Leveraging Your Financial Intelligence Read online

  Not Healthy and Not Able to Care for Yourself: As you age, the risk of needing long-term care rises. According to one study, 37 percent of people who died at age 65 spent some time in a nursing home, while 71 percent of those who died at 95 years of age or older had spent time in a nursing home.10 It's important to consider how you would pay for nursing care, assisted living, or at-home healthcare if needed. All such care is expensive. Nearly one-fifth of people 65 and older will face these kinds of expenses before they die.11 Even if you have enough reserve capital and assets to pay for such care, it's important to purchase long-term care insurance. Transferring the risk of a potential catastrophe to an insurance company is always a good idea. It is not a coincidence that the wealthiest people are the most well-insured.

  Healthy. Planning for Difficult Times: When the economy is weak or the markets are falling, it's important to have access to a variety of sources of funds, including instruments that perform well when the economy is struggling. These include cash, cash equivalents, fixed assets (instruments that have a fixed value such as a guaranteed annuity), fixed-income assets, and hard assets such as gold. You need a smart place to go for money to fund both positive and negative events, such as job loss, vacations, college tuition, and so on. Cash and cash equivalents may have changing interest rates, but the underlying value is fixed. Unlike cash, fixed-income investments, such as corporate, municipal, or government bonds, will have fluctuating value, but the income is fixed and therefore will continue to provide a specific amount of income no matter what is going on in the economy. Cash is especially useful for immediate needs, because it's available without penalty. Fixed-income investments are useful because by definition they provide a fixed income. Precious metals such as gold and silver can also be a smart place to get money during bad times. As we saw in the last decade, investments in precious metals often perform well when other investments, such as stocks or real estate, are declining. Figuring out how much of your total assets should be in cash and fixed-income instruments is both an art and a science. The concept is straightforward, but the nuances can be complicated. If you are a highly knowledgeable investor using the Smart Money Philosophy, you can accomplish a lot on your own. But most smart investors don't go it alone. They rely on financial advisors to help them identify and evaluate sophisticated options that will protect them during poor economic times.

  Planning for Good Times. When the economy is strong, equity instruments such as company stocks and mutual funds of stocks tend to increase substantially in value. Participating in the stock market can help you reach financial independence more quickly, because on average over time, stocks perform better than fixed instruments such as bank CDs or government bonds. If you need money when the economy is strong, then selling equity assets that have appreciated is a smart way to get it. Like stocks, real estate investments are also equity investments, and depending on the nature of the investment, one might earn rental income or capital appreciation in those times when real estate values are rising. Someone once said, “We can't create more land, but we are adding more people, so it stands to reason that over time real estate is an asset that will appreciate.”

  ADJUSTING YOUR SMART MONEY PLAN

  As you continue to save and invest money, you may need less coverage in some insurance plans than you did earlier. At that point you may discover that, even if you could get by with less insurance, reducing your level of coverage may not be a smart financial move. Continuing to use insurance to transfer risk to someone else can be less expensive than shouldering the risk completely yourself (even if you can afford to do so). Every year or so, review your financial picture, ideally with an advisor, and determine whether anything has changed significantly enough that you want to adjust either your goals or actions. This process should always be done while considering your values. When Doug was in his twenties, he calculated that he could be financially independent given the then lavish sum of $15,000 a year. As his family grew and living costs rose, he increased the amount he determined he needed to be free from the need to work. Your needs and wants will probably change over time. You can always adjust any action. For instance, values that influenced Doug's insurance decisions over many years include family, wisdom, and health. Doug values family. He believes it's wise to be well insured, and because health is fragile he understands that he can't count on the good health he's enjoyed all these years.

  * * * * * *

  The year before Doug started his first job in the financial services industry in 1973, the Dow Jones Industrial Average (DJIA) closed above 1,000. In December of 1972, the DJIA closed at 1,020. No one could know then that it would be another 10 years before the Dow closed the year above 1,000. The next time the Dow closed the year above 1,000 was at the end of 1982 when it closed at 1,047. Of course, it was far from a straight line for the stock market to reach those additional 27 DJIA points. During the 10 years between 1972 and 1982, the stock market zigged and zagged. But those 10 years taught Doug, and others who followed the stock market, that you really can't predict what the market will do. In the years since the market bottomed out in 2009, the DJIA has certainly resembled a rollercoaster ride, even though the general direction of the DJIA in the last number of years has been remarkably positive.

  Regardless of what year you read this book, your life will zig and zag, too, and you'll probably need money to help you manage those twists and turns. Creating a financial plan based on the Smart Money Philosophy is the best way to prepare for the certainty of uncertainty and thereby reduce financial stress. Reducing financial stress using the Smart Money Philosophy will do much more than improve your financial health. As we'll see in the next few chapters, following the Smart Money Philosophy will also set the stage for living a healthier and happier life.

  NOTES

  * This is a fictitious name of a real person who did not wish to be identified.

