“Success comes down to rare moments of opportunity. Be open, alert, and ready to seize them. Gather the right people and resources; then commit. If you’re not prepared to apply that kind of effort, either the opportunity isn’t as compelling as you think or you are not the right person to pursue it.” Stephen Schwarzman, Chairman and CEO, Blackstone

In life, you will inevitably encounter many problems, challenges and hardships. Many of these troubles are the consequences of your actions and behaviors. While other problems and hardships are outside of your control and purview. Yet, in every challenge, there is inevitably opportunity.

During the 2008 global economic crisis and subsequent Great Recession, Warren Buffett maintained his faith in the U.S. economy. In an October 2008 “Buy America, I Am”, NYT opinion article, Buffett explained that the global economic turmoil was not a signal of doom and gloom, but rather a prime investing opportunity. And walking the talk, Buffett made a big bet on Goldman Sachs.

Like other financial institutions, Goldman was on the verge of collapse as Buffett stepped in and stabilized the situation. Thanks to Buffett funneling $5 billion into Goldman Sachs in the midst of the economic crisis and federal government intervention, Goldman was able to survive and recover.

“Successful investing relies heavily on buying socks that have good prospects, but for which investors currently have low expectations.” James O’Shaughnessy

Buying Quality

The key to successful investing for many Warren Buffett stocks comes down to quality. Buffett only focuses on those firms with low debt, strong cash flows, rising sales, and top-notch management teams. This allows them to perform well even during market crashes and recessions. His strategy is based on long-term investing, choosing stocks that deliver steadily rising revenues/profits, holding them for decades, and collecting a stream of dividends.

The Laws of Wealth Rule #3 – Trouble Is Opportunity.

“The market feels most scary when it is actually most safe… Corrections and bear markets are a common part of any investment lifetime, they represent long-term buying opportunity and a systematic process is required to take advantage of them.” The author quotes Ben Carlson: “Markets don’t usually perform the best when they go from good to great. They actually show the best performance when things go from terrible to not-quite-so-terrible as before.”

“The fact that we’re risk averse and loss averse from an evolutionary perspective, from a psychological perspective has done the human race a great deal of good and has kept us around, but if you apply that same risk aversion and loss aversion to financial markets at a time when we’re living longer and longer, and inflation is what it is, we’re not able to compound our wealth at a sufficient enough clip to have the kind of retirement that we’ve dreamed of. ” Daniel Crosby

Risk is the likelihood that you will not achieve your long term financial goals and be able to live the lifestyle you desire.

Successful investing over the long term cannot be predicated on hope and luck. It must be grounded in a discipline approach that is applied in good times and especially in bad and is never abandoned just because what is popular in the moment may not conform to longer-term best practices.

So, in the words of former White House Chief of Staff Rahm Emanuel at a 2008 Wall Street Journal Forum, “You never want a serious crisis to go to waste.”

References:

1. https://thekeypoint.org/2017/05/21/the-laws-of-wealth/
2. https://www.picpa.org/articles/cpa-conversations/cpa-conversations/2019/01/10/exploring-the-laws-of-wealth-with-author-daniel-crosby
3. https://www.cnbc.com/id/40276100
4. https://investorplace.com/2020/10/5-great-warren-buffett-stocks-to-hold-through-the-next-recession

By Morgan Housel

“Ninety percent of personal finance is just spend less than you make, diversify, and be patient.”  Morgan Housel

Often your kids will need life, career, financial and relationship advice as they get older and become adults. Morgan Housel, a new father who has spent much of his career studying and writing about money, wealth, and behavioral finance, provided the following nine money, wealth and life lessons in a letter to his child:

1. Don’t underestimate the role of chance in life.

It’s easy to assume that wealth and poverty are caused by the choices we make, but it’s even easier to underestimate the role of chance in life.

The families, values, countries and generations we’re born into, as well as the people we happen to meet along the way, all play a bigger role in our outcomes than most people want to admit.

While you should believe in the values and rewards of hard work, it’s also important to understand that not all success is a result of hard work, and that not all poverty is due to laziness. Keep this in mind when forming opinions about others, including yourself.

2. The highest dividend money pays is the ability to control time.

Being able to do what you want, when you want, where you want, with who you want and for as long as you want provides a lasting level of happiness that no amount of “fancy stuff” can ever offer.

The thrill of having fancy stuff wears off quickly. But a job with flexible hours and a short commute will never get old. Having enough savings to give you time and options during an emergency will never get old. Being able to retire when you want to will never get old.

Achieving independence is our ultimate goal in life. But independence isn’t an “all-or-nothing” — every dollar you save is like owning a slice of your future that might otherwise be managed by someone else, based on their priorities.

3. Don’t count on getting spoiled.

No one can grasp the value of a dollar without experiencing its scarcity, so while your mother and I will always do our best to support you, we’re not going to spoil you.

Learning that you can’t have everything you want is the only way to understand needs versus desires. This in turn will teach you about budgeting, saving, and valuing what you already have.

