood advertises their service as “free,” but there’s always a cost. So how do they make money? They charge users to trade on margin, which means borrowing funds to make trades. In other words, they encourage users to trade with money they don’t actually have.

They also receive rebates from executing brokers, which sounds super boring and innocuous. But at the end of the day, it means users probably won’t get the best price for their trades. While technically the basic service is “free,” users end up paying more for the securities bought and receiving less for securities sold, which is tantamount to paying a commission anyway.

I hate to disappoint, but this app will not help you steal from the rich and give to the poor. If you want to play with an investment app for amusement, have fun but be prepared to lose.

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

The Dichotomy of Financial Decisions

In the new book, The Dichotomy of Leadership, authors Jocko Willink and Leif Babin explore the nuances of leadership and how guiding principals taken to the extreme can be counterproductive. Babin notes, “There is a time to stand firm and enforce rules and there is a time to give ground and allow the rules to bend.” The key is understanding when.

For an example in leadership, they explain that if you don’t vigilantly oversee subordinates, your team will lack guidance. However, if you micromanage your team, no one will take ownership of the project. Hence, the dichotomy: too much or too little oversight will damage your team’s effectiveness.

The same holds true for financial decisions. You should have a financial plan that guides you toward your goals, but you should always weigh that plan against other opportunities as they arise. Does the opportunity change your long-term goals? Or is the opportunity just a short-term distraction? These two questions form the dichotomy of financial decision-making.

For example, you may have a good-paying job that provides you the lifestyle and savings level you desire. However, a headhunter could call you with an offer from a start-up where your compensation would be less but the work would be more fulfilling. What do you do?

A lower-paying job is not part of your financial plan, but it could be a great opportunity. Ultimately, the utility of money is to improve your life, so which decision would make you happier: staying on track financially or pursuing more fulfilling work? There is no universal right answer, only what’s right for you personally.

You have to find the balance. You need a financial plan to give you guidance on day-to-day decision-making, but you need to allow yourself room to take advantage of opportunities as they arise.

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

Happy Money

This past week at a conference in St. Louis, I had the opportunity to hear Dr. Elizabeth Dunn, who is a psychology professor at the University of British Columbia, give a presentation on her book, Happy Money: The Science of Happier Spending. Through her work, she challenges the blanket notion that money cannot buy happiness.

Specifically, her research reveals that money could buy happiness if only we were better at spending it. One aspect of note is our tendency to keep spending money on things that used to make us happy but no longer do. Dunn explained that things and experiences normalize, so after a while, the happiness they once brought diminishes while our spending does not.

For example, is there a magazine you loved but now rarely read and continue to buy each month? Did you join a golf course when you played every weekend but, now that you have kids, find it difficult to schedule a round? These expenses no longer make sense because your situation has changed. Money is going out the door without giving you happiness in return.

So instead of paying for the magazine you no longer read, maybe you should spend that money on an Audible subscription, which would allow you to listen to that stack of books by your bed that you have also been meaning to read. Instead of paying for a membership to a golf course you never use, maybe you join a club with a pool, allowing you to enjoy some active quality time with your kids.

Bottom line—if you’re going to spend money, make sure you are actually getting enjoyment out of it and not funding a hobby from five years ago.

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

Trust Me, I’m a Financial Advisor?

According to the 2018 Edelman Trust Barometer, the US financial services industry dropped twenty-three points from a 68 to 45 in the trust index, indicating a sweeping move from overall trust to distrust over the past year. Of course, Edelman, which is a global public relations firm, reported growing distrust across all industries and institutions around the globe, dubbing 2018 the “Battle for Truth” year.

However, the financial services industry, which had otherwise seen great improvement in public trust since the 2008 financial crisis, declined for its own specific reasons. The top five were: no product/cost transparency, confusing products/services, unwanted selling, not responsive, and difficulty addressing problems.

