What to Do Instead of Investing in Index Funds

Hey everyone.

Two days ago, I wrote about how investing in index funds ("passive investing") is only something you should do if you're investing for extraordinarily long time frames (i.e. for retirement, which should be 30 to 35 years away). Although I encourage you to go back and read my previous post, I'll reiterate the basic thesis behind my last post. It's that although the S&P 500 (an index or group of stocks that is a gauge for how the stock market is doing as a whole) has a compound annual growth rate of approximately 9% for the past 87 years, returns on the S&P 500 or the broad stock market in general can vary wildly from year to year, as demonstrated by this chart. If you don't have an 87 year time horizon or even a 20 year time horizon for your money, but want to make it work for you so you can reach financial objectives that are 3, 4, or 5 years away - i.e. buying a home, taking a trip around the world, buying a new car - what can you do to reap the benefits of investing in the stock market?

Well, before I tell you specifically what steps you can take, I must remind you that investing successfully is hard work. And it will require your dedication to it. By dedication, I mean that you must be willing to spend at least an hour a day (or 7 hours a week) doing the things outlined below. Come on, you can dedicate at least 4 percent of your week to improving your financial future, right? You can? Great! So here are the steps you need to take:

1) Determine what type of investor you are (a growth investor or a value investor) and then determine your risk tolerance by taking the following questionnaire. Growth investing and value investing are not mutually exclusive, necessarily, but they can be at times.

2) Spend time checking out the websites of stock newsletter subscription services that have thriving investor communities such as Cabot, TheStreet, The Motley Fool, or Morningstar. All of the above-mentioned websites have customer service lines that can help you decide which subscription service is best for you. Use these human resources!

3) After you have decided upon a subscription service that fits your budget and investment style (both of these criterion are equally important), then that's the time to start evaluating the newsletter's picks. When stock newsletters make picks each month, the newsletters usually include a synopsis of the company's financials, industry, and growth prospects. If you are more familiar with an industry that a particular stock recommendation falls into, and you think the prospects for the industry are bright, that might be a company on which you seek out more information. I would also suggest that you act like you're back in college and email the newsletter's editors with any questions. This will accelerate your learning curve when it comes to stock market investing.

4) Once you have your particular stock for each month set, you should dollar cost average into this investment. This way, you will buy more shares of that particular stock when the stock price is lower, and less shares when the price is higher, thereby lowering your cost basis. 

Well, that was a mouthful and seems like enough for today. But come back tomorrow for a "two-fer" when I'll be discussing where to find good information on companies and what metrics to look for, along with the importance of becoming a minipreneur. Until then...

JP $

The Case Against Index Funds/Passive Investing

Hey everyone.

If you've read any of my previous blog posts, you've probably noticed that I generally steer clear of conventional financial wisdom. Not because conventional financial wisdom is wrong - although a lot of it is, in my opinion - but because it's often one size fits all. All of you readers out there have different financial goals. Some of you might just want to develop an extra income to supplement your income from a job that you already love. (Let's call this Goal A.) Some of you, on the other hand, might be striving to become wealthy beyond your wildest dreams such that you don't have to work ever again and neither do your kids. (Let's call this Goal B.) Although I'm not as wealthy as I want to be just yet, I can assure you that the practices one must adopt in order to achieve Goal B are drastically different than the practices one must adopt in order to achieve Goal A.

Conventional financial wisdom - you know, the stuff you hear talking heads spouting on CNBC's personal finance shows or on websites about frugality, getting rich slowly and what not - states that when you invest in the stock market, you should invest in an index fund. An index fund is basically like a mutual fund, but one that has much lower administrative costs (the costs involved with running a money management company). One added benefit of an index fund is that its returns are directly tied to the overall stock market, more specifically whatever "index" (i.e. the S&P 500, the Down Jones Industrial Average, or the Russell 2000) it tracks. And since most mutual fund managers can't consistently achieve a rate of return that is higher than these broad indices, the argument goes that it's better to try to "match" instead of "beat" the market.

These talking heads are right in that it IS hard to "beat" the market. And they're right that index funds cost less than mutual funds, and that it's easy to lose money by actively trading in and out of stocks, just on the cost of brokerage commissions alone. (Investing in mutual funds and index funds is "passive investing" because the investor doesn't have to pick stocks herself.) Also, forget about the tax ramifications of trading stocks too frequently - they can eat up all of your profit if you don't know what your'e doing. All of this information might not serve you well though because it fails to take into account why we invest: TO MAKE MONEY. More specifically, we invest to make sure that we beat inflation (that our savings don't go down in value).

