No Limits Ladies.com

Was watching one of my favorite tv personalities Rachel Ray (I love how excited she gets about food, that girl loves to eat) on Friday. One of her guests was Carmen Wong Ulrich, author of Generation Debt and former special projects editor at Money magazine. They were talking about marriage and finances.

The low key by comparison Ulrich (who can be more chipper than Rachel Ray? She’s like a pintsized pocket of sunshine) piped up that marriage was a money partnership and like business partnerships, there should be regular meetings held. Lack of communication is a killer for finances, and marriages (and definitely for businesses).

The hubby and I have regular informal meetings about money (i.e. not suit or tie required). When we first got married and moved in together, the meetings were weekly, sometimes daily. But now, every two weeks, before we get our “allowances” (the cash that we spend as we wish), we talk about what we need financially for those two weeks. We also remind each other of any large upcoming purchases.

As we have a bit of a float, I only monitor our bank accounts weekly. Earlier on in our marriage when money was extremely tight, I would look at our bank accounts daily.

Every month, I send an email to the hubby with our updated investment portfolio and our return for the month. I let him know if we’re on track or if we’re under performing.

Quarterly, I prepare a complete statement of net worth (some of our retirement savings only report quarterly). Again, are we doing well? Could we be doing better?

After he receives these reports and has a chance to look them over, we discuss them. I find sending it to him in writing easier than trying to talk numbers. Plus he can use the emails for reference.

There is another benefit to treating our finances in this businesslike way. It helps take the emotions out of the equation, turning potential arguments into discussions.

I’ve been laid off. Most of my friends have been laid off, at the very least, once (one friend got laid off twice in the same year). It’s a kick in the pants but part of the new work reality. Just ask Allen Giertz, author of Unemployed? No Problem! He’s been laid off a mind numbing six times.

Being laid off is a double whammy financially. You lose income and you incur more costs. Finding a new job can be expensive.

Some of the common costs, Giertz explains, are resume services, printing costs, making copies, seminars/workshops and of course your ongoing bills (the electricity bill still needs to be paid). However, there are support groups and job clubs that can cut these costs (his book goes into way more detail). Newspapers, the internet, job clubs, support groups, networking groups, family and friends are sources of information.

The biggest mistake job hunters make?

“Not letting people know that they are unemployed and looking for new work. Start networking because you never know when somebody is going to know somebody who knows someone,” says Giertz.

When I knew I was about to get laid off (the company was cutting staffing to core and I was a project person), I swallowed my already beaten up pride and put the word out immediately. Email lists are great for this. I spammed the world about my situation. Within 24 hours, I had at least a dozen job postings. Before the ink on my severance agreement was dry, I had a job offer.

Of course that email list wasn’t built that day. It consisted of years worth of contacts, contacts that were made while happily working. What does Allen Giertz feel an employee do now to prepare? “Always have an open mind as to what other opportunities are out there, in other words, look even thought you are working now, plus keep an updated resumer/cover letter just in case.”

First off, I should disclose that I’m not Jewish so I don’t have an in depth understanding of the faith. I apologize in advance if I get the concepts wrong.

That said, having read many, many, many finance books, I find that Jewish authors like Rabbi Nilton Bonder, author of The Kabbalah Of Money, have some of the best advice on investing in an ethical, non-harmful to rest of the world, way.

One concept heavily promoted is that of win-win or win-not lose. Bonder states that it “is the duty of every one of us to expand wealth – and not only our own – into the world around us.” To do that, we need to build abundance without causing a scarcity.

For example, he differentiates between fair lending and lending as a form of “theft.” Lending to someone who can afford to repay at terms in tune with the market is fair.
(and right as money is meant to circulate)
Lending to someone who can not repay (causing the person more stress and unhappiness) or at a rate gouging the desperate is a form of theft.
(There’s also the fascinating concept of zero interest loans given to people who are poor but will eventually be able to repay the principal – a form of hand up, rather than hand out and similar to the microcredit concept in developing countries).

But why build abundance?

Because building abundance not only creates a better world but also frees up time to spend on spiritual (and charitable) pursuits. I don’t know about you but I would find it difficult to meditate and find my inner peace if creditors were calling every five minutes. And E and I couldn’t contribute to this blog if we were working five jobs to cover credit card debt.

Often when I discuss my investing strategies with male friends (yes, guys, women can have strictly platonic male friends), the most debated topic is the use of investment advisors. Namely I use them and my male buddies often don’t. I always thought I was the odd gal out in the high net worth club until I read Millionaire Women Next Door.