  1 Troy McMullen, “Areas hit hardest by the real estate bust are now seeing the highest gains,” https://www.washingtonpost.com/realestate/2016/08/17/66bf7d86-536d-11e6-88eb-7dda4e2f2aec_story.html, August, 2016. Retrieved April 18, 2017.

  2 “The State of the Nation's Housing 2017,” Joint Center for Housing Studies of Harvard University, 2017, http://www.jchs.harvard.edu/research/state_nations_housing, 2017. Retrieved June 16, 2017.

  3 Paul Kosakowski, “The Fall of the Market in the Fall of 2008,” Investopedia, May 8, 2017. http://www.investopedia.com/articles/economics/09/subprime-market-2008.asp. Retrieved June 16, 2017.

  4 Andrew Soergel, “‘Storm of the Century’ Heaps Billions in Losses on Local Economies,” US News and World Report, January 26, 2016, https://www.usnews.com/news/articles/2016-01-26/storm-of-the-century-heaps-billions-in-losses-on-local-economies. Retrieved June 16, 2016.

  5 Adam B. Smith, “2016: A historic year for billion-dollar weather and climate disasters in U.S.,” NOAA Climate. Gov., January 9, 2017, https://www.climate.gov/news-features/blogs/beyond-data/2016-historic-year-billion-dollar-weather-and-climate-disasters-us. Retrieved June 16, 2017.

  6 Buena Vista College became Buena Vista University in 1995.

  7 Svenja Gudell, “Q4 2016 Negative Equity Report: Improvement Continues, But at a Much Slower Rate,” Zillow, https://www.zillow.com/research/q4-2016-negative-equity-report-14393/, March 7, 2017. Retrieved on June 12, 2017.

  8 “What Is Long-Term Care?” NIH Senior Health, https://nihseniorhealth.gov/longtermcare/whatislongtermcare/01.html.

  9 Brenda Blake. “Background,” LivinFully.com, http://www.livinfully.com/background.html.

  10 “Health Aging Column—Long Term Care Insurance,” Colorado State University, December 6, 2002, https://publicrelations.colostate.edu/2002/12/06/healthy-aging-column-long-term-care-insurance.

  11 Family Caregiver Alliance, National Center on Caregiving, “Selected Long Term Care Statistics,” https://www.caregiver.org/selected-long-term-care-statistics.

  Chapter Five

  Health

  The first wealth is he
alth.

  —Ralph Waldo Emerson

  Todd and Nancy Stepniewski have been happily married for 32 years. They have three wonderful kids in their twenties, and own three homes. Their primary residence is on Long Island, New York, and they have alternate home bases in Manhattan and Naples, Florida. When Todd and Nancy were starting out and raising a young family, finances were tight. They never dreamed that the life they live today was even possible. But thanks to Todd's success in building his financial advisory practice and Nancy's unending belief in him and support of him, their circumstances changed.

  For Todd and Nancy, having multiple homes is not about having “assets.” One reason they've invested in multiple properties is to support their value of family happiness. They chose homes that would provide appealing family gathering places as their kids and their families grew and took root in various parts of the country. For instance, during the winter months in the northern United States, where the kids all live, what better way to entice their family to visit than to offer them a sunny Florida destination where everyone can relax and reconnect? Whether or not their kids are visiting, spending time at their home in Naples allows them to easily engage in various outdoor health-promoting activities, rather than spending too many dark winter months cooped up in their Long Island, New York, home. When summer returns, their Long Island home is the perfect warm-weather destination for the family.

  While family values are key to Todd and Nancy's decision to have multiple homes, they also see their investment in various homes as essential to supporting their value of lifelong health and well-being. Though there are many indoor fitness facilities that offer health-promoting activities year-round throughout the United States, most people benefit greatly from being active outdoors. Being able to be outside breathing fresh air, connecting with nature, and soaking up natural Vitamin D from the sun all convey exceptional health benefits. Todd and Nancy have the good fortune and health advantages of enjoying the outdoor life year-round.

  If you're wondering how Todd and Nancy's Manhattan home, surrounded by the “concrete jungle” of one of the world's largest cities, contributes to health, consider the research on the relationship between engagement with the arts and health outcomes. James Aw, chief medical officer of the Medcan Clinic, a leading private health clinic in Toronto, Canada, has scoured the medical research to understand the connection between arts engagement and health. Here are results of several relevant studies described in Dr. Av's words:

  One Swedish study followed more than 10,000 people over the course of 14 years. It found a relationship between longevity and the people who most visited the cinema, concerts, museums, or art exhibitions—although interestingly, no link existed between longevity and those who attended sporting events.

  A Norwegian researcher, Koenraad Cuypers, performed statistical analysis on the health data of 50,797 Norwegians collected as part of something called the Nord-Trøndelag Health Study. Participation in cultural activities was significantly associated with good health, good satisfaction with life, and low anxiety and depression scores in both genders, Cuypers found.

