The 7 Bs of Relationship Building
• 1. Be real.
2. Be interested.
• 3. Be a better listener.
• 4. Be empathetic.
• 5. Be honest.
• 6. Be helpful.
• 7. Be prompt.
http://www.yale.edu/21c/arkansas/documents/3_11_08_FredFactor.pdf
Friday, February 17, 2012
Thursday, February 16, 2012
Integrity in Sales: You are the Company, You are the Product
By Dennis Peacocke
Integrity is perhaps our highest and most valuable human commodity. When we possess it, it can open many doors and keep them open. When we’ve lost it or don’t possess it as a known character quality, few people want to associate with us. Even criminals have strong codes by which they measure one another’s integrity. Regardless of what sub-culture we belong to, the Bible says it best: “A good name is to be more desired than great wealth, favor is better than silver and gold.”(Proverbs 22:1)
The very word integrity connotes soundness or oneness of being. In the physical world, elements have no additional “baggage” other than themselves. They are incredible in the sense that you will find nothing in them contrary to their fundamental essence. There will be no “surprises” within them. Elements, like spiritual character, are usually found where heat and pressure have stripped them of things which must be removed in order to find their true essence. Whereas compounds may be very useful, by their very form they are full of mixture. “Mixture” in human beings, spiritually speaking, is not considered desirable.
Indeed, whether its “street smarts” or “wise business intuition”, once mixture in someone is discovered, their credibility is suspect. In sales or client relationships, discovering “mixture” in someone usually means that relationships are either severed or reduced to merely “using one another” until it's convenient to drop them. Integrity means truth with no hidden motives or unrevealed consequences riding along with it as extra baggage.
When it comes to sales, having our products, policies, personnel, and sales people full of integrity is non-optional if we want to succeed in the long run and, most importantly, represent God with a measure of accuracy. Sales integrity begins with the top company leadership, not simply with the product or people selling it, so let’s begin our discussion there.
Sales is About Believing in the Integrity of Our Company
When we are selling something we are really selling ourselves. When I teach that God builds relationally, I am not simply trying to sound “spiritual”. God really has set things up in the real world where people intuitively trust or distrust an idea or product based on their “gut reaction” to the people representing it. If they sense a lack of integrity, a feeling of duplicity, or simply unknown elements of “flaky-ness”, the game is over. That is why when we are selling something, we are not simply selling the product or the services. We are in fact selling everything that stands behind it. If we distrust those who are running the company or servicing the product, it will most likely show up in our presentation or follow through in some discernable way. If it doesn’t, we have become good “actors” and are on our way to a spiritual calamity that will spread into every area of our lives and all our other relationships.
You cannot sell a product properly if you don’t believe what stands behind it, even if the product itself is excellent. You are the company because relationally you are “selling” the reality of your confidence in what backs you up. Try and fake it, or sell it without revealing your concerns about the integrity of the management, name and reputation of the company, and sooner or later your clients will smell it. Our confidence in what we represent is our true product; the thing or service itself is but a mere reflection of the people and process that stands behind it.
Obviously, this is why it is so important to connect ourselves with organizations and people who have solid integrity and with whom we identify with deeply enough to truly “wear their name”. I am the organization I represent. I pray that this truth will sink deeply into us all and goes far deeper than simply our intellectual understanding of this concept.
If we find ourselves in a situation where we have an integrity problem with our organization, we need to follow a biblical pattern in dealing with it. First, and most important, we need to keep the people and the organization itself in regular, consistent, intentional prayer before the Lord. Remember that God answers general prayers generally, and specific prayers specifically. Ask the Holy Spirit, who is our prayer partner, to show us how to specifically pray effectively for change in the areas where change needs to take place (Romans 8:26). Obviously, this prayer work should involve our spouses, if we are married, and hopefully our pastors and closest spiritual confidant.
Secondly, we need to ask God for clarity of perspective on how to share our concerns with the right people where we work, in the right spirit, and touching on the critical issues, not the less important ones. Thirdly, we need to seek God again for His specific calling to work where we are working, or if and when we should move. In the case of leaving, if we should leave, we should ask God and our prayer partners for specific confirmation through circumstances.
God delights in showing His will through circumstances as the Bible amply demonstrates. If God says to us to, “stay put for now”, we can then represent the calling of God on us in the company with confidence even if we have reservations about the company itself. Wherever we work, we must be there on assignment from God in any case. Spiritual integrity demands that we live out of our being divinely commissioned and sent. This statement also requires deeper reflection and subsequent action. When we say “I am the company”, we should be stating both a conviction of divine placement and the ability to identify with our employer.
Sales is About the Ability to Personally Identify with the Integrity of What We Are Selling
We are not only the company we represent; we are the product or service we are selling. While Michael Pink has noted with depth and excellence that sales is about serving and listening, Michael and many of us also agree that sales is about integrous faith in the real value of what we are selling. I cannot sell what I don’t believe has the best value for the customer at the fairest price. As previously noted, my “acting” or “selling” ability can lead me into a world of problems if I don’t get help quickly.
What does it mean to “be” the product or service we are selling? Here are a few specific thoughts. Firstly, I must place the product or service on a “teeter-totter” of integrity with the core values which I hold myself accountable to. That is to say, does this product or service weigh at least equal to myself on the integrity scales of balance? Ideally, it might even carry more weight than I do, which can then leverage me up to a higher level as well. If it’s slightly lighter than me, but in an acceptable range, the question then becomes, “How can I leverage it up?” In either case, the issue is resolved and in process, and I can proceed to sell it with all my heart because my heart truly believes that our core values are equally yoked, which is a critically important principle (2 Corinthians 6:14).
Secondly, I must have confidence that the product or service has “staying power”, meaning that it will wear well over its period of service and actually increase in value because the principles upon which it rests are sound. Good advice, if it is biblical, grows in value over time. So should our services and products.
Thirdly, we should have confidence in our ability to deliver and service these products or services as promises. The ability to deliver is as much a part of the sale as the product or service itself. Few things in life are more frustrating than having a great product with insufficient resources to service it. The product and delivery must be seen as one unit; sales integrity demands it. A good salesperson has not closed the sale until the delivery and proper usage are complete. A great salesperson goes one step further; they create a loyal customer demand which manifests itself with the customer seeking them out in the future rather than the onus always resting with the diligent salesperson calling them!
Conclusions
You are the company and you are the product or service. The best possible example of this is Jesus. He is the company; He is the product and service. Buy into Him. You get both, and the value keeps going over time. As in all things Christ and the Scripture mold our business goals.
I rest my case.
By Dennis Peacocke. This article originally appeared in the September/October 2005 edition of Business Reform Magazine.
http://www.gostrategic.org/index.cfm?pageid=183
Saturday, December 17, 2011
The Starfish and the Spider: 8 Principles of Decentralization
The Starfish and the Spider: 8 Principles of Decentralization
Posted on January 9, 2010 | 15 Comments
“The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations” by Ori Brafman and Rod Beckstrom is still one of my favorite books on organizational theory and complex systems.
The starfish represents decentralized “organizations” while the spider describes hierarchical command-and-control structures. In reviewing the book, the Executive Chairman of the World Economic Forum wrote that “[it has] not only stimulated my thinking, but as a result of the reading, I proposed ten action points for my own organization.”
The Starfish and the Spider is about “what happens when there’s no one in charge. It’s about what happens when there’s no hierarchy. You’d think there would be disorder, even chaos. But in many arenas, a lack of traditional leadership is giving rise to powerful groups that are turning industry and society upside down.” The book draws on a series of case studies that illustrate 8 Principles of Decentralization. I include these below with short examples.
1. When attacked, a decentralized organization tends to become even more open and decentralized:
Not only did the Apaches survive the Spanish attacks, but amazingly, the attacks served to make them even stronger. When the Spanish attacked them, the Apaches became even more decentralized and even more difficult to conquer (21).
2. It’s easy to mistake starfish for spiders:
When we first encounter a collection of file-swapping teenagers, or a native tribe in the Arizona desert, their power is easy to overlook. We need an entirely different set of tools in order to understand them (36).