The conventional wisdom talking heads like to tout the fact that the S&P 500 index has returned 9.8% per year, ever since 1928. Really? Great! Where do I sign up to get 9.8% per year returns for the next 87 years? If you can't sense my sarcasm, let me point out the problem with this statistic for you. This chart shows the returns of the S&P 500 index starting in 1975. For argument's sake, let's go back to the year 2003 and start from there when calculating returns.

Using the chart I reference above, if we invested $1,000.00 in an S&P 500 index fund starting in 2003, we would have had $1,260.00 at the end of 2003, $1,373.40 at the end of 2004, $1,414.60 at the end of 2005, $1,608.40 at the end of 2006, $1,665.17 at the end of 2007, at the end of 2008...we would have essentially returned to our starting amount, ending the year at $1,024.08. As you already know, in 2008, the S&P 500 dropped a whopping 38%. Just imagine seeing all of the money you've worked so hard to save and invest slashed by 38%. It'd be heart wrenching to say the least, even for the most seasoned investor. If you'd started investing in 2000, you'd have lost money from 2000 to 2008!

Yes, the major stock market indices generate a return of somewhere in between 7 to 9% a year over very long periods of time. However, over short periods of time, the returns from the stock market can wildly deviate from the historical averages. And since most investors don't have 87 year time frames to invest their money, oftentimes, they are unable to capture the true benefits of investing in the stock market.

If you're an investor who is solely investing for retirement, and have a 35 to 40 year time horizon, fine, be my guest and go ahead and invest in an index fund. But if you're like me, and you invest so that you can afford to live on your own terms, even before retirement, then you need to be actively engaged in your investment decisions. That's not to say you should become a day trader or a market timer. But the index fund investment route is not the way to proceed.

If you want to know what you should do instead of investing in index funds, tune in tomorrow! Until then, take care and I'll see you back here soon.

JP $

Five Things I Learned About Life Through Playing Poker

Hey everyone.

As some of you may or may not know, I'm an avid poker player. I've never played in a World Series of Poker event or anything like that (although it is a bucket list item of mine). And I'm not a professional by any means. But I've been playing fairly consistently for the past seven years and I've picked up a few life lessons along the way. Here are the six most important truths about life that I've gleaned from my time on the felt. 

1) It's important to focus on things that you can control (i.e. process, decision making) and not worry so much about things that are out of your control (results). 

Poker can be brutal sometimes. I remember one particular night in an underground cash game in NYC where I took the nastiest beat I ever took in my life. I picked up Aces - the best starting hand in poker - and of course I raised. My opponent reraised me. After some posturing, I moved all in.  I turned over my Aces and he turned over pocket Queens. I sat there, looking at the $600 in the middle of the table, waiting anxiously for the last of the five cards to be dealt so the dealer could push the chips in my direction. Statistically, at that point, I was an 80% favorite to win, but I knew my Aces could be cracked. The flop (the first three community cards shown) were A 2 3, all of different suits. Whew! I flopped a set. 

At this point, with only two cards to come, I was a 97% favorite to win the hand, but I still felt uneasy about the whole situation. I told the dealer, half-jokingly, half-seriously, "Don't do it". I was referring to him dealing out a statistically improbable situation - a Queen on the next card, followed by another Queen. Of course the next card was a Queen. I was still ahead in the hand, and still a massive favorite to win. But then I really started to sweat. "Don't do it dealer", I repeated. "Don't do it". My opponent needed the final Queen in the deck to beat me and of course, the deal burnt one card, and turned over that final Queen my opponent needed. I got up swiftly, wished everyone a good game, and then left. I felt like vomiting up the fish and chips I had eaten earlier.

Could I have done anything differently? Not really. I've played poker hands poorly before - lots of times in fact - but this time, I played my hand well. But yet, I still lost. This happens in life too. The high school valedictorian gets straight As, but gets rejected from all of her top choices. You never take a sip of alcohol, but get killed by a drunk driver. Life can be unfair, but ultimately, if you keep making good choices, you'll more than likely end up okay.

2) Being ready for profitable situations when they arise is crucial. So stay prepared and pay attention.

In live poker, because you see so few hands - maybe 40 or so an hour - most of the money that you win will probably in a few big hands over the course of any given poker session. Therefore, it's important that you're paying to your opponents' tendencies, even when you're not in a hand. If you're busy watching the game on the flat screen tv on the wall in front of your poker table, or ogling the cocktail waitress with the nice ass, you're going to be missing opportunities when they arise.

