9 September 2009

Dear Investor,

Timeless Money Rules - Part 2 (Rules 8-14)

Carla Fried from America's Money Magazine recently summarised some sound advice from the smartest investors (and others) who have ever lived. We thought it was an excellent opportunity to revisit these timeless investment fundamentals.

In this weeks Investment News we cover the remaining rules.

8. Keep perspective

There is nothing new in the world except the history
you do not know.
Harry Truman

When the Dow sheds 300 points in a day, it's natural to feel doomed. And when the market surges, it's easy to be convinced that stocks have entered "a new paradigm," to echo a bubble-era phrase. Don't delude yourself. As Sir John Templeton notes, "The four most expensive words in the English language are, "This time it's different."

To keep your perspective, remember:

  • In every bull market since 1970, stocks have dropped by 10% or more at least once. Average time to get back to even: 107 days.
  • Over time, markets tend to stick close to their long-term trends, called "regression to the mean." Manias and panics never last.

9. Just do it

It takes as much energy to wish as it does to plan.
Eleanor Roosevelt

Financial planning is an unnatural act. The brain is wired to make us undervalue long-term goals and exaggerate the cost of short-term sacrifice. Yet studies show that people who did even a little retirement planning had twice the savings of those who did almostme. You may consider heeding the words attributed to Mrs. Roosevelt by doing the following:

  • Set concrete, attainable goals. "I'll pay an extra $100 a month on my credit card" is more likely to succeed than "I'm going to get my act together."
  • Then commit. Tell someone your plan and agree to a penalty - you'll do your spouse's chores for a month if you haven't saved $10,000 extra by June.

10. Borrow responsibly

As life closes in on someone who has borrowed far too much money on the strength of far too little income, there are no fire escapes. John Kenneth Galbraith

Face this truth: If you let them, some lenders are only too willing to advance you more than is good for your family. Banks and credit-card issuers don't care if your monthly payment makes it impossible for you to sock away money in your super fund. You need to set your own rules, including:

  • No credit-card debt. Period. It's never okay to pay 15% to borrow for consumption.
  • Borrow only to buy assets that appreciate. A home, yes. Education, sure. A vacation, a fancy dinner or even a 50-inch flat-screen TV? No way.

11. Talk to your spouse

In every house of marriage there's room for an interpreter. Stanley Kunitz

Your most important financial partner isn't your broker or accountant. It's your spouse - you know the one who probably owns half of all you have and whose fate is inextricably linked with yours. But research shows that spouses often don't agree on even such basics as their income and savings. Wake-up call: To make smart decisions, you need to talk, and, if you're like most couples, do a better job at it.

  • Men: Don't assume she doesn't care about this stuff. She does. But you need to lay off the jargon and speak English.
  • Women: Don't just leave it all to him. At a minimum, know where the key papers are and how your money is invested.
  • Both: Focus on goals, not on being right. It's not a contest.

12. Exit gracefully - have a Will!

Only put off until tomorrow what you are willing to die
having left undone.
Pablo Picasso

Despite the words he reportedly uttered, Picasso was willing to die without planning his estate. It took years for his heirs to reach a settlement with French authorities. Although you may not have masterpieces to bequeath, you have no excuse not to take elementary steps to make life easier on those you'd leave behind. Covering the basics shouldn't cost more than $1,500. To find a lawyer, ask friends and colleagues for recommendations, or get referrals.

13. Give wisely

The time is always right to do the right thing.
Martin Luther King Jr.

Granted, Dr. King did not have money on his mind when he spoke these words. But they also ring true in your financial life, since giving back is always the right thing. Still, there are more right and less right ways to do it.

  • Look beyond the headlines. It's fine to give money to disasters like the tsunami, but don't forget about smaller charities that go wanting.
  • Don't give over the phone. Telemarketers often take a cut of 50% or more.
  • Focus. Identify a cause that really speaks to you. Then devote most of your energy and charitable dollars to the organisations that best support it.

14. Keep money in its place

A wise man should have money in his head,
but not in his heart.
Jonathan Swift

People who say they value money highly report that they are less happy in life than those who care more about love and friends. Enough said.

Copyright 2007 Time Inc. All rights reserved. Reproduced with permission.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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