Here’s what Thomas J. Stanley says about the differences between female millionaires and male millionaires… (the we, he mentions, being female millionaires)

“We are significantly more likely than our male counterparts to: develop a detailed accounting system for tracking all household expenditures; research more thoroughly the stocks we are considering as additions to our portfolios; hold stocks longer; use the services of investment counselors, especially those affiliated with trust or commercial investment companies and fee-based financial planners; have a well-defined set of both short- and long-term investment-return goals.”

So there you have it. We, women, like to use advisors (maybe because we play nicer with others?). We also are slow to buy and slow to sell (could have to do with having set goals).

We are different investors. That doesn’t mean our returns are better or worse. They might be exactly the same but how we get there is different. That’s why E and I started this blog. There are many great male financial bloggers out there, talking about their own investment strategies. But there aren’t as many personal finance blogger sisters and we DO invest differently. We think about money differently.

Cramer lays out his twenty-five investment rules to live by. These basic rules hold in almost all situations.

1. Bulls and bears make money, pigs get slaughtered.
2. It’s okay to pay taxes.
3. Don’t buy all at once; arrogance is a sin.
4. Look for broken stocks, not broken companies.
5. Diversification is the only free lunch.
6. Buy and homework, not buy and hold.
7. No one ever made a dime by panicking.
8. Own the best of breed; it is worth it.
9. He who defends everything defends nothing, or why discipline trumps conviction.
10. The fundamentals must be good in takeovers.
11. Don’t own too many stocks.
12. Cash and sitting on the sidelines are fine alternatives.
13. No woulda shoulda coulda.
14. Expect corrections; don’t be afraid of them.
15. Don’t forget bonds.
16. Never subsidize losers with winners.
17. Hope is not part of the equation.
18. Be flexible.
19. When high-level people quit a company, something is wrong.
20. Patience is a virtue – giving up on value is a sin.
21. Just because someone says it on TV doesn’t make it so.
22. Always wait thirty days after an earnings preannouncement before you buy.
23. Never underestimate the Wall Street promotion machine.
24. Be able to explain your stock picks to someone else.
25. There is always a bull market somewhere.

Now some folks are lazy to apply #24 but I find having to explain my stock picks to the hubby requires me to really think through my buys. I have to know the stock inside and out, what the company does, what their financials are like, why I am buying now rather than tomorrow, and when I plan to sell.

Cramer insists that investors need to spend at least an hour per stock per week (the homework piece). I spend that hour (at least) before I buy. If I need to buy a “hot” stock before I can put in that hour, I pass.

Cramer calls diversification “the only free lunch in this whole gosh-darned business.” Diversification prevents total portfolio melt downs. For example: recently I got squashed by the cyclical rotation out of oil and gas drilling. Sure, I’m still happily receiving my income from my drilling stocks but the capital value has been flushed down the toilet. Because I’m diversified, stocks in other sectors have increased to offset the decreases.

A vivid example of why we need diversification was the whole Enron fiasco. On his radio show, Cramer was being sympathetic to the people wiped out by Enron and this is what happened next…

“My wife, the Trading Goddess, happened to be listening. She called in and let me have it. Just took me apart. She said how dare I feel bad for people who had millions of dollars and then gave it back in the market. How dare I feel bad for people who weren’t smart enough to diversify and were so greedy as to not take the care to put their eggs in different baskets. I was just encouraging that kind of behavior for others when I could have been using their intellectual laziness and lack of knowledge about the value of diversification to drive home the point about how easily avoidable such heartbreak is. She was furious that I put the emphasis on the government’s screw up in not catching Enron earlier. Diversification, she said, assumes that the government will screw up and not protect us. It presumes that companies’ execs will at least let us down if not loot their own enterprises. When she was through with me, I said, Holy cow, I better appease the Trading Goddess and find a way to make diversification come alive on the show, pronto.”

As Mad Money viewers know, Cramer plays a game called “Am I Diversified?” He asks for the 5 biggest holdings and then judges whether it’s a diversified portfolio.

For diversification, I ask myself “do the stocks move together?” Diversified stocks don’t.

BTW…I enjoy that Cramer credits his wife, whom he affectionately calls The Trading Goddess, with most of his understanding of the market. It blows the myth of women not being great traders out of the water.

Received Jim Cramer’s Real Money for Christmas. As viewers of his CNBC show Mad Money know, Cramer likes to divide investing money into two pools, one for retirement, one for speculation or “mad money.”

I do the same. The retirement money, I manage conservatively with the help of a financial advisor. The mad money or my fun portfolio, I fly solo with, speculating on higher risk investments.