Knowing how to be frugal — without it hurting you — is an essential life skill that will come in handy during life’s inevitable ups and downs.

4. Success doesn’t always come from big actions.

Napoleon’s definition of a genius is the person “who can do the average thing when everyone else around him is losing his mind.”

Managing money and accumulating wealth are the same.  You don’t have to do amazing things to end up in a good place over time, you just have to consistently not screw up for long periods of time.

Avoiding catastrophic mistakes (the biggest of which is burying yourself in debt) is more powerful than any fancy financial tip. Housel offers the following advice to readers of his books and blog…

“Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.”

5. Live below your means.

The ability to live with less is one of the most powerful financial levers, because you’ll have more control over it than things like your income or investment returns.

The person who makes $50,000 per year, but only needs $40,000 to be happy, is richer than the person who makes $150,000, but needs $151,000 to be happy. The investor who earns a 5% return, but has low expenses, may be better off than the investor who earns 7% a year, but needs every penny of it.

How much you make doesn’t determine how much you have, and how much you have doesn’t determine how much you need.

6. It’s okay to change your mind.

Almost no one has their life figured out by age 18, so it’s not the end of the world if you pick a major that you end up not enjoying. Or get a degree in a field that you’re not 100% passionate about. Or work in a career and later decide you want to do something else.

It’s okay to admit that your values and goals have evolved. Forgiving yourself for changing your mind is a superpower, especially when you’re young.

7. Everything has a price.

The price of a busy career is time away from friends and family. The price of long-term market returns is uncertainty and volatility. The price of spoiling kids is them living a sheltered life.

Everything worthwhile comes with a price, and most of those prices are hidden. They’re sometimes worth paying for, but you should never ignore their true costs.

Once you accept this, you’ll start to view things like time, work, relationships, autonomy and creativity as currencies that are just as valuable as cash.

“For my father [Warren Buffett], and now me, the essence of a good work ethic starts with meeting a challenge of self-discovery, of finding something you love to do, so that work — even, or especially, when it’s very difficult and arduous — becomes joyful. Maybe even sacred,” Peter Buffett, Warren’s son, writes.

8. Money is not the greatest measure of success.

Warren Buffett once said: True success in life is “when the number of people you want to have love you actually do love you.”

And that love comes overwhelmingly from how you treat people, rather than your level of net worth. Money won’t provide the thing that you (and almost everyone else) want most. No amount of money can compensate for a lack of character, honesty and genuine empathy towards others.

This is the most important financial advice I can give you.

9. Don’t blindly accept any advice you’re given.

All the lessons here, including this last one, are things that most people learn too late in life. But feel free to reject them.

Your world will be different from mine, just as mine is different from my parents. No one is exactly is the same, and no one has all the right answers. Never take anyone’s advice without contextualizing it with your own values, goals and circumstances.

References:

1. https://www.cnbc.com/2020/06/19/fathers-day-letter-to-kid-money-life-lessons-people-learn-too-late-in-life.html
2. http://www.morganhousel.com/

Morgan Housel is a partner at Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. Author of the book The Psychology of Money.

Social Security has helped financially millions of Americans during retirement. In 2021, an average of 65 million Americans per month receive Social Security benefit, totaling over one trillion dollars in benefits paid during the year.

Essentially, Social Security is the major source of income for most elderly Americans age 65 and over.

• Nearly nine out of ten people age 65 and older receive Social Security benefits.
• The estimated average Social Security retirement benefit in 2021 is $1,543
• Social Security benefits represent about 33% of the income of the elderly.
• Among elderly Social Security beneficiaries, 50% of married couples and 70% of unmarried persons receive 50% or more of their income from Social Security.
• Among elderly Social Security beneficiaries, 21% of married couples and about 45% of unmarried persons rely on Social Security for 90% or more of their income.

The maximum Social Security benefit an individual who files in 2021 can receive per month is $2,324 for someone who files at age 62; $3,148 for someone who files at full retirement age (currently 66 and 2 months); and $3,895 for someone who files at age 70. 

Here are four actions that you can take to maximize your payments:

• Work at least 35 years,
• Choose your retirement age carefully,
• Claim spousal payments, and
• Minimize federal and state income taxes.

Retirement planning should include Social Security benefits in the equation, so it’s important to understand the purpose of Social Security and how it works.

You’ll need to decide when to start taking Social Security benefits and coordinate that income with withdrawals from your various tax-advantaged retirement accounts.

https://twitter.com/TDAmeritrade/status/1417122059210137605

An estimated 180 million workers were covered under Social Security in 2020.

• 48% of the workforce in private industry has no private pension coverage.
• Two-thirds (68%) of workers are saving for retirement.
• Having an employer-sponsored retirement savings plan is a key factor in whether Americans save for retirement.
• Only 17% of those without access to an employer-sponsored plan said they have any retirement savings.