These first two reasons should not exist. Financial advisors should let you know how much you are paying and what you are getting in return—that’s just good business. But since finance can be complex, instead of taking more time to explain solutions to their clients, many financial advisors exploit these relationships to charge absurd fees and sell unnecessary products.

The final three reasons come down to customer service: financial advisors shouldn’t harass people into becoming clients then ignore them once they’ve been paid. Advisors should foster client relationships, answering questions and providing solutions to financial problems. We are obviously in business to make money, but it should never be to the detriment of our clients.

The bottom line is that you should find a financial advisor you can trust. But if any of these reasons for distrust pop up, know that it’s not you. It’s very much them.

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

Let It Ride

Timing the market is like punching water—it accomplishes nothing and makes you look like an idiot. The objective, of course, is to stay true to the investment maxim of “buy low, sell high,” but in the moment, that’s virtually impossible to achieve. As a result, investors end up losing out.

The problem is that sometimes it feels like a market top when it’s not. For the past several years, it’s felt like we’re due a correction, but the market has continued to go up. Certainly now, with friction between our trading partners, tariffs, and a flattening yield curve, you can make a strong argument for an impending correction.

But consider this: If you had a crystal ball and sold right before the housing crisis (October 2007) or Black Monday (August 2015), during the periods since, you would have missed out on 78.4% and 34.7% returns, respectively. In other words, the market rewards it’s long-term participants, even though it can hurt in the short-term.

There is a classic study from the book Master Trader that reveals $1 invested in the Dow in 1900 would be worth $290 by 2013. However, if that investor missed just the five best trading days in each year, that same $1 would be worth less than a penny. That’s only about 2% of trading days, which means there’s virtually zero room for error.

So if you are going to take money in and out of the market, you have to get it exactly right, or the market will punish you. Instead, create a prudent allocation based on your financial objectives, investment timeframe, and individual risk tolerance, then rebalance periodically to keep you allocation in line. Other than that, just let it ride.

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

Financial Mentor

In 1954, renowned psychologist Leon Festinge developed the social comparison theory, which states that individuals compare themselves to others in order to understand themselves better. He said, “There exists, in the human organism, a drive to evaluate his opinions and his abilities.” So it’s not that we want to compare ourselves to others—we need to.

This drive explains our collective compulsion to post our latest achievements on Instagram. It’s not enough to have something—an opinion, new car, designer purse—or achieve something—promotion, marathon, degree. But as humans, we need to let people know about that “thing” and compare it to others.

In fact, studies show that we are only “happy” when we are comparatively better off than someone else. So if you buy a new house, but your co-worker Jim buys a bigger, nicer house, you won’t be as happy about your purchase. It’s illogical, but it’s a reality. And it also leads to poor financial decisions.

So how do you break free? Recently, I attended the Morningstar Investment Conference in Chicago, and Sarah Newcomb, who is a senior behavioral economist at Morningstar, gave the answer: find a financial mentor. Since we are naturally going to compare ourselves to someone, make sure they push you toward financial success.

Newcomb says to begin by thinking of someone you know and admire who is financially successful, but make sure that their level of wealth is practical (e.g. not Warren Buffett). Next, write down a couple of sentences that explain specifically what you admire about their financial situation.

For example, you may have a modest income and look up to someone who has wisely stewarded their resources over the years, contributing healthily toward retirement and paying off their mortgage. Or you may have a higher income and look up to someone who is very charitable and paid for their kids to go to college.

Most importantly, Newcomb says to consider what behavior allowed them to achieve such financial success and what personal qualities drive this behavior. Do you also possess any of these qualities? What immediate action can you take to put your financial life on a similar trajectory?

Obviously, wishing your life were like someone else’s will not magically change your circumstances—you still have to make it happen. But this exercise will prime your mind to make better financial decisions and move in that direction. It creates a financial North Star—a healthy way to compare your financial life to someone else that encourages better financial decisions.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at.

