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We are all Greece

I have this recurring nightmare.

Actually, I’ve got a lot of frequent bad dreams but this one’s particularly chilling. Things were O.K. at work.  I was growing my responsibilities, my authority. I was getting promoted quickly. I was making money. So, like a financial optimist, I bet on the future and started borrowing.

It started small and harmless — I took a large mortgage on a house — but then, I started borrowing more money to finance a rich lifestyle.

Soon, it was like ballooning like Bono’s ego.  I had to borrow just to pay off my old loans.

It took so much financial engineering, I didn’t even have time to work  – I was so busy.

But then, out of the blue, people didn’t want to keep lending to me.

I was coming up short, compounded by the fact my work slacked and earnings were dropping as a result.

Crap, I was stuck.

I had been Greece-d.

Continue reading “We are all Greece”

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Investing: Being in it to win it

We’re looking at new schools for my soon-to-be high schooler son.

As parents, we’ve made so many mistakes, learning and futzing things up as we go.

I’m not the same parent as I was 13 years ago.

Investing as learning process

investors get better by learning

Investing isn’t an activity — it’s a process.

Tradestreaming is all about learning from  — and sharing — what we’ve experienced.

From my interview earlier this week with Jonathan Clements (author of The Little Book of Main Street Money and previously the personal finance columnist for the Wall Street Journal)):

A lot of what it takes to become a good investor and a good manager of your money is just time.  Think about people’s learning curve — in some sense we don’t really get an opportunity to become experts in money management unless we really put our minds to it.  Most of us will only buy 2 or 3 or 4 homes during the course of our lives — we never really get the chance to become experts at that.  So, there’s a good chance that we’re going to mess up.

Similarly, we only get to claim Social Security once, so in terms of when to claim Social Security, there’s a good chance, we’re going to mess up royally.

And similarly when it comes to investing, yeah, we’re going to get the chance to see a lot more bull and bear markets than we would opportunities to buy homes.  Nonetheless, the chance to mess up is enormous in part because people have to cope with all this noise.

4 ways to accelerate your investment experience

  1. Nothing beats experience like experience: you just have to be in it to win it.  That means ensuring your take adequate precautions to maintain your ability to stay invested.  The research shows it’s not about age, it’s about experience and time in the market.
  2. Log your experiences: Keep a trading diary.  Better yet, blog about what you’re doing, sharing your activities with others on Seeking Alpha or on  StockTwits. You’ll get feedback from others — helping to expedite your learning and climbing the learning curve.
  3. Plug into the tradestream: Use the Internet, the blogosphere, and twitter to identify top performers interested in sharing their knowledge.  If you’re interested in making sure results are what they claim to be, follow top performers on Covestor who have agreed to have their performance audited.
  4. Listen/watch the best investing podcasts: I’ve compiled a list of what I think are the best investing podcasts on iTunes.  But there are many more great ones.  I interview a lot of these experts on Tradestreaming Radio, too.  StockTwits TV in general and Abnormal Returns TV (from Abnormal Returns) are also great for access to true experts in their domains.

I’m sending my kid to high school.  Like James Altucher, I don’t know if I’ll send him to college.  There is so much information readily available to investors, you can get a degree in hard knocks if your’re diligent and interested.

You just have to plug into the Tradestream.

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The art of investing in today’s economy — with Jonathan Clements (podcast)

On Tradestreaming Radio, we’re interviewing lots of innovative entrepreneurs, investors, and researchers all trying to make investors better at what they do.  Check out our archives.  Subscribe on iTunes.

Investors have been through a tsunami of challenges the past couple of years.  What I hear right now more than anything is a cacophony of voices, all with differing advice for investors on how to survive in today’s environment.

Jonathan Clements is a beacon of sound, rational investing guidance in a sea of short-termism.  Author of The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money (Little Books. Big Profits), Clements was the award-winning personal finance columnist for the Wall Street Journal.  He’s now the head of investor education at Citi.

I love Clements’ approach because he’s a pragmatist, synthesizing the best Wall St. has to offer with the do-it-yourself attitude characterizing many of today’s investors.

Clements joins us this week for Tradestreaming Radio.

We discuss:

  • how to navigate today’s investing climate, post financial crisis
  • how experience and time help create investor expertise
  • the struggle investors and advisors have in describing risk
  • why we continue to make decisions antithetical to what we know we should do

Listen below

The Art of Investing in Today’s Economy by tradestreaming

Audio Transcript

Get the audio transcript for The Art of Investing in Today’s Economy (transcript purchased from SpeechPad)

More resources

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How to make Betterment better (Hint: truth in marketing)

Sometimes, it’s worth reading the fine print — especially, when it comes to financial products.