Cramer has an age specific slant on retirement money (and rightly so). The twenties should be spent accumulating high growth equities (can be done in mutual funds) with some speculation. The thirties see a pull back in speculation to dividend paying stocks. Bonds are added in the forties. If retiring at sixty is the goal, more than half the retirement funds should be in fixed income. More shifting to fixed income in the fifties until it dominates the portfolio in the sixties.

A dividend lover myself (at age 35), I can’t fault the allocation. If anything, I’m lighter on the speculation (didn’t speculate much in my 20’s). The retirement funds, I don’t mess with, even hiring a financial advisor to prevent me from doing something dumb (like throwing it all into Apple stock). Why would I mess with it? This is the portfolio that will keep food on the table and a roof over my head.

Now my fun portfolio is a whole other story. This is the chunk of money that will make me rich (that’s the plan, anyway). This is the chunk of money some of the tips in Real Money will help me grow aggressively.

One other gem in Richard Templar’s The Rules of Wealth/Money is the rule about not surrendering equity. This rule is handy not only for business owners but for investors also.

If a business owner truly believes that her business is viable and strong, she would be very hesitant about giving a piece of it away. If she had an option of borrowing to finance or going to the equity markets, she would do all she could to avoid the equity market route.

There are exceptions…when the regular lenders are tapped out, when the purpose (like buying another company) is too big for borrowing, when interest rates are unbearably high, when the owner wants to cash out (partially or completely – often the reason for IPO’s) but an investor should always ask herself “why is the business owner giving away equity?”

Just as the business owner should ask “why would I want to give away profits?”

This applies to companies giving away divisions also. Sometimes the rationale is focus (or the parent company is struggling and needs cash or…) but often the reality is that the parent company management believes they’ll get more cash by selling than by running the subsidiary itself. That is a caution sign to buyers that they might be overpaying.

If business owners have to go to the equity well, Templar suggests that they only swap equity for…
“-business skills and acumen
-hands-on directorships
-a freedom-from-hassle agreement so you can run the business the way you want
-a realistic percentage so you don’t give away too much
-a buy-back clause so you can buy back the equity for cash at a later stage when you are cash rich.”

He also states in bold “never give voting shares to anyone.” The shares he offers investors are non-voting (personally I would never invest in non-voting shares regardless of the company).

Received Richard Templar’s The Rules of Wealth (the British version as a loved one picked it up in an airport somewhere, I believe the U.S. title is The Rules of Money). Much of what he writes about is the basic save, save, save, save philosophy that a regular finance book reader has seen before but there are some gems hidden within this short book (a very fast read).

Like Rule #72: Make Your Money Work For You

Templar states “always remember that idle money is wasted money – use it or lose it.” Don’t leave cash in non-interest bearing bank accounts. Don’t leave property vacant even if capital appreciation applies. Rent it out (this applies to vacation property too)! Hang that investment art on the wall (enjoy it while the value goes up).

I make it a point to look at what I have and ask myself “can I stretch this further?” Can I wear that blazer both for work and for weekends? Can that suit I bought for my cousin’s wedding be worn for work? Can I use the celery tops for soup stock while I eat the stalks (celery actually contains negative calories – it takes more calories to digest them than they contain)? Can I receive dividends from these shares while I wait for them to appreciate?

This especially applies to information and learning. Can I use that research I have to do for business in my blogs or my novels or my investing (better yet, all three)? The time and energy savings truly add up.

I was watching an interesting interview with Jacob S. Hacker, author of The Great Risk Shift. He was talking about how risk was being shifted from employers and governments to individual people like you and me.

A decade or so ago, workers had defined benefit pension plans which meant that when they retired, they could expect a set amount of money per month from their pensions. The companies were responsible for figuring out how much had to be invested and where in order to provide that set amount. Employees? All they had to do was cash their checks.

This got too expensive for companies so most have moved to either a defined contribution pension plan or vehicles like 401k’s. Now the roles have switched. All employers do is send in the check for contributions and employees have to figure out how much and where to invest it. The risk of not meeting retirement goals have moved from the company to the individuals. In other words, you and I have to look out for ourselves.

This has happened not only for pensions but for health care also with the popularity of health savings accounts. We’re on our own.

Now, the author suggests getting companies and governments more involved. I don’t think that is going to happen anytime soon. And honestly, I like to play with the hand I’m dealt right now. If the impossible happens and other people pitch in to help, then fine, that’s gravy but I’m not counting on it.

You and I have to figure out this investing thing on our own. We have to learn how to handle risk. We have to educate ourselves and not wait for anyone, not the government, not the company, not a man, to provide for our future. It’s not a nice-to-do, it’s a have-to-do.