  According to the Norwegian study, participation in culture was good for you, regardless of whether you consumed or created the culture. And the more culture, the better the study participants' health. Frequency of cultural activity was positively associated with good health, life satisfaction, decreased anxiety, and decreased amounts of depression.

  Based on this research, Aw encourages his patients to promote their health by engaging in hobbies and interests. He especially encourages his patients to build their social network by viewing or engaging in artistic and cultural events and activities.1

  Todd and Nancy Stepniewski's home in Manhattan is at the world epicenter of culture. They are surrounded by many of the most famous artistic and musical venues in the world. Todd and Nancy live in walking distance of the most pleasurable and health-promoting cultural experiences anywhere. Taking advantage of Manhattan's cultural riches is bound to increase the odds of healthy longevity (not to mention fun) for Todd, Nancy, and their brood.

  In keeping with the theme of the interconnection between money, health, and happiness, Todd and Nancy's story demonstrates how financial resources can enhance access to health-promoting locations. In fact, Naples, the location of one of their homes, ranks as the top community for well-being on the Gallup-Healthways Well-Being Index.2 But Todd and Nancy also feel fortunate that their financial resources allow them to support health in other ways. Nancy firmly believes that health is the foundation of quality of life. She can't even imagine life without being healthy. So, Nancy focuses heavily on nutrition as a way of keeping the couple as healthy as possible. Todd jokes, “If you came into our house, you would think you were in a health food store.”

  Todd and Nancy are at a stage of life when health is a prime precondition for living a fulfilling life. All the Boomers interviewed for this book emphasized the importance of health as they anticipated getting older. Fifty-something life coach Donna Krone noted that one of her top goals is to maintain her health. Donna says, “If you don't have your health, it's more challenging to feel fulfilled and happy.” Michelle Arpin Begina says that her weekly exercise regimen is “non-negotiable.” It wasn't always that way. When Michelle was younger, she struggled with her weight. “I had a relationship with sugar,” recalls Michelle, “and I would gain weight and lose weight. I eventually decided to eliminate sugar and exercise regularly. I now plan what I eat and exercise four times a week.” Michelle's personal objective is to die of old age, not from complications of diabetes or some other disease.

  Marjorie Wynn deeply values her relationships with family and friends, and recognizes that health is connected to her ability to live out that value. As Marjorie points out, “If I'm not physically healthy, I won't be able to do many of the things I enjoy with those I love. It would also likely limit my ability to provide for my family. Without good health, everything else would be sub-par.” Marjorie's husband, John, admits he sometimes takes his good health for granted. John enjoys being active. “I love to fix things,” he says. “I love to build things, and help others with projects. If I couldn't do those things, it would be a big deal.”

  GenXer Laura Mirković discovered how vital good health was when she suffered hormonal imbalances related to the births of her children. Laura needed medication that, while solving some problems, caused unpleasant side effects. She discovered that the only way to get off meds was to exercise vigorously. Laura has been doing CrossFit3 for 10 years, practices yoga, and enjoys biking. Laura's dedication to fitness has been a lifesaver. It keeps her grounded and energetic and allows her to be a great mom. Laura smiles when she says, “Everybody in the family knows I need to work out every day.” Laura calls herself “the fitness leader” in the family, encouraging everyone, including her husband and three children, to stay active and make healthy choices. Part of Laura's motivation is watching her own mother, now in her eighties, unable to get around because she never moved enough when younger.

  According to Laura's husband, Saša, “We look at fitness and healthy eating just like professional athletes do—as essential to our well-being and success.” Being financially secure makes their emphasis on health and fitness that much easier. Laura explains:

  A lot of people in the United States have inexpensive gym memberships. Maybe they go; maybe they don't go. If you are only spending a little money, you don't have a lot of skin in the game. No one is checking in on you. I go to a CrossFit gym that costs $200 a month. I pay the extra money to go to CrossFit because it helps me with accountability for maintaining fitness. I get to work out with the same group of people every day. If I don't show up, someone calls me. I also have food buddies. If my food isn't in check, I can lean on a friend to support me in keeping my diet healthy. Saša and I believe if you buy cheap stuff or only invest a little bit, you'll end up spending more money in the long run or you'll develop medical issues. For example, if you're overweight, y
ou're likely to end up needing a knee replacement.

  Saša adds, “That's why I see a personal trainer several days a week at a cost of $500 a month, because for me to work out I need to have someone hold me accountable. I need a coach.”

  It's not just Boomers and mid-lifers who recognize the importance of health and health-promoting activities. Multiple surveys show that Millennials (born roughly between 1982 and 19964) top the charts relative to older generations in their concern about health and wellness. Co-author Ryan, in his late twenties, starts his commute an hour early so he can work out at the office fitness center because he values the energy he gets from being fit. Thirty-four-year-old Erin Livermore heads out the door five times a week for her 6:00 AM Barre class because it sets the stage for a productive and happy day—no matter how stressful that day's job challenges may be. A 2015 Yahoo health study revealed these facts about Millennials' relationship to health: