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The Best Investment Advice Ever: Saying “No”

Posted by Larry Doyle on September 24, 2012 7:31 AM |

Large parts of the financial industry spend lots of time, effort, and money to develop plans and programs all under the guise of offering investment advice. Much of the investment “witchcraft” comes with a slew of hidden fees and expenses. That fact and those figures more often than not are conveniently avoided.

In the midst of many a discussion I have with young professionals launching their career, I work the conversation toward what I deem is the best investment advice ever. I firmly believe the specific insight I offer them is not only appropriate for a young professional but also for all investors. So what is “the best investment advice ever?” 

Just say “no”.

These three little words were widely promoted in the 1980s as the slogan for those promoting wholesome, healthy lifestyle and truly an anti-drug message. The same three little words resonate today. The Wall Street Journal puts a spin on this simple message today in writing, It’s Really OK To Say ‘I Can’t Afford That’,

Many people would rather struggle to pay off a large credit-card bill then utter the phrase “I can’t afford it.”

Feelings of shame, embarrassment or a desire to avoid conflict are just some of the reasons folks just won’t say no.

But being honest about what you can and can’t afford can reduce financial stress and boost your financial health.

Indeed it can. Learning to do without even what may be viewed as just little things can have a profound impact on all aspects of one’s  life. Penny saved is a penny earned may sound trite but when did America forget that simple lesson. Minimizing expenses and redirecting those funds — even if deemed small — toward a savings or investment account can have a profound impact over the course of one’s life. How so? The power of compounding.

To further make the case that I so believe in this approach of living below one’s means and minimizing expenses I point young professionals especially toward an article in the Career Planning section of my website, Advice to All You Graduates: Let’s Start with That Daily Latte . . .

There is an important reason you want to start early, even though it hurts. Say you withhold $375 a month for your 401(k). In 40 years, you’ll have $750,000. But those who waited a decade to get started would have only $377,000.

That is powerful.

Obviously this advice runs fully counter to much of what is directed at us everyday. We are told and “sold” that we can gain real happiness and so much more via the acquisition of a whole host of material items. I am not here to preach but I feel compelled to write that real happiness and true success in investing and in life is derived from relationships not products.

Just saying “no” provides the necessary discipline to achieving that prized possession known as happiness. Doing without is not only a great start but also sage advice as we navigate the economic landscape each and everyday.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Tim

    If only the jokers in Washington were able to learn the same lesson.

  • AG

    Just say no – to the b.s. stock market and ponzi finance investing folks on wall street.

  • Ron Larson

    Many years ago I helped start a forum on The Motley Fool called “Living Below Your Means” (LBYM) for exactly what you mention here. The motto we came up with was “It is not what you earn. It is what you keep that counts”.

    The idea was that so many people were focused on earning more, but then not watching where all the money was going. It doesn’t make any sense to kill yourself to earn $120K in NYC, when you could earn $60K and have a better quality of life elsewhere.

  • Peter S.

    Sage advice indeed. My soon to be 13yr old son walks once a month to his savings bank to make a deposit from the money he has earned doing chores in the neighborhood. Paul is required to save a third of the money he earns. I recently asked him how that was working out. He told me, “Dad, I’ve been depositing almost all of it, it adds up a lot faster! I think I might be able to buy a Porsche when I get my driver’s license.”

    • LD

      Nicely done and nice for the young man to dream.

      My 13 year old took his change jar to the store yesterday and exchanged his coins for some crisp dollars. He got $68.00 and was quite pleased. I probed and asked how much money he really had versus what was given to him. He said he had $76.00. His older brother than asked why he would not have rolled it himself so he could have saved the fee.

      The younger son thought for a second and then commented he was quite pleased with the $68.oo without the hassle of the rolling.

      I informed him that “the margin” charged was pretty high.

      He informed me that the $68.00 from having thrown a few nickels, dimes, and quarters on a very regular basis seemed like a pretty good deal to him.

      I smiled and pat him on the back.

  • Richard

    Even if one is diligent enough to be a saver, as you allude to in your initial statement you still need to be diligent in where you place your money.

    The hidden fees and expenses and assorted other costs in a host of mutual funds will dramatically erode returns over the long haul.

    I strongly recommend for your readers the book Unconventional Success by David Swensen,

    In Unconventional Success, investment legend David F. Swensen offers incontrovertible evidence that the for-profit mutual-fund industry consistently fails the average investor. From excessive management fees to the frequent “churning” of portfolios, the relentless pursuit of profits by mutual-fund management companies harms individual clients. Perhaps most destructive of all are the hidden schemes that limit investor choice and reduce returns, including “pay-to-play” product-placement fees, stale-price trading scams, soft-dollar kickbacks, and 12b-1 distribution charges.

    Even if investors manage to emerge unscathed from an encounter with the profit-seeking mutual-fund industry, individuals face the likelihood of self-inflicted pain. The common practice of selling losers and buying winners (and doing both too often) damages portfolio returns and increases tax liabilities, delivering a one-two punch to investor aspirations.

    In short: Nearly insurmountable hurdles confront ordinary investors.

    Learning how to just say no is also important when it comes to the products and plans being pitched by many a broker/planner.

  • coe

    You atre once again on to something primal here, LD. Our parent’s generation in many cases scrimped and saved in order to afford many things we take for granted. Many of us grew up in households with a single earner, often the dad, working his best to “provide” for the family – who among us manged to live just fine with one black and white family TV, one family car, no air conditioning and were renters rather than home owners until somehow enough down payment was scraped together for a modest home purchase…I can recall the forced savings discipline of a Christmas Club account, and the thoughtful gift at the end of the year to dad was a bottle of English Leather from Woolworths…not a Rolex or cashmere sweater charged to a conveniently accessible slug of expensive and poorly underwritten credit…

    So our generation has been more blessed with a series of decades of economic growth and somewhat illusory economic and political global stability on balancs – in many cases translated into a larger lifestyle than that of our parents – more debt leveraged against the home (maybe even a second home), TVs and cell phones and computers for one and all..everyone at driving age somehow managing to get his/her own car – and that spiralling trajectory was infinitely positive – only until it wasn’t!

    Plenty of thoughts come to mind – all subjective, none all that flattering about the American ethic of spending vs saving:
    o – We need to keep up with the neighbors…why exactly is that, pray tell?
    o – The media and advertising industries are expert in drumming up contrived demand for “stuff” with limited real value – you can start with the automobile manufacturers – one old time dependable Chevy could readily move a family of six…sure, six BMWs can get the same result, but at what cost? Time for the two week cruise to the Bahamas for vacation? What ever happened to camping out in the Adirondacks?
    o – Leverage actually works in a prolonged period of asset appreciation…somebody liberally laced this punch bowl as the recent crisis has proven
    o – We are a nation of wretched excess – in many corners…does the state of NJ really need independent school and police systems in neighborhoods that are only miles apart? does the Federal Budget really need all the pork projects that are absolutely indefensible? Do we really need a closet full of shoes and outfits – (oh for the days of play clothes vs Sunday clothes, a pair of good shoes and a pair of Keds);
    o – why does it cost tens of thousands of dollars for an emergency visit to draw blood, take a few tests, perhaps get some fluids and oxygen, and stay overnight for observation? Sure, we are talking about the sacred cow of health care, but let’s be real – talk about mispriced services!
    o – How can the Federal Government be double digit trillions of dollars in the red? As we used to call it – “a vapor trail of zeros”!;
    o – Public education is not really getting the job done, this despite huge tax burdens that would suggest otherwise/private schools are charging $50K for a college year where the actual time attending classes is outrageously limited – and then the graduates cannot get a job! Another scam revealed;
    o – Kids get brokered tickets via their own or their parents’ credit to rock concerts that are brutally expensive, to athletic events that are scaled to pay the athletes mythical money, and it is tough to step out of harm’s way when your friends are bellying up to the bar.

    Calls to mind an old Neil Young verse – “…where is nature going…what am I doing here?”

    Just say no is a very important and perfectly legitimate alternative, even moreso if/as accompanied by a healthy respect for fairness and suitability on the part of the sell-side onslaught.

    Fact is, on many levels we cannot help ourselves…but it really is never too late to try…Education matters – fiscal discipline that is…yes LD – let’s turn a nation of profligate spenders on the path to increased savings, if only one person at a time…keep on rocking in the free world!

  • LD

    Many people in their 20s and 30s, of course, struggle with debt, low incomes and unemployment. Plenty are financially irresponsible. And young people save less than older Americans.

    But young adults are now saving more and starting earlier than people their age used to, according to several broad measures.

    Of employees under age 25, 44% participated in their companies’ 401(k) retirement plans in 2011, up from just 27% in 2003, according to data on millions of employees whose companies’ retirement plans are managed by Vanguard Group Inc. Of those ages 25 to 34, 63% participated in 2011, up from 58% in 2003.

    While they still face serious student debts, young people also have cut back on credit-card debt. About 45% of Americans under 35 had credit-card debt in 2010, compared with 63% in 2002, according to survey data from Strategic Business Insight’s MacroMonitor. The average credit-card balance for those under age 35 fell to $4,100 from $5,100 over that period, adjusted for inflation. The under-35 group was the only age group that saw average credit-card balances fall.

    More saving means less consumer spending in the short run, which holds back growth. But savings provide the raw material for investment, and, in the long term, higher investment leads to an expanding economy.

    New Wave of Workers Try Novel Approach: Save More

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