3. An open system doesn’t have central intelligence; the intelligence is spread throughout the system:
It’s not that open systems necessarily make better systems. It’s just that they’re able to respond more quickly because each member has access to knowledge and the ability to make direct use of it (39).
4. Open systems can easily mutate:
The Apaches did not—and could not—plan ahead about how to deal with the European invaders, but once the Spanish showed up, Apache society easily mutated. They went from living in villages to being nomads. The decision didn’t have to be approved by headquarters (40).
5. The decentralized organization sneaks up on you:
For a century, the recording industry was owned by a handful of corporations, and then a bunch of hackers altered the face of the industry. We’ll see this pattern repeat itself across different sectors and in different industries (41).
6. As industries become decentralized, overall profits decrease:
The combined revenues of the remaining four [music industry giants] were 25 percent less than they had been in 2001. Where did the revenues go? Not to P2P players [Napster]. The revenue disappeared (50).
7. Put people into an open system and they’ll automatically want to contribute:
People take great care in making the articles objective, accurate, and easy to understand [on Wikipedia] (74).
8. When attacked, centralized organizations tend to become even more centralized:
As we saw in the case of the Apaches and the P2P players, when attacked decentralized organizations become even more decentralized (139).
Patrick Meier (PhD)
Patrick is an internationally recognized thought leader on the application of new technologies for crisis early warning, humanitarian response, human rights and civil resistance. He currently serves as Director of Crisis Mapping at Ushahidi and previously co-directed Harvard's Program on Crisis Mapping and Early Warning. He also consults extensively for international organizations in Africa, Asia and Europe. Patrick holds a PhD from The Fletcher School, a Pre-Doctoral Fellowship from Stanford and an MA from Columbia University. He was born & raised in Africa.
http://irevolution.net/2010/01/09/starfish-spider-decentralization/
Posted on January 9, 2010 | 15 Comments
“The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations” by Ori Brafman and Rod Beckstrom is still one of my favorite books on organizational theory and complex systems.
The starfish represents decentralized “organizations” while the spider describes hierarchical command-and-control structures. In reviewing the book, the Executive Chairman of the World Economic Forum wrote that “[it has] not only stimulated my thinking, but as a result of the reading, I proposed ten action points for my own organization.”
The Starfish and the Spider is about “what happens when there’s no one in charge. It’s about what happens when there’s no hierarchy. You’d think there would be disorder, even chaos. But in many arenas, a lack of traditional leadership is giving rise to powerful groups that are turning industry and society upside down.” The book draws on a series of case studies that illustrate 8 Principles of Decentralization. I include these below with short examples.
1. When attacked, a decentralized organization tends to become even more open and decentralized:
Not only did the Apaches survive the Spanish attacks, but amazingly, the attacks served to make them even stronger. When the Spanish attacked them, the Apaches became even more decentralized and even more difficult to conquer (21).
2. It’s easy to mistake starfish for spiders:
When we first encounter a collection of file-swapping teenagers, or a native tribe in the Arizona desert, their power is easy to overlook. We need an entirely different set of tools in order to understand them (36).
3. An open system doesn’t have central intelligence; the intelligence is spread throughout the system:
It’s not that open systems necessarily make better systems. It’s just that they’re able to respond more quickly because each member has access to knowledge and the ability to make direct use of it (39).
4. Open systems can easily mutate:
The Apaches did not—and could not—plan ahead about how to deal with the European invaders, but once the Spanish showed up, Apache society easily mutated. They went from living in villages to being nomads. The decision didn’t have to be approved by headquarters (40).
5. The decentralized organization sneaks up on you:
For a century, the recording industry was owned by a handful of corporations, and then a bunch of hackers altered the face of the industry. We’ll see this pattern repeat itself across different sectors and in different industries (41).
6. As industries become decentralized, overall profits decrease:
The combined revenues of the remaining four [music industry giants] were 25 percent less than they had been in 2001. Where did the revenues go? Not to P2P players [Napster]. The revenue disappeared (50).
7. Put people into an open system and they’ll automatically want to contribute:
People take great care in making the articles objective, accurate, and easy to understand [on Wikipedia] (74).
8. When attacked, centralized organizations tend to become even more centralized:
As we saw in the case of the Apaches and the P2P players, when attacked decentralized organizations become even more decentralized (139).
Patrick Meier (PhD)
Patrick is an internationally recognized thought leader on the application of new technologies for crisis early warning, humanitarian response, human rights and civil resistance. He currently serves as Director of Crisis Mapping at Ushahidi and previously co-directed Harvard's Program on Crisis Mapping and Early Warning. He also consults extensively for international organizations in Africa, Asia and Europe. Patrick holds a PhD from The Fletcher School, a Pre-Doctoral Fellowship from Stanford and an MA from Columbia University. He was born & raised in Africa.
http://irevolution.net/2010/01/09/starfish-spider-decentralization/
Sunday, December 4, 2011
What Top Rainmakers Do that You Probably Don't—An Interview with John Doerr
What Top Rainmakers Do that You Probably Don't—An Interview with John Doerr
You might have all the skills needed to develop new business for your firm—excellent conversational skills, fantastic follow-up strategies, and the right way to do proposals–but unless you apply those skills your pipeline will remain dry.
The key difference between top rainmakers and other service professionals is they apply what they know and they are committed to developing new business, says John Doerr, co-author of Rainmaking Conversations and President of RAIN Group. They very well might hate doing it, but they know they must do it—and they make it a priority.
"The rainmakers who succeed are the ones who are committed, who say, 'It's really tough for me to do this and I'm really busy, but I'm going to find an hour today to get this done. It's on my calendar to reach that person; I'm going to make sure I go out and reach them no matter what I have to do,' " says Doerr.
Listen as Doerr explains the traits rainmakers have that allow them to succeed and how you can develop them and become a top rainmaker in your firm.
Download the MP3
http://www.raintoday.com/pages/6938_podcast_episode_114_what_top_rainmakers_do_that_you_probably_don_t.cfm?outputtype=print
You might have all the skills needed to develop new business for your firm—excellent conversational skills, fantastic follow-up strategies, and the right way to do proposals–but unless you apply those skills your pipeline will remain dry.
The key difference between top rainmakers and other service professionals is they apply what they know and they are committed to developing new business, says John Doerr, co-author of Rainmaking Conversations and President of RAIN Group. They very well might hate doing it, but they know they must do it—and they make it a priority.
"The rainmakers who succeed are the ones who are committed, who say, 'It's really tough for me to do this and I'm really busy, but I'm going to find an hour today to get this done. It's on my calendar to reach that person; I'm going to make sure I go out and reach them no matter what I have to do,' " says Doerr.
Listen as Doerr explains the traits rainmakers have that allow them to succeed and how you can develop them and become a top rainmaker in your firm.
Download the MP3
http://www.raintoday.com/pages/6938_podcast_episode_114_what_top_rainmakers_do_that_you_probably_don_t.cfm?outputtype=print
Top Traits of Successful Salespeople
Top Traits of Successful Salespeople
By Steve W. Martin
If you ask an extremely successful salesperson, "What makes you different from the average sales rep?" you will most likely get a less-than-accurate answer—if any answer at all. Frankly, the person may not even know the real answer because most successful salespeople are simply doing what comes naturally.
Over the past decade, I've worked to determine just what those differences are. I have interviewed thousands of top business-to-business salespeople who sell for some of the world's leading companies. I've also administered personality tests to 1,000 of them. My goal was to measure their five main personality traits (openness, conscientiousness, extraversion, agreeableness, and negative emotionality) to better understand the characteristics that separate them their peers.
The personality tests were given to high-technology and business services salespeople as part of sales strategy workshops I conducted. In addition, tests were administered at Presidents Club meetings (the incentive trip that top salespeople are awarded by their company for their outstanding performance). The responses were then categorized by percentage of annual quota attainment and classified into top performers, average performers, and below average performers.