Richest Man

The Richest Man in Babylon is a collection of parables set in ancient Babylon that conveys financial lessons through the fabled experiences of the richest man in the richest city in the world. After circulating for several years as a series of pamphlets, the book was published in 1926, but it’s lessons are just as applicable today.

Each page contains great insights, but the central theme of the book can be summarized by the following paragraph:

“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford. Pay yourself first. Do not buy from the clothes-maker and the sandal-maker more than you can pay out of the rest and still have enough for food and charity and penance to the gods.”

Just that first, short sentence creates a huge mental shift. The phrase “yours to keep” allows you to think of saving as a reward for earning instead of a prohibition against spending. You may enjoy buying “stuff,” but every hard-earned dollar you spend is one that you cannot keep. So instead of building your own wealth, it’s building the wealth of someone else.

Next, we learn a minimum threshold for saving—at least 10% of everything you earn; although, more is encouraged. If you currently save nothing, 10% may seem like a lot, but it’s really not. Another part of the book discusses how it’s human nature to find a “need” for every dollar, but often, those needs are really just wants.

So if you “pay yourself first” by putting aside your 10% in savings, you eliminate the decision to spend that money elsewhere. Saving becomes automatic, and you can more clearly identify what your actual needs may be. The temptation to buy “stuff” (or clothes and sandals as he mentions) diminishes and your savings start to grow.

The characters in this book may not be real, but they lessons they convey truly are.

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at.

Delayed Gratification

In the 1960s, Stanford University conducted a now famous study that tested self-control using four-year-olds and marshmallows. Researchers gave kids a marshmallow and explained that they could either eat it immediately or receive another one if they waited for the researchers to return to the room. So the kids had to choose between an immediate reward or the greater but delayed gratification.

The researchers tracked these kids over the course of their lives and observed that the ones who held out for the second marshmallow continued to make better decisions. Their discipline and appreciation for delayed gratification resulted in fewer behavioral problems as children, better grades, lower instances of obesity and substance abuse, and overall greater success as adults in their chosen endeavors.

But in our current age, it is increasingly difficult to practice this type of discipline. Everything we experience is immediate—or at most requires two-day shipping. We are conditioned to expect immediate results as we receive a constant flow of dopamine throughout the day with each new notification on our phones. As a result, we expect the same type of immediate reward for all our actions, even investing.

Through apps like Robinhood and Stash, you can day-trade from your phone, and every time your stock moves, you get that same hit of dopamine. It even feels productive since you’re “investing,” but that’s not what you’re doing—you might as well pick a number on the roulette wheel in Vegas. Real investing takes time, and many people don’t have the patience for it.

Buffett famously doesn’t even have a computer in his office—he has no interest in tracking the day-to-day movements in his vast array of investments. Of course, it’s healthy to check in on your investments periodically, but in a news cycle where headlines change by the hour and markets react accordingly, nothing productive can materialize from your daily obsession.

You don’t create wealth from short-term bets. As much as we would all like to believe that we can hit the jackpot with that one trade, it just won’t happen. Investing takes discipline and an appreciate for the greater reward with delayed gratification.

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

Too Much Money for a Roth

If you came of age at some point since the late nineties, you likely grew up hearing about the importance of contributing to a Roth IRA. You may not have understood why, but you knew it was a good practice. And although Roths are not the answer to every financial problem (as they are sometimes made out to be), they are still pretty great.

Roth IRAs came to life under the Taxpayer Relief Act of 1997 as the brainchild of Senator William Roth of Delaware. Currently, you can contribute up to $5,500 per year, none of which is tax-deductible, but the earnings grow tax-free and withdrawals are tax-exempt after you reach the age of 59 ½. So if you are young, Roths are the way to go.

But a funny thing happens after you work for a while—you start to make more money. And although you may have wisely made a habit of fully funding a Roth IRA each year, you may also come to a year when you make too much money to contribute [enter Biggie Smalls joke here].

