As a young boy I was blessed to know and learn from my Uncle Segundo or Tio Segundo as I knew him. He like so many other relatives came to live with my family for a short time as they fled their beloved Cuba to make a new home in the welcoming arms of the United States. Tio Segundo was like many Cuban exiles. He came to this country in his late 40’s by himself, penniless and left behind everything that he knew and cherished. In Cuba he was an intellectual, a philosopher, a consultant to Presidents, a lawyer and the Mayor of Holgin, the second largest city in Cuba. This tale teaches us that the unexpected happens and that you must prepare. This tale like so many others teaches us that you must prepare by creating financial capital from saving and investing, by creating human capital in the form of education and knowledge and preferably you should do both. You must prepare for the worst so that wherever you may go and no matter what may happen you land on your feet. I probably heard this a thousand times growing up.
There’s a company that once advertised in local magazines in Maryland what they called the 1% solution. Of course they don’t do it any more since I suspect they are broke as are their clients. Nevertheless, I loved the way it sounded. Imagine a 1% solution. I want one. We all want one. Even if you have no idea what it means you just want to call them up and ask for one of those solutions. Heck why not a few 1% solutions. I called them up to see what was behind the advertisement and what I found made me angry. It made me angry because in the investment advisory business the 1% solution would for the vast majority of investors be a prohibited practice because it can cause significant financial harm yet in this business, the mortgage business, it was not just allowed, it was unsupervised, unregulated and the 1% solution advocate was even permitted to advertise this potential financial bomb. When it is all said and done and history is written on the real estate bubble, the main cause will be the total lack of supervision of the mortgage industry. The 1% solution is just one of the culprits.
This tale is very short and has one purpose and one purpose only. It is to recommend that when you work with an advisor that you meet face to face with the advisor and preferably in your home. I say this because on more than one occasion I was able to make recommendations that were completely outside of what I would have recommended had the client just been a phone interview or an interview in my office. Meeting with both the husband and wife at their home gives the advisor a better sense of what is appropriate and important to them. There is no model that I can develop that tells me what matters to my client other than meeting with them where they live.
One of the great gifts that humans have is the ability to self-regulate. For example, the body’s ability to maintain a constant temperature stems from its ability to self-regulate and is called homeostasis. Unfortunately we have no simple term or way to describe homeostasis in a culture, society, country, etc. We simply call it regulation or self-regulation. Given the recent events and breakdown of regulation in the global banking, investment and mortgage markets, we are facing a brave new world and I am sure it will be a source of much debate over the next few years.
I write this tale because every day people that are soon to retire must tell their employer if they want to receive a lump sum for all their years of service or a lifetime annuity. This is a complex decision and one that once made can’t be reversed. They often enlist the services of advisors to help them make this decision and it comes as no surprise to me that these advisors which have an ulterior motive advise the soon to be retired that a lump sum distribution is the favorable route. In fact according to the Society of Actuaries almost 90% of people when faced with this choice choose the lump sum. I have not found this to be the case for people that I have advised. I often find that people should not take the lump sum.
An essential component of financial success is the need to assemble a team of trusted advisors. Other than practicing the discipline of saving money I think it’s the most important component to financial success. This tale follows A Tale of Gender because we also know that money knowledge isn’t gender specific and that women must understand how it works and what role it plays since in all likelihood they will spend some portion of their lives as single women. This tale teaches us that the most important person that you must have on your team of trusted advisors is your spouse or significant other. This is a tale of two couples and how they went about building their family savings and their lives. In one case it is a wonderful life in the other it is, in my opinion, a tragedy.
This tale focuses on a common investment pitfall. I call it stealing. It was a normal scam since it appealed to the victim’s common sense and trust.
My father-in-law was a wise old Yankee from Massachusetts when I met him at the ripe old age of 63. He was 17 years older than my mother-in-law, and because he had spent most of his career as a State Department diplomat, I would listen closely to what he had to say since his world and perspective was so alien to the one I knew. He was born in 1915, and like many of his generation, his thinking was shaped by the events of the Great Depression and then World War II.
This tale is especially for my two daughters and those women that will find themselves single at some point in their lives. This is a Cautionary Tale as well as an Innocent Tale and one that must be embraced. The moral of the story is that since women outlive men, marry later today than a generation ago and divorce is a common day occurrence it behooves them to understand money. It is almost a certainty that they will have to deal with it on their own for a substantial portion of their adult lives.