The test results from top performers were then compared against average and below average performers. The findings indicate that key personality traits directly influence top performers' selling style and ultimately their success. Below, you will find the main key personality attributes of top salespeople and the impact of the trait on their selling style.
1. Modesty. Contrary to conventional stereotypes that successful salespeople are pushy and egotistical, 91% of top salespeople had medium to high scores of modesty and humility. Furthermore, the results suggest that ostentatious salespeople who are full of bravado alienate far more customers than they win over.
Selling Style Impact: Team Orientation. As opposed to establishing themselves as the focal point of the purchase decision, top salespeople position the team (presales technical engineers, consulting, and management) that will help them win the account as the centerpiece.
2. Conscientiousness. Eighty-five percent of top salespeople had high levels of conscientiousness, whereby they could be described as having a strong sense of duty and being responsible and reliable. These salespeople take their jobs very seriously and feel deeply responsible for the results.
Selling Style Impact: Account Control. The worst position for salespeople to be in is to have relinquished account control and to be operating at the direction of the customer, or worse yet, a competitor. Conversely, top salespeople take command of the sales cycle process in order to control their own destiny.
3. Achievement Orientation. Eighty-four percent of the top performers tested scored very high in achievement orientation. They are fixated on achieving goals and continually measure their performance in comparison to their goals.
Selling Style Impact: Political Orientation. During sales cycles, top sales performers seek to understand the politics of customer decision making. Their goal orientation instinctively drives them to meet with key decision makers. Therefore, they strategize about the people they are selling to and how the services they're selling fit into the organization instead of focusing on the functionality of the services themselves.
4. Curiosity. Curiosity can be described as a person's hunger for knowledge and information. Eighty-two percent of top salespeople scored extremely high curiosity levels. Top salespeople are naturally more curious than their lesser performing counterparts.
Selling Style Impact: Inquisitiveness. A high level of inquisitiveness correlates to an active presence during sales calls. An active presence drives the salesperson to ask customers difficult and uncomfortable questions in order to close gaps in information. Top salespeople want to know if they can win the business, and they want to know the truth as soon as possible.
5. Lack of Gregariousness. One of the most surprising differences between top salespeople and those ranking in the bottom one-third of performance is their level of gregariousness (preference for being with people and friendliness). Overall, top performers averaged 30% lower gregariousness than below average performers.
Selling Style Impact: Dominance. Dominance is the ability to gain the willing obedience of customers such that the salesperson's recommendations and advice are followed. The results indicate that overly friendly salespeople are too close to their customers and have difficulty establishing dominance.
6. Lack of Discouragement. Less than 10% of top salespeople were classified as having high levels of discouragement and being frequently overwhelmed with sadness. Conversely, 90% were categorized as experiencing infrequent or only occasional sadness.
Selling Style Impact: Competitiveness. In casual surveys I have conducted throughout the years, I have found that a very high percentage of top performers played organized sports in high school. There seems to be a correlation between sports and sales success, as top performers are able to handle emotional disappointments, bounce back from losses, and mentally prepare themselves for the next opportunity to compete.
7. Lack of Self-Consciousness. Self-consciousness is the measurement of how easily someone is embarrassed. The byproduct of a high level of self-consciousness is bashfulness and inhibition. Less than 5% of top performers had high levels of self-consciousness.
Selling Style Impact: Aggressiveness. Top salespeople are comfortable fighting for their cause and are not afraid of rankling customers in the process. They are action-oriented and unafraid to call high in their accounts or courageously cold call new prospects.
Not all salespeople are successful. Given the same sales tools, level of education, and propensity to work, why do some salespeople succeed where others fail? Is one better suited to sell the service because of his background? Is one more charming or just luckier? The evidence suggests that the personalities of these truly great salespeople play a critical role in determining their success.
http://www.raintoday.com/pages/7803_top_traits_of_successful_salespeople.cfm?outputtype=print
By Steve W. Martin
If you ask an extremely successful salesperson, "What makes you different from the average sales rep?" you will most likely get a less-than-accurate answer—if any answer at all. Frankly, the person may not even know the real answer because most successful salespeople are simply doing what comes naturally.
Over the past decade, I've worked to determine just what those differences are. I have interviewed thousands of top business-to-business salespeople who sell for some of the world's leading companies. I've also administered personality tests to 1,000 of them. My goal was to measure their five main personality traits (openness, conscientiousness, extraversion, agreeableness, and negative emotionality) to better understand the characteristics that separate them their peers.
The personality tests were given to high-technology and business services salespeople as part of sales strategy workshops I conducted. In addition, tests were administered at Presidents Club meetings (the incentive trip that top salespeople are awarded by their company for their outstanding performance). The responses were then categorized by percentage of annual quota attainment and classified into top performers, average performers, and below average performers.
The test results from top performers were then compared against average and below average performers. The findings indicate that key personality traits directly influence top performers' selling style and ultimately their success. Below, you will find the main key personality attributes of top salespeople and the impact of the trait on their selling style.
1. Modesty. Contrary to conventional stereotypes that successful salespeople are pushy and egotistical, 91% of top salespeople had medium to high scores of modesty and humility. Furthermore, the results suggest that ostentatious salespeople who are full of bravado alienate far more customers than they win over.
Selling Style Impact: Team Orientation. As opposed to establishing themselves as the focal point of the purchase decision, top salespeople position the team (presales technical engineers, consulting, and management) that will help them win the account as the centerpiece.
2. Conscientiousness. Eighty-five percent of top salespeople had high levels of conscientiousness, whereby they could be described as having a strong sense of duty and being responsible and reliable. These salespeople take their jobs very seriously and feel deeply responsible for the results.
Selling Style Impact: Account Control. The worst position for salespeople to be in is to have relinquished account control and to be operating at the direction of the customer, or worse yet, a competitor. Conversely, top salespeople take command of the sales cycle process in order to control their own destiny.
3. Achievement Orientation. Eighty-four percent of the top performers tested scored very high in achievement orientation. They are fixated on achieving goals and continually measure their performance in comparison to their goals.
Selling Style Impact: Political Orientation. During sales cycles, top sales performers seek to understand the politics of customer decision making. Their goal orientation instinctively drives them to meet with key decision makers. Therefore, they strategize about the people they are selling to and how the services they're selling fit into the organization instead of focusing on the functionality of the services themselves.
4. Curiosity. Curiosity can be described as a person's hunger for knowledge and information. Eighty-two percent of top salespeople scored extremely high curiosity levels. Top salespeople are naturally more curious than their lesser performing counterparts.
Selling Style Impact: Inquisitiveness. A high level of inquisitiveness correlates to an active presence during sales calls. An active presence drives the salesperson to ask customers difficult and uncomfortable questions in order to close gaps in information. Top salespeople want to know if they can win the business, and they want to know the truth as soon as possible.
5. Lack of Gregariousness. One of the most surprising differences between top salespeople and those ranking in the bottom one-third of performance is their level of gregariousness (preference for being with people and friendliness). Overall, top performers averaged 30% lower gregariousness than below average performers.
Selling Style Impact: Dominance. Dominance is the ability to gain the willing obedience of customers such that the salesperson's recommendations and advice are followed. The results indicate that overly friendly salespeople are too close to their customers and have difficulty establishing dominance.
6. Lack of Discouragement. Less than 10% of top salespeople were classified as having high levels of discouragement and being frequently overwhelmed with sadness. Conversely, 90% were categorized as experiencing infrequent or only occasional sadness.
Selling Style Impact: Competitiveness. In casual surveys I have conducted throughout the years, I have found that a very high percentage of top performers played organized sports in high school. There seems to be a correlation between sports and sales success, as top performers are able to handle emotional disappointments, bounce back from losses, and mentally prepare themselves for the next opportunity to compete.
7. Lack of Self-Consciousness. Self-consciousness is the measurement of how easily someone is embarrassed. The byproduct of a high level of self-consciousness is bashfulness and inhibition. Less than 5% of top performers had high levels of self-consciousness.
