Invest in Businesses Rather than Renting Stocks

Most business owners can feel the pulse of their business. If you own a coffee shop for instance, you can go to the location, see and interact with your employees, touch your inventory, and keep your customers happily caffeinated. You can smell the aroma of your business. You can feel it.

What if you had that same feeling as a shareholder of a public company? What if you thought like an owner? Consider one that sells coffee. Yesterday, you did not own any shares of this company, but today you are an owner – a shareholder.  The feeling of being an owner of that company is divorced from owning a percentage or shares in a public company. Some may think those shares represent a lotto ticket that goes up and down every business day on some stock exchange, based on public consensus or what some analyst says or does not say about that company’s future prospects. Some almost consider it like a casino.

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Workshop: What Now?

You’ve maxed out your 401k. You’ve hit the limit on your IRA contributions, ROTH or otherwise. You’re a diligent saver but you still have extra cash each month. So where should it go? What are the right ways to put that extra money to work?

Improving Investor Behavior – Make Steady Savings Your Strategy

Note

This article originally appeared in the Denver Post, May 18, 2018.

There’s $15 on the line, and your buddy is stepping up to a 10 footer for a birdie on the 18th hole. It’s a slippery putt, but not slippery enough. As he takes his shot, human nature kicks in. “Miss it, miss it,” we say to ourselves. But there is no level of hoping or wishing we can do to have any measurable effect on that putt.

As humans, we do this a lot. We look at all manner of situations and hope for different outcomes. We hope the Broncos win. We hope to live well into our 100s. We hope the stock market goes up. In all of these situations, there’s very little we can do to affect what happens. We get so caught up hoping for one thing or another, that we forget the little steps we can take to improve our odds of success. Living to 100 is a hope; eating healthy and exercising is a choice. And when it comes to finance, choosing how much to save is far more important than hoping for better market returns.

Market performance tends to be the singular focus of investors and investment media alike. How is the market performing? What are the benchmarks doing? At what level are my holdings? All of these questions are similar in one regard: they are reactionary. They focus on elements that cannot be controlled.

Investment returns are important. The magic of compounding interest, sometimes called the eighth wonder of the world, is what helps rigorous savers be able to retire as millionaires. Regular old savings rates, however, can have a profound impact on the value of a portfolio over a lifetime. For compounding interest to work its magic, it has to have something on which to work. Consistency is a virtue, and it is an element YOU can control.

Life is filled with challenges, expenses, and emergencies, all of which can derail the best of intentions when it comes to saving. Having a method for saving becomes essential. Often that means “paying yourself first.” For example, can you have your employer automatically contribute to your 401(k) from your paycheck? Great! The sting of savings might hurt at first, but after a couple of months, you may not notice it. That’s the goal. We want to automate savings as much as possible. As a best practice, we encourage a 10-25 percent savings rate. The more you save, the better the outcome. It’s better to save 10 percent every month than 25 percent once or twice a year. Save until it hurts and make it a habit.

Pensions once made this easy for would-be retirees. Employees didn’t need to think about saving for retirement; it just happened. As retirement savings continues to shift away from companies and toward individual employees, making “saving” a routine becomes even more important. The great thing about Independent alternatives such as 401(k) plans is they allow you to contribute at your savings rate. You get to control how much you want to put in and where that money is invested, as well as take comfort in knowing that it’s your money, now and into the future.  These plans are designed to reward diligent savers.

Tomorrow the market may go up, down or sideways. No one knows which way it will move, and those who say they do are just guessing. The problem with guessing is that it is inherently inconsistent. Some days you’re right, and other days you’re wrong. How much you choose to save is controlled only by you. The consistency with which you choose to save is a decision over which you have complete control. The more you save, the less the market has to perform to end up with the same result. Steady savings over a lifetime helps take the “hoping” out of a retirement plan.

Praying to the golf gods won’t help us win the round. What we can do is take lessons, get a coach and practice. We can hit the driving range, and improve our odds that by the last hole it won’t matter if he sinks the 10 footer. Our goal is to stroll up to the 18th green a few shots ahead. This scenario relates to what consistent saving achieves. Make it a habit, practice it regularly, and watch your retirement account grow.

Renegotiating with our Business Partner, Donald Trump

Imagine you have a business relationship with a partner. You work and run the business, and take home 65 percent of the profits for your efforts and your partner received 35%. Last December your partner recognized your hard work and rewarded you with an additional 14 percent of the business, reducing their take to 21 percent. Suddenly you are receiving a much larger portion of the profits.

At the same time your business partner has made an effort to reduce friction in the business and keep borrowing costs low. These are ideal conditions for your business to grow, and they are exactly what the U.S. Government has done.

In short, the tax cuts passed by Congress late last year are a big deal. Corporations are getting around 20 percent more tax relief and reflecting that relief in well-publicized bonuses to workers, increases in earnings, and growing dividend payments to the shareholders. All of that is not just good – but incredibly good for the American economy and citizens.

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From Clutter to Clarity: What to Toss and What to Keep

By Michelle Santaferro, organizing expert and owner of Organomics

Like many during this time of year, you may have found certain documentation painful to retrieve and scattered in several locations.  But there’s good news: you can create a system to quickly file and find anything you need financially. Let’s look at the steps you can take to retrieve things quickly.