That’s right. If you’re married and have combined income of over $189,000 or single with income over $120,000, your Roth contribution is greatly limited or reduced to zero. Additionally, if you are married but file separately, your contributions are limited if your income is over just $10,000.

So what happens if you max out your Roth even though you made too much money? There’s a fix— contact the financial institution that manages your account and have them “recharacterize” your contribution from Roth to traditional, which may involve opening a new account. Otherwise, there’s a 6% excise tax each year it’s left in the account.

Making too much money is a good problem to have, but you definitely need to be aware of this common Roth IRA trap.

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

Posturing Confidence

In the 2006 Oscar-winning film, The Departed, mob boss Francis Costello explains, “I don’t want to be a product of my environment. I want my environment to be a product of me.” Talk about confidence—he claims to be nothing less than the master of his own destiny. And until his death, that claim held true.

Now, obviously, you don’t want to imitate all aspects of a sinister mob boss, but there is something to be said about carrying yourself with that level of confidence. In his new book, 12 Rules for Life: An Antidote to Chaos, psychologist Jordan Peterson discusses confidence and how it can make you more successful—at home, at work, and even in your financial life.

So where do you start? Well, the first chapter of his book is entitled "Stand up straight with your shoulders back”. In this chapter, Peterson discusses how your posture, mood, and success are all interrelated. Intuitively, you know that any type of success will put you in a good mood, which will make you walk around with your head high and chest out.

But the reverse is also true—if you walk around with your head down and shoulders slumped, that puts you in a mentally defensive mode. As a result, Peterson says, “Your brain will not produce as much serotonin. This will make you less happy, and more anxious and sad, and more likely to back down when you should stand up for yourself.” In other words, it will inhibit your ability to succeed.

It’s like a self-fulfilling promise: act confident to feel confident. Then once you get your first “win,” you create a positive feedback loop where each successive win makes you more confident and ultimately more successful. You build momentum until you’re no longer posturing—you’re just confident and successful.

For example, maybe you posture some confidence at work that makes you more productive, so your boss rewards you with a raise. More money, means you can save more, and when your accounts start to grow, you want to understand how it’s invested. Your greater understanding then allows you to make better and better financial decisions, which ultimately leads to greater wealth accumulation.

It’s all about confidence, and like most things in life, you fake it until you make it.

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

The New and Improved 529 Plan

529 plans are no longer just for college.  The recently passed “Tax Cuts and Jobs Act” added a provision that expands eligible education expenses to include $10,000 per child for elementary and secondary tuition. So parents who plan on sending their children to one of Jackson’s many private schools should take advantage.

Specifically, the new bill adds the following paragraph to Section 529(c) of the tax code:

“Any reference in this subsection to the term ‘qualified higher education expense’ shall include a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”

A 529 plan is essentially an IRA for education. Depending on the state, you can receive a small tax incentive to put money away for your child’s education, allow funds within the account to grow tax-free, and make withdrawals for “qualified education expenses” without triggering income tax.

More specifically, if you use the Mississippi Affordable College Savings (MACS) Program, you can receive a state tax deduction for up to $20,000 ($10,000 for single taxpayers) of 529 contributions per family, which would provide approximately $1,000 ($500 for single taxpayers) in state income tax savings.

But the greatest advantage is the federal and state tax-free growth. So the earlier you make contributions, the more time your account can accumulate tax-free earnings. Even before this new bill, 529 plans were a great savings tool for college. But now that up to $10,000 per child can be used for elementary and secondary education, the advantage is incredible.

For example, assume you are going to pay $10,000 per year for private school—kindergarten through twelfth grade, which is thirteen years of tuition payments. Instead of waiting until your child is six to pay for kindergarten, what if you started making payments into a 529 account when they are born? In other words, instead of paying $10,000 per year in tuition from ages 6-18, you make contributions in the same amount to a 529 plan from ages 0-12.