Selling Style Impact: Aggressiveness. Top salespeople are comfortable fighting for their cause and are not afraid of rankling customers in the process. They are action-oriented and unafraid to call high in their accounts or courageously cold call new prospects.
Not all salespeople are successful. Given the same sales tools, level of education, and propensity to work, why do some salespeople succeed where others fail? Is one better suited to sell the service because of his background? Is one more charming or just luckier? The evidence suggests that the personalities of these truly great salespeople play a critical role in determining their success.
http://www.raintoday.com/pages/7803_top_traits_of_successful_salespeople.cfm?outputtype=print
Sunday, November 27, 2011
10 Financial Planning Steps in the Right Direction
Your Family Financial Planning
10 Financial Planning Steps in the Right Direction
Families need an objective financial planning process. In addition, they need to be in control — whether or not they have a family financial planning consultant. With a well-designed and personal financial plan, you can optimize your financial affairs over your lifetime. You can greatly reduce the waste of your money and your time. I recommend the 10 steps below for personal financial planning and personal investment management.
To find an in depth article for each step, just click on the Sitemap link at the top of this page and look for the articles numbered from 1 to 10. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
1 – Personal Financial Planning
Because you must live with the results, you need to take full responsibility for your financial and investment success or failure. Delegating financial planning and investment decisions to advisers largely on faith can be very dangerous. Naive hope without adequate personal financial knowledge, attention, and control can be very risky to your personal and family welfare. The only practical solution is for you to increase your personal financial planning and investment knowledge and skills.
Educating clients about scientific investment and financial planning is extremely important to me. As such, I have written many educational materials that are of interest to my clients and the general public. My objective financial publications on The Skilled Investor website and blog are often the reason that people learn about my fee only independent financial planner and investment advisor services.
Your questions are important to me, and you should expect there to be a factual basis for any strategies and recommendations that I make. Please ask any and all of your questions, as we work together. During the course of developing a comprehensive, personalized plan for you, if you are interested, I can provide copies of educational materials that I have written and copies of original scientific finance papers that are particularly applicable to your situation.
2 – Financial Planning Tools
The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income to fund adequately their future needs.
To analyze your financial affairs in detail, we will use VeriPlan. VeriPlan is a very sophisticated and customizable computer planning model that I have developed. VeriPlan enables you to view graphical projections of your family’s income, expenses, assets, and debts across your lifetime. Data inputs reflect your particular situation and include all your assets, including cash, bonds, equities, property, real estate, private equities, and business interests.
Step 2 is a very important step, because this is where we construct your baseline financial plan and measure your current financial circumstances and goals and intentions for the future. To develop your customized lifecycle model, we will work together to gather information, adjust assumptions, and evaluate the effects of different financial decisions across your lifecycle. For more information about VeriPlan, see: Personal Finance Software for Your Lifetime.
VeriPlan can vary future expected investment returns by asset class, and it automatically analyzes the details of your taxes and investment expenses. Any and all assumptions can be changed for instant “what-if” testing. The model’s risk analysis capabilities evaluate how well your future assets would cover normal and extraordinary expenses, if market or personal circumstances were to disrupt your plans.
Excessive and unnecessary investment costs can substantially undermine your lifetime investment returns. VeriPlan automatically projects the returns you will waste with such fees, if you do not choose more cost-efficient investments.
3 – Investment Risk Tolerance
Investors with different levels of risk tolerance are more satisfied investment strategies that are better aligned with their risk preferences. Differences in risk tolerances mean that more risk-averse investors are personally more satisfied with a lower risk portfolio despite its lower expected returns. Less risk-averse investors are more satisfied with portfolios characterized by higher risk and higher expected returns.
While there are a variety of approaches to the measuring relative investment return and risk preferences, we do not believe that a simple “check-a-few-boxes” survey is sufficient. Therefore, you can expect that we will discuss your feelings about risks and rewards. We will assess together your likely behavior in the face of financial risks that might actually materialize.
We will also discuss the implications of adopting a particular investment risk profile relative to that of the average investor. Furthermore, we will test the financial projection implications of your risk preferences using VeriPlan. With VeriPlan modeling your particular financial situation, you can better appreciate the projected outcomes of different investment allocations associated with your risk preferences.
4 – Investment Diversification Strategy
Diversification is genuinely a financial planning and investment “free lunch.” A fully diversified portfolio is a key contributor to improved investment risk management. Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated from a portfolio without reducing expected returns. As such, our investment recommendations will usually focus on very low cost mutual funds and very low cost exchange-traded fund (ETF) investments.
A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which increases the overall risk of the portfolio. While undesirable, there sometimes are good or unavoidable reasons for investment concentration. In such circumstances, we will provide recommendations on possible ways to ameliorate the associated risk. If there are not good reasons to maintain the current level of concentration, then we will discuss how to reduce this concentration.
5 – Investment Asset Allocation
Your risk preference relative to the average investor with the average portfolio will influence your asset allocation. Appropriately setting your personal asset allocation in line with your personal risk tolerance is a critical decision for every investor. Because the average risk-averse investor holds the average portfolio asset allocation, this becomes the starting point in determining how a specific individual’s portfolio might diverge from that average allocation.
VeriPlan supports several mechanisms for allocating assets permitting a comparison of projections based upon different asset allocations. Anticipating allocation adjustments that may be needed in the coming year, we will also discuss how near-term net income might be invested to reduce the need to reallocate some of your portfolio in the future. If asset withdrawals are required to cover anticipated retirement expenses or other living expenses, we will recommend how to do this most cost and tax efficiently. Our goals will be to establish a durable approach to asset allocation and to minimize costs and taxes.
http://www.financialplannerpasadena.com/your-family-financial-planning-11.htm
====================================================================================
<<< Go Back to Part 1 (Steps 1 to 5) — Family Financial Planning Pasadena
To find an in depth article for each step, just click on the “Pasadena Financial Planners Sitemap” link at the top of this page and look for the articles numbered from 6 to 10. Note that you can reach us by using the contact form below. Please enjoy reading this article. Thank you!
6 – Personal Investment Strategy
Given the extremely large number and variety of available securities, investors need a rational basis to select among them. Without rational selection criteria and a good understanding of which factors are more or less likely to increase risk-adjusted returns, investors will make poor decisions based on false assumptions.
We will begin with the presumption that portfolio investment strategy would focus on broad-based, market oriented financial investments that can be acquired economically and held inexpensively in your portfolio for an extended period. We will provide a set of recommended investment vehicles and percentage allocations including a recommended minimum number of investment positions within each particular area. Consideration will be given to domestic versus international, value versus growth, small versus large capitalization, and other investment vehicles that may move the portfolio away from a broad market orientation. Of course, investment cost and tax implications will heavily influence these recommendations.
Consideration will be given to your existing investment portfolio to determine what parts should remain and what should change. We will discuss a transitional plan for those parts that we recommend to change, and our recommendations will consider the cost and tax implications of making such changes. When appropriate, recommendations will also address adjustments that counterbalance any financial concentration that you may have elsewhere in your portfolio.
7 – Investment Management Fees
Even with optimal investment strategies, there is still substantial room to improve upon net investment performance through continued and vigilant focus on controlling investment costs and tax realization. The investment fees extracted by the financial securities industry are grossly excessive. Excessive costs imposed on “retail investors” have increased substantially during the past several decades on both a total cost and a percentage of returns basis.
At the same time industry deregulation, market innovation, and increased competition have provided many new and useful mechanisms for investors to manage their assets in a much more cost- and tax-efficient manner. It is not hard to cut your investment costs, but you have to be conscientious and vigilant. I will help you to become an extremely cost-conscious investor, and I will help you to remove all those hands that may currently be in your family’s financial wallet.
For your current asset holdings and for new investments we will model details of taxation and investment expenses in the projections. Recommendations will be provided which are designed to reduce investment costs, to reduce and defer tax recognition, and to shift tax realization toward lower tax rates.
Recommendations for new investment will focus on very low cost, passively managed investment vehicles. A very wide variety of very low cost cash, fixed income, and equity investments are available through low cost channels, and there is no reason to purchase more expensive vehicles that are not expected to provide any better return or risk reduction.