NOTE

Michelle will be speaking at our upcoming workshop on Friday, April 27th. Register today and join us!

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Improving Investor Behavior – Act Like an Owner

Note

This article originally appeared in the Denver Post, April 15, 2018.

Most business owners can feel the pulse of their business. If you own a coffee shop for instance, you can go to the location, see and interact with your employees, touch your inventory, and keep your customers happily caffeinated. You can smell the aroma of your business. You can feel it.

What if you had that same feeling as a shareholder of a public company? What if you thought like an owner? Consider one that sells coffee. Yesterday, you did not own any shares of this company, but today you are an owner – a shareholder.  The feeling of being an owner of that company is divorced from owning a percentage or shares in a public company. Some may think those shares represent a lotto ticket that goes up and down every business day on some stock exchange, based on public consensus or what some analyst says or does not say about that company’s future prospects. Some almost consider it like a casino.

But when you think like an owner your perspective changes. Owning a share of that business can be an abstract thought. Owning your own coffee shop worth $1 million is just as valuable as owning $1 million worth of stock in that public company. You don’t control the public company like you control your own business, but they have the same value. If your genius is anything other than running a business daily, likely you are better off with a passive equity ownership.

Make no mistake, you are an owner of that business, albeit a minority owner, but still an owner! When you invest in shares of that company, you are not just buying numbers on a screen or in your account somewhere that goes up and down in price; you are buying real ownership in that business.

The beauty of the stock market is you can choose businesses in which you want to be part owner. Our whole investment philosophy is to own great consumer companies that sell their goods and services to everyone, every day, everywhere. Companies that can do that, can make a profit which can be shared with shareholders via a dividend. That’s a tangible result of owning a part of the business. Dividends don’t lie.

Being able to walk into a business of which you are an owner/shareholder offers a feeling of ownership one can not experience when owning shares of a mutual fund, exchange traded fund, or any other financial product. And unlike running your own business, there is no daytoday responsibility of opening the doors at 4:30 am, closing at 10:00 pm, or managing payroll. Your only responsibility is to “open the envelope” each month when your investment statement arrives.

Good investor behavior also means you know, or can explain with two or three sentences, what you own. This is one of Warren Buffett’s fundamental principles. Peter Lynch once said, “Never invest in an idea you can’t illustrate with a crayon.” You don’t need to make hundreds of successful investments over your savings and investing lifetime. Rather invest in those companies that you know, and can reasonably predict with a level of confidence that their products and services will be in demand, or that the management of the company will navigate the company for the benefit of the owners (you).

It has been said that the average time someone used to hold a share of stock back in the ’60s was eight years. Now, it is claimed the average time is four months. We call this renting your investments. Buying and selling, re-balancing investments to be “active” or “demonstrate management” is akin to playing gin rummy with your investments, discarding and drawing from a deck of cards. Ideal owners make investments where the holding period is “forever”.

There are many great and wonderful companies that are publicly traded, where the leaders, managers, employees work diligently to improve their product or service to their customers every day to deliver what they do better, faster, cheaper.

Good investment behavior starts with an attitude of ownership.

Workshop: From Clutter to Clarity

Are you drowning in data? How can you conquer the clutter? Join Michelle Santaferraro from Organomics for a workshop on organizing the chaos, simplifying the storage, and streamlining your system for dealing with paper.

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The Difference Between Financial and Investment Advice

There’s never been a better time to be an investor. Advances in technology have leveled the playing field in a truly unprecedented way. While these advances are great for you, they make offering value as financial advisors more difficult.

So as we continue to see improvements in technology I believe investment management will become more and more of a commodity. That means real financial advice will be a huge differentiator in the financial services industry. Anyone can create a portfolio, asset allocation or investment strategy. We are even told robots can do this with this concept called “Robo-Advisor”. What most people actually need is advice about how their investments fit into their overall financial plan, and more importantly their life. Believe me – robots cannot do this, nor do investment products do this. It takes an experienced, skilled, listening Advisor.

Both investment management and financial advice are necessary components for long-term success, but it’s important to understand the differences.

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The $58,000 Latte Habit

Creating a habit of saving is hard, really hard.  It requires discipline and few people enjoy discipline.  But your daily disciplines (or lack thereof) can have a profound impact on your future.

Consider the daily latte.  The average medium latte at Starbucks costs $3.65 assuming you don’t “doctor” it up with extra flavors, different milks, etc. That cost is pre-tax. We know that $3.65 can add up, but what does it add up to?  Let’s look at some simple math behind a latte habit.  The chart below illustrates the future value of that cup of coffee, depending on your consumption.

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Meet Bob, The World’s Worst Market Timer

Did you invest some money on Jan. 26th? Do you ever feel “the curse” of investing at exactly the wrong point? Like your investing is too late, at the wrong time, or maybe that you’re just unlucky?

Well meet Bob – the World’s Worst Market Timer. Bob began his working career in 1970 at age 22 and was a diligent saver and planner.

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