The same thing applies in life. You never know when opportunities are going to arise for you, so it's important that you have your "elevator pitch" ready. That you know the responsibilities of the person whose job you want, so that you can jump in immediately if they get fired. You get my drift.

3) It's important to reflect on your mistakes in order to get better.

In poker, all of the best players vigorously dissect the way they played a hand - whether they won or lost it - after their poker session is over. After you make a mistake in real life, you shouldn't just chalk it up to bad luck. Really ask yourself if there's something you could have done better to change the outcome. If not, that's fine. But it's important to consider that an action might have been a mistake. Even though I'm not at the top of any field just yet, I've seen this trait in others and it's done wonders for them.

4) Mental toughness can take you a long way.

Like I said earlier, bad stuff happens in poker as in life. And unfortunately, bad luck isn't distributed evenly throughout the universe. Some people are objectively more unlucky than others. Nonetheless, being able to look forward to a brighter day and push yourself onward will certainly open up more opportunities. As the saying goes, "Effort only releases its reward when one refuses to quit."

5) There are different paths to success.

In poker, the optimal strategy is to always be adapting to what your opponents are doing. However, there are general styles of play, such as tight-aggressive, or loose-aggressive. There are plenty of different styles that can lead to success. In life, the same thing applies. One can become wealthy through investing in real estate, the stock market, creating one's own business, or being a CEO. It's not so important what path you choose, so long as it's one you feel comfortable with. 

Thanks for reading and stay tuned!

JP $

When It Comes to Personal Finance, Don't Focus on the "Finance" Part to the Exclusion of the Personal Part

Hello everyone.

Today, on my Facebook page, I posted an article about how you should put a price tag on hard to quantify things in order to determine whether or not you are making the right financial decision. And I couldn't agree with myself more! :-D So many times in personal finance, the pundits emphasize the 'finance' part of personal finance, and understate the importance of the 'personal' part - failing to realize that the two are supposed to work in unison.

I think I've said this before in a prior post, or a prior YouTube video, but I think it bears repeating just to demonstrate my point. Many moons ago, when I was fresh out of law school, and looking for a job as a financial adviser, I was talking to a financial adviser whom I wanted to work for - let's call her "Cassie" - and she gave me some unsolicited advice. When I was telling her about the amount of student loans I had, and what that meant for the commission-based nature of financial advising, she told me that I should pay down my student loans at all costs. That makes sense to some extent, but that's not the stupid/crazy part of what she said. The crazy part came when she followed up her sentence about paying down my student loans as quickly as possible with..."even if it means not eating or skipping a few meals a day."

Now, I'm all for people getting out of debt. I'm all for people making sacrifices to achieve their goals, financial and otherwise. But not eating???!!! Skipping a few meals a day???!! She didn't even say "cut your grocery budget" or "eat ramen". She just flat out said pay down your loans even if it means not eating. That's by far one of the stupidest things that I've ever heard. How will I have the energy to do work if I'm not eating? How can I focus on an empty stomach?

There are plenty more so called "advisers" out who will tell you a whole bunch of non-sense, like retirement is the only thing that you should be focused on, or that maxing out your 401(K) is the best idea in the world. Some of these platitudes are spouted by well-meaning people and some of it might even be good advice. But the advice is not for everyone. What this advice often fails to do is take into account that people want to live, and not just wait until 60 years of age to enjoy their life. Or live a life purely ruled by spreadsheets and numbers.

For instance, if you value being able to spend your time as you choose or be a freelancer or want retire early and see the world, maybe you should get aggressive with your investments and place all of your money into a taxable account instead of retirement accounts . If you value family and want to stay home with your kids while one spouse works, that might be a 'bad' financial decision looking at pure numbers, but it might be an excellent decision in terms of the psychic/emotional benefits that it provides for you, your spouse, and your family. If you don't care about using credit anytime in the near future, but would rather take a lower paying and more fulfilling job,  maybe you shouldn't focus on aggressively paying off all of your debt as soon as possible. (*Disclaimer: You should always pay off your credit card debt as soon as possible as the interest rates are so extraordinarily high.)

The moral of the story is that everyone has different priorities. Sometimes those priorities might conflict with conventional financial advice and may seem like they lead to 'bad' financial decisions. However, the whole point of having your finances in order is to be happy. We all hope to make good financial decisions because we want more money, or at least enough money to live, and this will make us happy. So why not just prioritize your version of happiness - which is intensely subjective and personal - instead of making decisions solely based on numbers and listening to pundits/financial advisers who tell us not to eat.

Thanks for reading and stay tuned!

JP $

Interview with Nubian Skin Founder, Ade Hassan

Hi everyone.