8 – Insurance Risk Management
The world is fraught with numerous potential risks – financial and otherwise. Insurance can be purchased for a wide variety of situations, but the issue is always value and affordability. Many people could spend all their investable capital on insurance and have nothing left to invest and build a financial cushion for the future. Therefore, we can discuss a budget for insurance expenses and your preferences for risks you are willing to bear and risks you wish to ensure.
While value, affordability, risk exposure, and risk tolerance should affect insurance purchase decisions, insurance is often sold and purchased emotionally. The issue is where to set a rational rather than emotional balance between expected risk and return.
9 – Efficiency of Personal Investing Strategies
Time in life is the most precious and perishable asset that a person has. It should be spent enjoyably and efficiently. Scientific investment strategies that rely on relatively efficient financial markets allow people to minimize their time commitment to personal financial planning and personal investment management. Yet, on average, you can still expect to obtain optimal risk-adjusted portfolio returns that are near the market’s return
We recommend an annual review of your personal finance and investment plan on approximately the anniversary of your initial plan. At that time we will update your personal financial planning model and recommend any appropriate changes. In the interim, we can work together to implement recommendations that you accept and to perform other financial planning services that you want.
10 – Independent Investment Counselors and Financial Advisors
Pick financial planning and registered investment advisors solely to obtain objective and high quality advice. Specific investment advice is potentially of high quality, if it is carefully customized to your particular needs and is given by an adviser who is very knowledgeable, highly competent, and completely independent. If you agree with the advice being given, then buy the recommended financial products through the most inexpensive channel possible.
We do comprehensive personal financial planning exclusively. We do not sell securities and do not hold assets in custody. We do not sell insurance, nor do we provide accounting services or legal advice. However, as part of our business development and networking efforts we make efforts to become acquainted with high quality professionals who can provide specialized assistance. In developing a plan for you, part of our focus will be on providing you with recommendations on how to acquire appropriate professional services both easily and economically.
http://www.financialplannerpasadena.com/family-financial-planning-process-12.htm
10 Financial Planning Steps in the Right Direction
Families need an objective financial planning process. In addition, they need to be in control — whether or not they have a family financial planning consultant. With a well-designed and personal financial plan, you can optimize your financial affairs over your lifetime. You can greatly reduce the waste of your money and your time. I recommend the 10 steps below for personal financial planning and personal investment management.
To find an in depth article for each step, just click on the Sitemap link at the top of this page and look for the articles numbered from 1 to 10. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
1 – Personal Financial Planning
Because you must live with the results, you need to take full responsibility for your financial and investment success or failure. Delegating financial planning and investment decisions to advisers largely on faith can be very dangerous. Naive hope without adequate personal financial knowledge, attention, and control can be very risky to your personal and family welfare. The only practical solution is for you to increase your personal financial planning and investment knowledge and skills.
Educating clients about scientific investment and financial planning is extremely important to me. As such, I have written many educational materials that are of interest to my clients and the general public. My objective financial publications on The Skilled Investor website and blog are often the reason that people learn about my fee only independent financial planner and investment advisor services.
Your questions are important to me, and you should expect there to be a factual basis for any strategies and recommendations that I make. Please ask any and all of your questions, as we work together. During the course of developing a comprehensive, personalized plan for you, if you are interested, I can provide copies of educational materials that I have written and copies of original scientific finance papers that are particularly applicable to your situation.
2 – Financial Planning Tools
The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income to fund adequately their future needs.
To analyze your financial affairs in detail, we will use VeriPlan. VeriPlan is a very sophisticated and customizable computer planning model that I have developed. VeriPlan enables you to view graphical projections of your family’s income, expenses, assets, and debts across your lifetime. Data inputs reflect your particular situation and include all your assets, including cash, bonds, equities, property, real estate, private equities, and business interests.
Step 2 is a very important step, because this is where we construct your baseline financial plan and measure your current financial circumstances and goals and intentions for the future. To develop your customized lifecycle model, we will work together to gather information, adjust assumptions, and evaluate the effects of different financial decisions across your lifecycle. For more information about VeriPlan, see: Personal Finance Software for Your Lifetime.
VeriPlan can vary future expected investment returns by asset class, and it automatically analyzes the details of your taxes and investment expenses. Any and all assumptions can be changed for instant “what-if” testing. The model’s risk analysis capabilities evaluate how well your future assets would cover normal and extraordinary expenses, if market or personal circumstances were to disrupt your plans.
Excessive and unnecessary investment costs can substantially undermine your lifetime investment returns. VeriPlan automatically projects the returns you will waste with such fees, if you do not choose more cost-efficient investments.
3 – Investment Risk Tolerance
Investors with different levels of risk tolerance are more satisfied investment strategies that are better aligned with their risk preferences. Differences in risk tolerances mean that more risk-averse investors are personally more satisfied with a lower risk portfolio despite its lower expected returns. Less risk-averse investors are more satisfied with portfolios characterized by higher risk and higher expected returns.
While there are a variety of approaches to the measuring relative investment return and risk preferences, we do not believe that a simple “check-a-few-boxes” survey is sufficient. Therefore, you can expect that we will discuss your feelings about risks and rewards. We will assess together your likely behavior in the face of financial risks that might actually materialize.
We will also discuss the implications of adopting a particular investment risk profile relative to that of the average investor. Furthermore, we will test the financial projection implications of your risk preferences using VeriPlan. With VeriPlan modeling your particular financial situation, you can better appreciate the projected outcomes of different investment allocations associated with your risk preferences.
4 – Investment Diversification Strategy
Diversification is genuinely a financial planning and investment “free lunch.” A fully diversified portfolio is a key contributor to improved investment risk management. Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated from a portfolio without reducing expected returns. As such, our investment recommendations will usually focus on very low cost mutual funds and very low cost exchange-traded fund (ETF) investments.
A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which increases the overall risk of the portfolio. While undesirable, there sometimes are good or unavoidable reasons for investment concentration. In such circumstances, we will provide recommendations on possible ways to ameliorate the associated risk. If there are not good reasons to maintain the current level of concentration, then we will discuss how to reduce this concentration.
5 – Investment Asset Allocation
Your risk preference relative to the average investor with the average portfolio will influence your asset allocation. Appropriately setting your personal asset allocation in line with your personal risk tolerance is a critical decision for every investor. Because the average risk-averse investor holds the average portfolio asset allocation, this becomes the starting point in determining how a specific individual’s portfolio might diverge from that average allocation.
VeriPlan supports several mechanisms for allocating assets permitting a comparison of projections based upon different asset allocations. Anticipating allocation adjustments that may be needed in the coming year, we will also discuss how near-term net income might be invested to reduce the need to reallocate some of your portfolio in the future. If asset withdrawals are required to cover anticipated retirement expenses or other living expenses, we will recommend how to do this most cost and tax efficiently. Our goals will be to establish a durable approach to asset allocation and to minimize costs and taxes.
http://www.financialplannerpasadena.com/your-family-financial-planning-11.htm
====================================================================================
<<< Go Back to Part 1 (Steps 1 to 5) — Family Financial Planning Pasadena
To find an in depth article for each step, just click on the “Pasadena Financial Planners Sitemap” link at the top of this page and look for the articles numbered from 6 to 10. Note that you can reach us by using the contact form below. Please enjoy reading this article. Thank you!
6 – Personal Investment Strategy
Given the extremely large number and variety of available securities, investors need a rational basis to select among them. Without rational selection criteria and a good understanding of which factors are more or less likely to increase risk-adjusted returns, investors will make poor decisions based on false assumptions.
We will begin with the presumption that portfolio investment strategy would focus on broad-based, market oriented financial investments that can be acquired economically and held inexpensively in your portfolio for an extended period. We will provide a set of recommended investment vehicles and percentage allocations including a recommended minimum number of investment positions within each particular area. Consideration will be given to domestic versus international, value versus growth, small versus large capitalization, and other investment vehicles that may move the portfolio away from a broad market orientation. Of course, investment cost and tax implications will heavily influence these recommendations.