Assuming a 6% return on your money (S&P was up 21.83% in 2017 and down 37.0% in 2008), even after paying $10,000 in tuition from the 529 account for kindergarten through twelfth grade, there would still be over $83,000 left in the account to apply toward college. Not to mention that in each year of contribution you would also get the roughly $500 in state income tax savings.

Now, obviously not every couple has $10,000 to spare upon the birth of each child. But even if you cannot come up with the money to fund a 529 account years in advance, there seems to be nothing prohibiting you from using it as a conduit just to receive the state income tax break (i.e. depositing tuition into a 529 account and immediately withdrawing it to pay for school). Of course, Mississippi legislature could close that loophole like Montana and Wisconsin recently have, but until then, it appears to be fair game.

Bottom line, if you send or plan to send your children to private school, you should definitely consider funding a 529 account. And if you are fortunate enough to already have an account funded for your children through grandparents or other relatives, you should consider using the account for private school tuition payments.

Year-End Giving

It’s almost year-end, which means that people are starting to think about charitable giving. So as you reach for your wallet, here are a couple of important things you should keep in mind:

Don’t Give for the Write Off

Under the current tax code, you can take charitable contributions as an itemized deduction, which will reduce your overall tax bill. But 100% of the time, you are better off financially if you just keep your money. In other words, you will never come out ahead if you spend a dollar to save fifty cents. So if you are giving money away for “tax purposes,” you don’t understand how money works.

But Do Give

However, just because the math doesn’t work out in your favor doesn’t mean that you shouldn’t give at all. Charitable giving forms the foundation of any healthy community and connects people in a way that otherwise wouldn’t exist. It’s responsible for projects as renowned as Carnegie Hall and as personal as your community garden.

If you have been blessed financially, then pick one to three charities that resonate with you personally and give them your full support. Don’t spread your generosity buckshot-style between 100 different organizations. Invest in what’s important to you—your church, a local organization that does a lot for the community, or an international organization that focuses on an issue that really matters to you.

And Get Documentation

If you do decide to give financial support to a charitable organization, then you should absolutely make sure you get the tax benefits. Accordingly, make sure that you receive written acknowledgement from the organization that includes:

• donee,
• date of the contribution,
• amount of the contribution, and
• verification that no goods or services were received in consideration for the contribution

Also make sure you receive this letter before you file your return. Otherwise, your charitable deduction may be disallowed by the IRS.

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

Those GAINS Tho

Remember when Regina George ate Swedish “Kalteen” bars to lose weight in Mean Girls? They had the opposite effect, and she freaked out when she realized what was in them. So mutual funds aren’t exactly like that, but many long-term investors, who can typically enjoy tax-free growth of their assets until they sell, may be surprised by the taxes they owe this year on capital gains distributions, even though they haven’t sold anything.

Tax efficiency is often overlooked when people consider investment choices, and because mutual funds and ETFs are both vehicles to invest in a diverse pool of assets, they are often put in the same basket. However, as the market has risen over the last couple of years and mutual fund owners have continued to have larger tax bills than their exchange traded counterparts, it is important to understand why.

First, while not all mutual funds are actively managed, many of them are. And since the S&P 500 has gained more than 17% this year, active managers will be selling winners to lock in gains and look for cheaper positions. And even though the fund owners didn’t sell anything—they still have their same mutual fund shares—the fund manager did, so the owners have to recognize capital gains distributions on their portion of the fund.

Why don’t ETFs have this same issue? Most are not actively managed, but they are also structured differently. While mutual funds pool investor money and give you representative shares for your portion of the fund, ETFs are created on a unit-by-unit basis—financial institutions buy the basket of stocks represented by an ETF and then sell that unit on the open market. So each investment, while identical, is completely separate.

Second, the gain recognition has been compounded over the last few years as investors have increasingly left actively managed mutual funds for passively managed ETFs. Over the twelve months ending September 30, $240 billion has left actively managed US equity funds. So not only are mutual fund managers are having to selling positions to lock in gains, they are also selling off positions to cash out exiting investors.