I was interviewed by Mint.com recently about my thoughts on Betterment, a startup that performed pretty well at recent tech conference, TechCrunch Disrupt (see, Betterment wants to be your new, higher-yield savings account).

What is Betterment?

Well, it’s really an investment advisory service that masquerades as being a better savings account.  By removing much of the jargon (the site doesn’t even mention securities by name), Betterment removes many of the barriers to putting money in the market.  As I said in the Mint interview:

For most people, opening an online trading account and figuring out what to buy and who to listen to, there’s so much noise out there.

And that’s true: how many individuals really understand asset allocation, diversification, risk when professionals have such a hard time defining them?  It’s kind of like I know it when I see it.  Betterment provides a usability layer that requires only one decision point: what percentage of my money do I want in the market?  That’s it.

Removing the confusing jargon and the pain points associated with complicated concepts is ultimately a good thing.  I can just picture my grandparents trying to navigate an E*Trade account trading screen.

Oops, it’s not actually a bank account

While pursuing a noble end (making investing easier for the mass majority), Betterment stumbles when it positions itself as an alternative to a savings account.  It is most definitely NOT a savings account.  Money in Betterment is split between Exchange Traded Funds (ETFs), one of which will include U.S. Treasury Bonds if you allocated to that.  That means, an account holder

  • risks losing some, if not all, his money
  • will see fluctuations in the account
  • will have investment-level taxes on gains

I was quoted in the interview:

“They took a process that’s inherently scary and overwhelming for people and used technology to simplify it,” says Miller. “I think that’s an honorable thing. But to market it again and again, to talk about a savings account, is just disreputable. It’s scary, actually.”

Though it appears that they’ve toned it down recently, there’s still just too much talk/discussion on the Betterment website about safety and savings.  Betterment may be a great product to *invest* spare cash just sitting in a savings account (much like ShareBuilder used to be).

Just don’t compare it to the savings account.  At 90 basis points (.9%), it’s also expensive.

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Source

A Better Savings Account? (Mint.com Blog)

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Review of virtual family bank, FamZoo

NY Times had a short piece on FamZoo, a virtual family bank.

The site allows families to set up “Bank Parents” using virtual savings and spending accounts to help kids learn and understand about money.  Parents can even link checklists to allowances to assure kids are pulling their weight for chores.

There is some nifty functionality that integrates a mobile offering, as well.  Check out the video above.  The site has a free trial right now, moving to a premium version of $5.99/mo shortly after.

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Looking to make a Mint in financial planning

So, top-dog personal finance website, Mint.com, just announced a further step into financial planning with some goals-based tools to help users plan financially for the future.

From the release:

Mint’s new Goals feature seeks to take the difficulty out of both setting goals and regularly tracking your progress towards those goals. With a few clicks of the mouse, you can set up a savings goal, and then use Mint.com to help you achieve that goal.

Using Goals for Saving for the Future

So, if a Mint user wanted to save for something like home improvements, they’d use Goals to:

  1. Set funding source
  2. Set goal dollar amount
  3. Blend in financing options
  4. Establish target date
  5. Specify monthly savings target

Makes perfect sense, right?

So, the move from helping people track to helping them plan is an obvious one and a good move for Mint.

And Mint’s revenue model/value proposition work well for this foray into planning.  I assume Mint will begin to gain referral fees as they recommend loans, travel services — anything that helps assist in the savings and planning process.

According to the NY Times:

The new feature comes as Mint.com is facing increasing competition in the online financial software space. New entrants like HelloWallet have started attacking Mint.com’s business model and have emphasized how they offer more financial planning advice services.

The trend

We’ve seen investment platforms begin to automate professional grade services to their client in an effort to round out their offering and attract full-service clients (see my review of E*Trade’s Online Adviser).  Now, we’re seeing personal finance sites begin to creep into the financial planning/investing/future-oriented space.

What get’s me juiced is that sites like Mint have a TON of information about their users — the type of information the investment portals and online brokers drool over.  This positions them better for a move into investing — much like the much ballyhooed-TechCrunch Disrupt-winner Betterment is focused on.

Additional Resources

  • Mint.com Expands Into Financial Planning Tools (NY Times)
  • How To Set and Track Financial Goals With Mint (Mint blog)
  • Goal Keeping Gets Easier at Mint.com (All Things Digital)

—> Like what you see? Hey! Don’t forget to subscribe to the free Tradestreaming newsletter for updates, tips, and special offers.