Consideration will be given to your existing investment portfolio to determine what parts should remain and what should change. We will discuss a transitional plan for those parts that we recommend to change, and our recommendations will consider the cost and tax implications of making such changes. When appropriate, recommendations will also address adjustments that counterbalance any financial concentration that you may have elsewhere in your portfolio.
7 – Investment Management Fees
Even with optimal investment strategies, there is still substantial room to improve upon net investment performance through continued and vigilant focus on controlling investment costs and tax realization. The investment fees extracted by the financial securities industry are grossly excessive. Excessive costs imposed on “retail investors” have increased substantially during the past several decades on both a total cost and a percentage of returns basis.
At the same time industry deregulation, market innovation, and increased competition have provided many new and useful mechanisms for investors to manage their assets in a much more cost- and tax-efficient manner. It is not hard to cut your investment costs, but you have to be conscientious and vigilant. I will help you to become an extremely cost-conscious investor, and I will help you to remove all those hands that may currently be in your family’s financial wallet.
For your current asset holdings and for new investments we will model details of taxation and investment expenses in the projections. Recommendations will be provided which are designed to reduce investment costs, to reduce and defer tax recognition, and to shift tax realization toward lower tax rates.
Recommendations for new investment will focus on very low cost, passively managed investment vehicles. A very wide variety of very low cost cash, fixed income, and equity investments are available through low cost channels, and there is no reason to purchase more expensive vehicles that are not expected to provide any better return or risk reduction.
8 – Insurance Risk Management
The world is fraught with numerous potential risks – financial and otherwise. Insurance can be purchased for a wide variety of situations, but the issue is always value and affordability. Many people could spend all their investable capital on insurance and have nothing left to invest and build a financial cushion for the future. Therefore, we can discuss a budget for insurance expenses and your preferences for risks you are willing to bear and risks you wish to ensure.
While value, affordability, risk exposure, and risk tolerance should affect insurance purchase decisions, insurance is often sold and purchased emotionally. The issue is where to set a rational rather than emotional balance between expected risk and return.
9 – Efficiency of Personal Investing Strategies
Time in life is the most precious and perishable asset that a person has. It should be spent enjoyably and efficiently. Scientific investment strategies that rely on relatively efficient financial markets allow people to minimize their time commitment to personal financial planning and personal investment management. Yet, on average, you can still expect to obtain optimal risk-adjusted portfolio returns that are near the market’s return
We recommend an annual review of your personal finance and investment plan on approximately the anniversary of your initial plan. At that time we will update your personal financial planning model and recommend any appropriate changes. In the interim, we can work together to implement recommendations that you accept and to perform other financial planning services that you want.
10 – Independent Investment Counselors and Financial Advisors
Pick financial planning and registered investment advisors solely to obtain objective and high quality advice. Specific investment advice is potentially of high quality, if it is carefully customized to your particular needs and is given by an adviser who is very knowledgeable, highly competent, and completely independent. If you agree with the advice being given, then buy the recommended financial products through the most inexpensive channel possible.
We do comprehensive personal financial planning exclusively. We do not sell securities and do not hold assets in custody. We do not sell insurance, nor do we provide accounting services or legal advice. However, as part of our business development and networking efforts we make efforts to become acquainted with high quality professionals who can provide specialized assistance. In developing a plan for you, part of our focus will be on providing you with recommendations on how to acquire appropriate professional services both easily and economically.
http://www.financialplannerpasadena.com/family-financial-planning-process-12.htm
10 Personal Financial Planning Steps in the Right Direction
Your Personal Financial Planning Skills
10 Personal Financial Planning Steps in the Right Direction
This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner‘s personal financial planning and personal investment management process. For a summary of these ten steps, see Your Family Financial Planning. To find an in depth article for each step, just click on the Sitemap link at the top of this page. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
You need to develop your own personal financial management skills, because you must live with the results of your financial planning and investment management decisions.
People face formidable challenges to lifetime financial success and their ability to retire with financial security. Throughout your life, you must decide for yourself whether any particular personal financial planning or investment management concept is fact or fiction. One thing can be guaranteed: there will be no shortage of ideas proposed to you by others about what you should do with your money.
Even when you delegate decisions to an investment counselor or financial advisor, you and your family still must live with the consequences. You must learn about investing.
You must make intelligent and informed decisions about whether the financial planning strategies and tactics recommended to you in the financial media and by financial advisers are personally valid for you and your family. The vast majority of financial ideas proposed to you during your lifetime will be suboptimal, self-interested (not yours), simply wrong, and/or just plain rubbish.
Many people have inadequate knowledge and skills about personal financial planning and personal investing.
Some of the saddest financial stories concern naive older people who get robbed of their lifetime savings by some smooth-talking slime bag financial scam artist. These fraud victims have no way to recover the lost lifetime assets. Before the fact, they needed to know better to avoid being duped. However, they lacked the knowledge, skills, and judgment to know better.
Only through a lifetime of taking personal responsibility and intentionally educating yourself will you learn how to manage your money. Only by taking personal responsibility will you learn to navigate around the amazing number of potential pitfalls associated with personal financial planning and personal investment management.
Is it reasonable to expect that you would have such expertise? You may be an expert in your profession or trade, and you may earn substantially more than you need to meet your current expenses. However the dilemma is whether and how you will also learn to manage, grow, and protect your financial assets. As you develop your financial expertise, you will increase the chances that your assets will grow sufficiently to fund your family’s future financial needs, while you become less dependent on your earned income.
Personal financial planning and investment management requires knowledge that is different from professional and career skills.
This situation makes self-direction of your finances problematic. Furthermore, this situation creates a great temptation simply to trust someone else to manage your financial affairs and investment strategy — hopefully in your best interests. (Remember to cross your fingers and keep them crossed!)
The Pasadena Financial Planner believes that people who are successful in their careers and have the ability to generate substantial investable income must also become more successful concerning the management of their money during their lifetimes. You must develop both career professional skills and personal financial planning skills to increase the probability of achieving lifelong financial success. In financial affairs, trust is often given, but not always reciprocated. Many people are just too naive and trusting, when others have an eye on their pocketbook.
Many people need help from financial planners and investment counselors. However, they base their advisor selection decisions on “trust” and the recommendations of friends and colleagues. Frustrated with complexity of personal finance and investing, they want to find someone they can “trust.” Then, they want to hand over the keys and let someone else drive.
Unfortunately, the entire financial services industry uses a “we are worthy of your trust” marketing message. Yet, it is difficult to find another service industry where so much is paid for so little genuine value in return. Much of the trust that individuals have if mis-placed and ill-founded.
Personal financial planning and asset class investment management advice from the financial services industry is often shallow and inappropriate.
While advice might seem plausible, many financial industry proposals are simply not good for you. The financial services industry writes its marketing material to sound reasonable to individuals. Some financial ideas reasonable, but many are not. Most recommendations involve the purchase of financial and investment products that are simply far too costly and far too risky.
The vast majority of personnel in the financial services industry are taught how to sell the most profitable financial products. Relatively few genuinely understand finance and investments from the perspective of what is really best for their clients. Even fewer have an incentive to act in the best interests of their clients.
Most often, the interests of the industry and the client are in conflict. Most often, the financial services industry will win, as it delivers excessively expensive and overly risky financial and investment products to its overly trusting clientele.
Without adequate personal financial knowledge and oversight, delegating personal finance and investment decisions to industry financial advisers can be very risky to your personal and family financial welfare. You will have to live with the consequences of poor or bad decisions long after your advisors have perhaps passed from the scene and even retired on their fees.
Naive trust, faith and hope are not a reliable path to financial success, when you are dealing with the financial services industry. There are simply too many potholes, conflicts of interest, and hands in your wallet. The only practical solution is for you to increase your personal investment knowledge and skills.
Information from the financial services industry furthers its interests, as brokers and financial counselors sell risky and expensive investment products and financial services to you.