So unless you truly believe in the active management style of a particular fund, from a cost and tax efficiency standpoint, ETFs have the upper hand.

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

Scouting Five Star Prospects

There is a universally accepted concept in the investment world, at least on an academic level, that past performance is not indicative of future results. In other words, just because a stock or mutual fund has given 15% returns over the past five years does not mean that the trend will continue.

However, despite widespread acceptance of this concept, investors still tend to weigh past performance heavily when choosing investments. It is human nature to chase the trend, which is why so many people end up buying high and selling low, even in the world of mutual funds.

You can see this effect by analyzing change in Morningstar ratings and the subsequent flow of investments. According to a recent article in the Wall Street Journal, "Fund companies heavily advertise their star ratings. Money typically pours into funds after they receive a five-star rating from Morningstar, the Journal found. It flows out if they lose stars." So much for ignoring past performance.

So what does it matter? Investing in “five star” funds seems like a smart move, right? Well, according to that same article from the Journal, “Of funds awarded a coveted five-star overall rating, only 12% did well enough over the next five years to earn a top rating for that period; 10% performed so poorly they were branded with a rock-bottom one-star rating.” In other words, past performance is not indicative of future results.

If you are constantly selling “low rated” funds and buying “high rated” funds, you will, by default, constantly be selling low and buying high, which makes it difficult to come out ahead. So what should you do instead? Buy funds with low expense ratios and low turnover ratios from solid companies that achieve your investment objectives. “Stars” are subjective and more or less irrelevant.

The article later notes, “There is no question that Morningstar has greatly improved the transparency and rigor on mutual funds’ holdings and performance, making it easier for individual investors to compare funds.” So the key information about potential investments is out there—just make sure you don’t get distracted information that’s not.

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

You Don’t Have to be Smart

Warren Buffett often gets the most attention for his insightful comments and intelligent observations, but his long-time investing partner, Charlie Munger, is an abundant source of insight as well. He has reached the age of 93 and is worth an estimated $1.3 billion, so he may have picked up a lesson or two along the way.

One of my favorite Munger quotes comes from his 2007 USC Law School commencement speech: “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up.”

Now, this quote should be encouraging to us all because he has leveled the playing field for achieving success—you don’t have to be smart. And more than that, he says you don’t even have to be particularly diligent either, which is typically how people compensate when they lack natural ability.

Instead, you must be willing to learn, which requires a great deal of humility, and that can often be more challenging than simply putting in some extra work. But notice that he doesn’t say “reading machines” or “studying machines,” although that will surely be part of it. He just says “learning machines,” which indicates something deeper: wisdom gained through experience and learning from mistakes.

So the key to becoming a learning machine doesn’t necessarily involve structured academics so much as it does reflection on what you could have done better each day. If the whole day was a disaster because something came up for which you were completely unprepared, don’t beat yourself up and pretend it never happened.

Instead, reflect on your actions and think about what you should have done differently to achieve a better result. That is how you become a learning machine and ultimately gain success.

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

Effective & Ineffective

In a recent interview, author and speaker Leif Babin, said “There’s only two measures that matter… effective and ineffective,” which struck a chord with me in its simplicity and conviction. Often, we are content with almost succeeding then finding a scapegoat for what robbed us of the win. But it’s far better to understand why we failed so that we can do better the next time.

By default, we make excuses even about the most innocuous things. If your football team loses, you’ll complain about the missed field goal or bad call, but at the end of the day, it’s still a loss. Your team was ineffective—they should have trained harder and played smarter.

But the same is true of our financial lives. When we fall short of our goals, we start to make excuses. If you have an unexpected expense like a medical bill or home repair, it can completely derail your financial plan. And even though those circumstances are completely outside your control, they still make your plan ineffective.

So it really doesn’t matter if circumstances are within your control or not because the plan is. And if your plan is ineffective, it’s your job to adapt and put a plan in place that will be effective next time because the objective is to always do better and learn from past experiences. Now, you know to plan for unforeseen circumstances. You build that into your budget.

