Questions and Responses for Hearst Media CT
How would you describe your new book, Keep it Simple, Make it Big?
It’s an engaging read that empowers readers to take more control of their personal finances. It will enable them to and understand and deploy the financial products and strategies that will move them toward their goals and avoid the many that will set them back.
What inspired you to write this book?
I teach eight-hour consumer focused financial planning classes and I initially wrote the bones of this book as the workshop materials and PowerPoint presentation for these classes. I ultimately didn’t need it for that purpose, so I put more narrative in it, removed the graphics and turned it into an accessible book. More than one of m clients say it’s like me talking to them and that puts a smile on my face.
In your book you ask readers to consider what money means to them, what does money mean to you?
That’s a great question. It’s a combination of factors, of course, but it’s really freedom, independence which in turn allows me spend money in ways that impacts the people I love and the organizations that I feel make an impact. I’ve always been a hard worker and I earned money from my early years mowing lawns and then working from high school on. Because I had a savings cushion, I was always able to make my avocation my vocation and not worry about maximizing a paycheck. This is my third and last career. Each change I made less money initially but was also happier. I really see money as a tool. In my life it’s secured a lot of help and therapy for my special needs daughter and it now paying for a good education for my son. This in turn provides them with independence and freedom.
What are some of the biggest mistakes people make when it comes to managing their personal finances?
There are many and of course many things people do right. Most of the mistakes stem from one of three categories. First, lack of time perspective. By this I mean when we are young not understanding how even a little investing will pay off bit later and when we approach retirement underestimating how long we still have to go.
The second is not understanding that real risk is usually not having the principal amount decline temporarily but not having it grow at a rate greater than inflation. All risk is relative and for most instances of personal finance, what people see as safe is risky and what they see as risky is in fact far safer.
Finally, I see money wasted on expensive and inappropriately applied financial products. For example, a twenty something with no dependents should in almost all cases fully fund a Roth IRA before purchasing any cash value life insurance.
An overarching mistake I see people make is to not develop a system to use the money they’ve saved. It’s not easy to turn the investment into income and as a result, many people fail to use their retirement savings In this case, it either goes to nursing home or heirs. A detailed study of actual Americans that I cite in the book finds that most Americans die with more money than they had when they retired. I like to say, either you will spend your money on travel or your children will.
What steps can people take to protect their investments?
The first step is acceptance that there is no way to “protect” them fully. Every investment has expected benefits and possible risks. Equity or stocks or owning the world’s great companies, for examples, has the expected benefits of growth in value and potentially dividend income. The risks value stagnation, loss or even evaporation, as in the case of many storied corporations of the past such as Sears or Polaroid or Vanderbilt’s railroad. On the other extreme, bank CDs protect principal and provide stable income for a period. These are the benefits. The risk is that the income fluctuates widely from period to period and, over long stretches, may not be enough to keep up with inflation so the actual principal is declining. The only solution to life’s risks, including investing, is to diversify and arrange a portfolio of investments and products that give you the greatest chance to get you where you want to go. CDs may be appropriate for a down payment for a house, but they stand for Certificate of Depreciation, Desperation and Despair for a long-term retirement investor. Stocks, on the other hand, would be very inappropriate vehicle to fund an impending house down payment.
When should an individual begin saving for retirement?
Yesterday. Since that is not possible, today. I started working with 20 and 30-year-olds and I still love to work with 20 and 30-year-olds. Retirement investments really do compound at amazing rates over time. I say invest 10 percent of your pre-tax income and you’ll never be poor get it to 20 percent and you’ll always be wealthy. If you do this starting with your first job in your 20s, you’ll be amazed at how much you’ll have in your 50s and 60s. One strategy I like to employ for clients and my family where possible, is to start Roth IRAs for people’s children as soon as they start working inn high school. My son, for example, is 16 and he worked last summer in Montana and did quite well. I made his save 20 percent of his own money and then I funded a Roth IRA for him with my money. If history repeats, which it of course won’t exactly, that Roth will be quite large when he gets to retirement age.
That said, if your early decades have come and gone, don’t fret. I’ve seen people create retirement security who didn’t start until their sixth decade on this planet. They just have to invest a lot more to get the job done.
What mindset should people take when considering an investment opportunity?
Cautious optimism, patience and understanding. People of course need to read the prospectus or other offering material and understand where their actual money is going, what fees they will be paying to get it and keep it there and what restrictions it may have.
Most investing is an optimistic activity, a belief that the future will be better than today, that they will be around to experience it and they want to own some of it. That is equity or stock investing. Every day, month, or year is not necessarily better so they must be patient.
People should always ask, if it performs as expected, what will I get or what does it look like? They should also ask, what can go wrong and what happens then? Having Plan Bs are important. I often compare investing to baseball; in that we expect different things from different positions. We judge a right fielder under different standards than a starting pitcher. They have different jobs towards to a common goal. It’s the same for your investments. It’s important to understand what each investment’s job is and judge them accordingly.
Michael Lynch CFP is a financial planner with the Barnum Financial Group in Shelton CT and the author of Keep It Simple, Make It Big: Money Management for a Meaningful Life, October 2020. He can be
reached at mlynch@barnumfg.com or 203-513-6032.
Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. Any discussion of taxes is for general informational purposes only, does not purport to complete or cover every situation, and should not be construed as legal, tax or accounting advise. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
CRN202211-274658