For example, when hundreds of broadly diversified mutual funds and exchange-traded funds (ETFs) are available at extremely low costs, there is ABSOLUTELY NO GOOD REASON for individuals to do so much buying and selling of individual securities. Yet, millions frantically buy and sell equity securities in efforts to beat the market.
Egged on by the financial media and the brokerage industry, millions of people waste huge amounts of their valuable personal time in these pursuits. Most will fail miserably in their efforts and will suffer substantially increased risks, costs, and taxes in the process. Most will obtain substantially inferior performance results relative to the performance of broad securities market indexes.
Yet, the vast majority will never bother to check their net performance against passive benchmarks. They will just keep trusting and never really know how very badly they have done compared to a passive investment program that would have required far less time, less risk, lower taxes, and much lower industry fees.
Individual investors need to do a much better job of distinguishing personal finance and investment planning fact from fiction.
They need to base their decisions on financial strategies and tactics that have been validated scientifically. Individuals must become better informed. Otherwise, they must rely naively upon the supposed goodwill of investment counselors and financial advisors who have very strong incentives to sell expensive financial products to them.
When you deal with a broker, investment counselor, or financial advisor, the financial products they recommend will almost always far more expensive than necessary. You will be sold the dream of better results, while most often the reality in the future will be the opposite. In this very costly environment of “advised” personal finance and investing, depending upon the goodwill of industry representatives can be a very risky strategy.
Significant danger exists in not understanding certain fundamental truths about the financial services industry itself. The structure of the financial services industry creates costly conflicts between the financial interests of individuals and the profit motives of companies in the industry and the self-interest of its sales agents. These financial conflicts of interest are a much greater threat to the welfare of individuals and their families, than is the potential for outright financial fraud that rightly concerns so many people.
The securities industry sells investment products that add substantial and unnecessary costs that are not in the interests of their clients.
Individual investors, sometime referred to as “retail investors,” will never find “free” risk-adjusted investment money lying around. Interactions with the financial markets are a “zero-sum game” before costs and taxes. With all costs and taxes, dealing with that financial industry is a “negative sum game.”
In the short-term, the size of the securities market pie is fixed. When one party gets more, another gets less. In and of themselves the securities markets do not create value, but the industry can siphon away a significant portion of an individual investors’ potential returns through visible fees and hidden costs.
Of course, the capital markets provide an extremely valuable economic contribution to our world through the generally efficient allocation of capital. However, this role does not necessarily mean that investment profits will be shared equitably between individual investors and the financial services industry. Retail investors and the financial industry are in competition with each other over how to split this fixed short-term pie. Investors who understand this conflict can better ensure that they get a more reasonable deal.
The good news is that modern financial markets are competitive and relatively efficient asset price setting mechanisms. This means individual investors cannot consistently “beat the market” on a risk-adjusted basis. While this might disappoint some investors who believe they are smarter than others, in reality this is very good news. On the opposite side, the good news is that competitive and efficient markets mean that individuals need not be beaten badly by the market either. Investor returns can track a market return quite closely at very low cost.
While beating the market is not a reliable strategy, individual investors can still make better decisions by choosing lower cost investment strategies.
Passive strategies targeting the market return do not provide an entirely free ride, because there is always a minimum cost. However, optimal investment practices do amount to a highly discounted ticket, which can get individuals to their financial goals quicker and/or richer.
Without optimal strategies, the risk-adjusted asset class returns of the average investor will lag the market return by a much wider margin. This lag will be due to the inferior gross returns of their sub-optimal investment strategies, which are primarily attributable to their unnecessarily high investment costs and taxes.
Therefore, at the outset, the crux of the matter is to learn what does and does not work in personal financial planning and investing. Accepting what you hear or read about personal financial strategies without demanding proof, is almost certainly the road to a much lighter wallet in the future.
Please click the Sitemap link at the top of this page to find and read about the other steps in this 10 step Family Financial Planning Process.
http://www.financialplannerpasadena.com/your-personal-financial-planning-skills-14.htm
=========================================================
ost-Financial Crisis Update About:
Personal Financial Planning
NOTE: The best individual investment and financial planning rules persist and wouldn’t vary due to market cycles or financial crisis. The article that follows was written years ago and requires no changes. Given the subsequent financial market crisis, the update comments in this box were written more recently to emphasize the enduring wisdom contained in the detailed original article below.
The financial crisis has demonstrated clearly that there really are no “smart money” managers — at least none that you can hire to work in your interests after all of their costs are considered. Furthermore, when the financial tide went out, so much fraud and malfeasance was uncovered that only the most gullible of people still believe that wide swaths of the financial services industry actual operate in their best interests. Individuals or “retail clients” are a huge industry profit center. The profits are immense, the fees are ever-present, and the bite out of your wallet is huge over the course of your lifetime.
The original point of this article was that people need to do their homework and to develop some sophistication in dealing with their own finances and with the industry. Only you and your family will have to live with the results of your financial decision-making throughout your life. The industry will extract its exorbitant costs up front and along the way. Pay less to the industry and you will have more assets for longer. If you don’t have any assets, you won’t get the time of day from the financial industry.
You need to get educated, and you need to be skeptical. While the industry has very polished song and dance routines in a vast rainbow of flavors, most of what you are told to do is not good for you. The vast majority of the supposed “financial innovation” that you encounter is designed to lighten your wallet. Only a minority of the investment, mutual fund, ETF, insurance, annuity, education, retirement, and other specialized financial products that you encounter have any long-term validity demonstrated in the objective financial research literature. Your best interests come after the best interests of the financial services industry. It is a simple as that.
And, by the way, all that wool, silk, brass, and mahogany looks impressive, but who is paying for it? (Hint: find a mirror.) The pay scales and bonuses of the financial services industry are astonishing compared to any other industry. This is even more bizarre, because from what I can tell, the average value-added of this service industry to the average person is negative! Start being skeptical and stop deferring to the supposed wisdom of the latest slick financial industry sales pitch.
10 Personal Financial Planning Steps in the Right Direction
This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner‘s personal financial planning and personal investment management process. For a summary of these ten steps, see Your Family Financial Planning. To find an in depth article for each step, just click on the Sitemap link at the top of this page. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
You need to develop your own personal financial management skills, because you must live with the results of your financial planning and investment management decisions.
People face formidable challenges to lifetime financial success and their ability to retire with financial security. Throughout your life, you must decide for yourself whether any particular personal financial planning or investment management concept is fact or fiction. One thing can be guaranteed: there will be no shortage of ideas proposed to you by others about what you should do with your money.
Even when you delegate decisions to an investment counselor or financial advisor, you and your family still must live with the consequences. You must learn about investing.
You must make intelligent and informed decisions about whether the financial planning strategies and tactics recommended to you in the financial media and by financial advisers are personally valid for you and your family. The vast majority of financial ideas proposed to you during your lifetime will be suboptimal, self-interested (not yours), simply wrong, and/or just plain rubbish.
Many people have inadequate knowledge and skills about personal financial planning and personal investing.
Some of the saddest financial stories concern naive older people who get robbed of their lifetime savings by some smooth-talking slime bag financial scam artist. These fraud victims have no way to recover the lost lifetime assets. Before the fact, they needed to know better to avoid being duped. However, they lacked the knowledge, skills, and judgment to know better.
Only through a lifetime of taking personal responsibility and intentionally educating yourself will you learn how to manage your money. Only by taking personal responsibility will you learn to navigate around the amazing number of potential pitfalls associated with personal financial planning and personal investment management.
Is it reasonable to expect that you would have such expertise? You may be an expert in your profession or trade, and you may earn substantially more than you need to meet your current expenses. However the dilemma is whether and how you will also learn to manage, grow, and protect your financial assets. As you develop your financial expertise, you will increase the chances that your assets will grow sufficiently to fund your family’s future financial needs, while you become less dependent on your earned income.
Personal financial planning and investment management requires knowledge that is different from professional and career skills.