The process isn’t about agonizing over failure; in fact, it’s the opposite. It’s about embracing past failures so that you can learn from them and become more effective in the future. If you just whitewash the past and pretend it never happened, you won’t learn—you won’t adapt—and you won’t become more effective.

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

How to Concentrate Like an Adult

It’s easy to say, “I’m just not good at X.” And then you put that activity in a box and never worry about it. You know that it would probably be a beneficial skill or habit, but you’ve made the decision to ignore it because you don’t want to go through the anxiety, embarrassment, and frustration of learning something new.

As a kid, you did this all the time. But back then, your parents were there to make you continue going to piano lessons, soccer practice, etc. As an adult, presumably you are mature enough to recognize the benefits of acquiring new habits and skills so that you can push through the pain of learning, right? Right? Ok, but if you still need a few tools increase your odds of success, here you go:

First, stop procrastinating. It’s painful to struggle through something for the first time, so it’s our natural response to avoid it. But procrastination just makes things worse. Instead, try using the Pomodoro technique developed by Francesco Cirillo: set a timer and work without distractions for twenty-five minutes, then reward yourself with a five-minute break to do whatever you want.

This technique is simple, yet incredibly effective. The hardest part of learning anything new is just starting, so using it takes the sting out by providing a designated “end.” You know it’s only twenty-five minutes, so if you cannot stand thinking about your personal finances or setting a budget, just set a timer and begin anyway. You can do anything for twenty-five minutes.

Second, recognize that when you don’t understand something immediately, it’s not because you’re stupid. It’s because your brain has two modes of comprehension:  focused and diffuse. Focused is when you are working through a problem directly, and diffuse is when you have a breakthrough while thinking about something else entirely.

So if you are wading through your finances but none of it is making sense, take a step back. Your brain needs time to process. Sleep on it and try again tomorrow. Now, keep in mind that all your thinking cannot be diffuse—you still need that twenty-five minutes of focused time. But don’t get frustrated when the timer goes off and you’re still confused. Eventually it will all become clear.

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

Audaciously Successful

Ray Dalio is one of the most successful investors on Wall Street and founder of Bridgewater Associates, which is one of the largest and most unconventional hedge funds in the world. His firm embraces complete transparency and makes decisions purely on meritocracy. As a result, he and his firm are much more self-reflective than traditional fund managers, which is probably why he has been so successful.

So what can we learn from Dalio about being successful and reaching goals? In a recent episode of the Tim Ferriss Show, Dalio actually shared what he believes are the are three factors that make a successful life: setting audacious goals, learning from mistakes, and pressing on with determination.

Setting Audacious Goals

If you don’t want to achieve anything audacious, then you won’t. That doesn’t mean that your goals should be absurd—you probably never plan on going to Mars, but Elon Musk does. Absurd for you, audacious for him. However, you may plan to pay off your mortgage in five years, even though you’re on year two of a thirty-year note. That’s audacious, not absurd, and you won’t achieve it unless you try.

Learning from Mistakes

Dalio contrasts the audacious goals with how to deal with inevitable problems along the way. He says, “You have to deal with those problems and that reality realistically, learning from mistakes.” In other words, you can’t just wish your way toward goals. You will face obstacles, but as you do, create practical solutions. And when you still fail, learn from your mistakes. Either way, you’re improving.

Press on with Determination

You never hear anyone talk about how much fun it is to set a goal and fail—it’s not. Failing is painful and in many cases painful enough to keep people from trying again. But if you learn from your mistakes, it’s still a valuable experience. You just have to have the determination and will to try again, applying what you have learned to your next attempt. With each one, you will either get closer to your goal or learn a lesson that will get you closer the next time.

It’s a tough process, but as Dalio says, “You’re going to get better all the time. You can’t help but get better. And you do that a long enough amount of time and you’re going to far exceed your dreams.”

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