Social Security Facts

• In 1940, the life expectancy of a 65-year-old was almost 14 years; today it is just over 20 years, according to Social Security Administration.
• By 2035, the number of Americans 65 and older will increase from approximately 56 million today to over 78 million.
• There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary

Reference:

1. https://tickertape.tdameritrade.com/retirement/how-does-social-security-work-17191
2. https://www.aarp.org/retirement/social-security/questions-answers/benefits/
3. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
4. https://www.ssa.gov/pubs/EN-05-10085.pdf

If your financial life could use a little extra cardio, these tips can help you decide where and how to begin. 

What comes to mind when you think of fitness? For many of us, it’s treadmills, weights, or maybe even those dreaded burpees—things that keep our bodies moving and strong. But fitness also applies to our minds, jobs, families, communities, and finances, all of which play important roles in our overall health and well-being. It can be tough to keep all those plates spinning at once, so it’s worth revisiting how you’re spending your time and energy to make sure each silo is getting the attention it deserves.

1) Define your vision

It all starts with deciding how you want to live. What does your current housing situation look like—or what are you working toward? Where will your home base be? How much do you expect to travel? How much should you set aside for fun “extras” like recreation? The more specific you can get when listing your lifestyle goals, the more accurately you’ll be able to budget and plan.

2) Crunch some budget numbers

Once you have an idea of what your expenses are (or should be), it’s time to compare that number against your monthly income to see how it measures up. Don’t be afraid to ask yourself important questions like, “Am I saving enough for the future?” and “Is my money working hard enough for me?” Be realistic, but don’t be too hard on yourself. You might find an opportunity to refresh your savings goals and make an investing plan that can help you reach them—and it’s never too early or too late to get started.

3) Double down on discipline

Think of investing as a marathon, not a sprint. As long as you’re taking regular steps to improve your financial health, it’s okay if they’re small. You’re still putting yourself in a better position to reach your long-term goals. Consider automating your monthly savings, paying down high-interest debt, starting an emergency fund, rebalancing your investments regularly, or updating your beneficiaries after major life events. Don’t pressure yourself to do too much at once—nobody gets to the marathon before they can walk a few miles. Start with one good habit and work your way up.

4) Streamline, streamline, streamline

It’s much easier to make good financial choices if you don’t have to think about them too much! Make sure your financial information is organized and easy for you to access and that you’re taking advantage of opportunities to automate savings and consolidate debt.

Remember: Like most fitness trackers will tell you, all steps are good steps. We can help you continue your investing journey with your best foot forward.

References:

1. https://investornews.vanguard/topics/financial-management/financial-wellness/

“Investing is not a hard science. It’s a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their well-being, which will make even smart people nervous, greedy and paranoid.” Morgan Housel

“Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know”, said Morgan Housel. There’s an element of investing, the behavioral side, that exist as the most important aspect. How you think about greed and fear and risk is so much more important than anything that you can know or be taught or learn at university. “Knowing what to to do tells you nothing about what happens in your head when you try to do it.”

“Doing well with money is not about what you know, it’s not about where you went to school or how smart you are, it’s how you behave”, says Morgan Housel, author of The Psychology of Money. “If you don’t have control over your behavior, over your relationship with greed and fear, over your ability to take a long-term mindset, over how gullible you are and who you trust, who you seek information from, you’re not going to do well at investing.”

If you can master or have some grasp over the behavioral elements of investing, that really matters, according to Housel. There aren’t many other fields that are like that. Like, it would be impossible to say that somebody who has no medical training, no medical experience, no backup could perform open heart surgery better than a Mayo trained cardiologist, that would never happen. But the equivalent of that does happen in investing. That an untrained investor can succeed at investing.

The single most important thing that matters to long-term investing success and what separates great investors from investors who do OK or do poorly over time is understanding that volatility in the short run does not prevent or preclude successful long-term returns over time.

Motley Fool’s David Gardener says investing is “…like wearing the home team jersey to your game this weekend. Whether your team wins or loses, you’re going to keep that jersey on, not just through a bad game or a bad season, but for years and years.”

Markets over a long period of time are volatile in the short run. That’s the cost of admission that you have to be willing to pay to do well over time.

Finance is guided by people’s behavior

To grasp why people bury themselves in debt, you don’t need to study interest rates or economic trends; you need to study the history of greed, fear, insecurity and optimism, according to Housel. Everyone has their own unique experience with how the world workds.  And what you’ve expereinced is more compelling and predictive than what you learn.  No amount of studying or open-mindedness recreates the power of fear and uncertainty.

Until you’ve lived through the fear and uncertainty, and personally felt its consequences, you may not undestand it enough to change you behavior.  In theory, people should make investment decisions based on their goals and the characteristics of teh investment options available to them at the time.

“If markets never fell, they wouldn’t be risky, and if they weren’t risky, they’d get really expensive, and when they get really expensive, they fall.” Morgan Housel

Bottom Line

“Whether or not you’re successful with money isn’t about knowledge, IQ or how good you are at math. It’s about behavior. And everyone is prone to certain behaviors over others.”  Morgan Housel

References:

1. https://www.fool.com/investing/2021/06/24/great-quotes-morgan-housel-edition/