This situation makes self-direction of your finances problematic. Furthermore, this situation creates a great temptation simply to trust someone else to manage your financial affairs and investment strategy — hopefully in your best interests. (Remember to cross your fingers and keep them crossed!)
The Pasadena Financial Planner believes that people who are successful in their careers and have the ability to generate substantial investable income must also become more successful concerning the management of their money during their lifetimes. You must develop both career professional skills and personal financial planning skills to increase the probability of achieving lifelong financial success. In financial affairs, trust is often given, but not always reciprocated. Many people are just too naive and trusting, when others have an eye on their pocketbook.
Many people need help from financial planners and investment counselors. However, they base their advisor selection decisions on “trust” and the recommendations of friends and colleagues. Frustrated with complexity of personal finance and investing, they want to find someone they can “trust.” Then, they want to hand over the keys and let someone else drive.
Unfortunately, the entire financial services industry uses a “we are worthy of your trust” marketing message. Yet, it is difficult to find another service industry where so much is paid for so little genuine value in return. Much of the trust that individuals have if mis-placed and ill-founded.
Personal financial planning and asset class investment management advice from the financial services industry is often shallow and inappropriate.
While advice might seem plausible, many financial industry proposals are simply not good for you. The financial services industry writes its marketing material to sound reasonable to individuals. Some financial ideas reasonable, but many are not. Most recommendations involve the purchase of financial and investment products that are simply far too costly and far too risky.
The vast majority of personnel in the financial services industry are taught how to sell the most profitable financial products. Relatively few genuinely understand finance and investments from the perspective of what is really best for their clients. Even fewer have an incentive to act in the best interests of their clients.
Most often, the interests of the industry and the client are in conflict. Most often, the financial services industry will win, as it delivers excessively expensive and overly risky financial and investment products to its overly trusting clientele.
Without adequate personal financial knowledge and oversight, delegating personal finance and investment decisions to industry financial advisers can be very risky to your personal and family financial welfare. You will have to live with the consequences of poor or bad decisions long after your advisors have perhaps passed from the scene and even retired on their fees.
Naive trust, faith and hope are not a reliable path to financial success, when you are dealing with the financial services industry. There are simply too many potholes, conflicts of interest, and hands in your wallet. The only practical solution is for you to increase your personal investment knowledge and skills.
Information from the financial services industry furthers its interests, as brokers and financial counselors sell risky and expensive investment products and financial services to you.
For example, when hundreds of broadly diversified mutual funds and exchange-traded funds (ETFs) are available at extremely low costs, there is ABSOLUTELY NO GOOD REASON for individuals to do so much buying and selling of individual securities. Yet, millions frantically buy and sell equity securities in efforts to beat the market.
Egged on by the financial media and the brokerage industry, millions of people waste huge amounts of their valuable personal time in these pursuits. Most will fail miserably in their efforts and will suffer substantially increased risks, costs, and taxes in the process. Most will obtain substantially inferior performance results relative to the performance of broad securities market indexes.
Yet, the vast majority will never bother to check their net performance against passive benchmarks. They will just keep trusting and never really know how very badly they have done compared to a passive investment program that would have required far less time, less risk, lower taxes, and much lower industry fees.
Individual investors need to do a much better job of distinguishing personal finance and investment planning fact from fiction.
They need to base their decisions on financial strategies and tactics that have been validated scientifically. Individuals must become better informed. Otherwise, they must rely naively upon the supposed goodwill of investment counselors and financial advisors who have very strong incentives to sell expensive financial products to them.
When you deal with a broker, investment counselor, or financial advisor, the financial products they recommend will almost always far more expensive than necessary. You will be sold the dream of better results, while most often the reality in the future will be the opposite. In this very costly environment of “advised” personal finance and investing, depending upon the goodwill of industry representatives can be a very risky strategy.
Significant danger exists in not understanding certain fundamental truths about the financial services industry itself. The structure of the financial services industry creates costly conflicts between the financial interests of individuals and the profit motives of companies in the industry and the self-interest of its sales agents. These financial conflicts of interest are a much greater threat to the welfare of individuals and their families, than is the potential for outright financial fraud that rightly concerns so many people.
The securities industry sells investment products that add substantial and unnecessary costs that are not in the interests of their clients.
Individual investors, sometime referred to as “retail investors,” will never find “free” risk-adjusted investment money lying around. Interactions with the financial markets are a “zero-sum game” before costs and taxes. With all costs and taxes, dealing with that financial industry is a “negative sum game.”
In the short-term, the size of the securities market pie is fixed. When one party gets more, another gets less. In and of themselves the securities markets do not create value, but the industry can siphon away a significant portion of an individual investors’ potential returns through visible fees and hidden costs.
Of course, the capital markets provide an extremely valuable economic contribution to our world through the generally efficient allocation of capital. However, this role does not necessarily mean that investment profits will be shared equitably between individual investors and the financial services industry. Retail investors and the financial industry are in competition with each other over how to split this fixed short-term pie. Investors who understand this conflict can better ensure that they get a more reasonable deal.
The good news is that modern financial markets are competitive and relatively efficient asset price setting mechanisms. This means individual investors cannot consistently “beat the market” on a risk-adjusted basis. While this might disappoint some investors who believe they are smarter than others, in reality this is very good news. On the opposite side, the good news is that competitive and efficient markets mean that individuals need not be beaten badly by the market either. Investor returns can track a market return quite closely at very low cost.
While beating the market is not a reliable strategy, individual investors can still make better decisions by choosing lower cost investment strategies.
Passive strategies targeting the market return do not provide an entirely free ride, because there is always a minimum cost. However, optimal investment practices do amount to a highly discounted ticket, which can get individuals to their financial goals quicker and/or richer.
Without optimal strategies, the risk-adjusted asset class returns of the average investor will lag the market return by a much wider margin. This lag will be due to the inferior gross returns of their sub-optimal investment strategies, which are primarily attributable to their unnecessarily high investment costs and taxes.
Therefore, at the outset, the crux of the matter is to learn what does and does not work in personal financial planning and investing. Accepting what you hear or read about personal financial strategies without demanding proof, is almost certainly the road to a much lighter wallet in the future.
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ost-Financial Crisis Update About:
Personal Financial Planning
NOTE: The best individual investment and financial planning rules persist and wouldn’t vary due to market cycles or financial crisis. The article that follows was written years ago and requires no changes. Given the subsequent financial market crisis, the update comments in this box were written more recently to emphasize the enduring wisdom contained in the detailed original article below.
The financial crisis has demonstrated clearly that there really are no “smart money” managers — at least none that you can hire to work in your interests after all of their costs are considered. Furthermore, when the financial tide went out, so much fraud and malfeasance was uncovered that only the most gullible of people still believe that wide swaths of the financial services industry actual operate in their best interests. Individuals or “retail clients” are a huge industry profit center. The profits are immense, the fees are ever-present, and the bite out of your wallet is huge over the course of your lifetime.
The original point of this article was that people need to do their homework and to develop some sophistication in dealing with their own finances and with the industry. Only you and your family will have to live with the results of your financial decision-making throughout your life. The industry will extract its exorbitant costs up front and along the way. Pay less to the industry and you will have more assets for longer. If you don’t have any assets, you won’t get the time of day from the financial industry.
You need to get educated, and you need to be skeptical. While the industry has very polished song and dance routines in a vast rainbow of flavors, most of what you are told to do is not good for you. The vast majority of the supposed “financial innovation” that you encounter is designed to lighten your wallet. Only a minority of the investment, mutual fund, ETF, insurance, annuity, education, retirement, and other specialized financial products that you encounter have any long-term validity demonstrated in the objective financial research literature. Your best interests come after the best interests of the financial services industry. It is a simple as that.
And, by the way, all that wool, silk, brass, and mahogany looks impressive, but who is paying for it? (Hint: find a mirror.) The pay scales and bonuses of the financial services industry are astonishing compared to any other industry. This is even more bizarre, because from what I can tell, the average value-added of this service industry to the average person is negative! Start being skeptical and stop deferring to the supposed wisdom of the latest slick financial industry sales pitch.
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