Today I'm so excited to bring you an interview with my colleague and former Duke classmate, Ade Hassan. She is the founder of Nubian Skin, a nude lingerie line for women of color.

Let's jump right in.

Pollard Financial Coaching: First of all Ade, thanks so much for taking the time to answer my questions. I really appreciate it. Tell us a little about yourself. Where are you from? What’s your educational background? Anything that you think would be useful to know about your life before founding Nubian Skin.

Ade Hassan: I was born in the UK, and have grown up in a few different places including Nigeria, England and the U.S. I went to university at Duke, later returning to the UK to complete my masters at SOAS. Prior to Nubian Skin, I was actually working in the finance industry, mainly in private equity.  Prior to going full time on NS, it was a tough balancing act.  The work I was doing is client-focussed, so the hours are demanding, but when you’re incredibly excited about something, waking up early and going to bed late doesn’t seem like such a chore.

PFC: I think the concept of a lingerie/hosiery brand for women of color is brilliant. How did you come up with the idea? Was it born out of necessity – that is to say, did you want some “nude” lingerie for yourself and couldn’t find any?

AH: Thank you! Nubian Skin was essentially born out of frustration.  I wanted a product that I couldn’t find in shops, so I decided to create it.  I knew I couldn’t be the only one who felt the same way. I’ve always wanted to be an entrepreneur, and I’ve always wanted my business to be fashion related.  I had several ideas in the past and a few that I looked into moving forward with, but ultimately when this idea came into my head, it truly stuck.  I realised it was something I needed and was so essential, that it had to be something other women of colour would want. The thing that really gave me the push I needed was receiving a card from my friend which said “It’s time to start living the life you have always imagined,” so I decided to do just that.

PFC: Once you came up with the idea, what was your very next step that you took?

AH: It took me two years from the concept to creating the company, and another year and a half till I actually launched. The first two years were brainstorming and planning.

PFC: How did you come up with the name Nubian Skin?

AH: I wanted something which really spoke to the history and significance of dark skin, so I chose Nubian. I had originally thought of Nubian Nude, but that can be very tricky when it comes to internet searches, ‘Skin’ just worked.

PFC: Where did you come up with the startup capital to begin Nubian Skin? Was it personal savings or did you have investors?

AH: The company was self-funded. All friends and family.

PFC: Do you have a background in fashion? Sewing?

AH: My career prior to Nubian Skin has been very finance focused, although I did take a year break from work several years ago when I took sewing and pattern cutting classes.

PFC: Who created the first prototype of the lingerie that you sell? Did you put it together yourself?

AH: The designs are quite basic, so design-wise it’s not too complicated.  I had a very clear idea of what I wanted, so I worked directly with the manufacturer to create the design, colours and look that I wanted. 

 PFC: You’re very young to be the CEO of a company that has an international footprint/presence. Did you face any hurdles in terms of getting your product in stores being so young?

AH: I haven’t faced issues being young, but more with being a young company. The biggest hurdle to overcome at the start was finding a good quality manufacturer, and as a new and small business, a lot of manufacturers simply didn’t respond to queries, and others were looking for incredibly high volumes, so it was tricky. 

PFC: Did you or do you have any mentors who helped point you in the right direction when you were just starting out? If so, how often do you speak to them?

AH: My parents are both entrepreneurs and they have such a wealth of experience. I speak to them almost every day. Getting good advice is incredibly important especially if you're new to an industry, so I found a great consultant at the start, and continue to consult with her regularly.

PFC: What’s a typical workday like for you? In the beginning stages of forming a company, is there any work-life balance or is it all 

AH: There is no typical day. Usually as soon as I wake up I look through emails on my phone. Then I’ll check Twitter, Instagram and Facebook to see what people have said - it’s a great way to get direct feedback from customers or potential customers.

After that, I head to the office to really get started. I'll have different priorities each day, whether that’s meetings, changing something on the website, logistics, finance, coming up with new ideas, visiting a manufacturer or helping to process different orders.

PFC: What role does social media play in your company?

AH: Social media has been amazing for us, and it's how we got the word out. It really allows us to get a feel for our customers, what they want and what they love. It also gives Nubian Skin the chance to showcase its personality, communicate and gather feedback which is incredibly valuable.

PFC: What do you consider your biggest achievement in the company? What’s the biggest mistake you’ve ever made within the company?

AH: I’d say that the biggest achievement getting this out there, and to have major retailer pick it up shows how important it is to cater to under-served customers. I haven't made any detrimental mistakes, and hopefully I won't. I learn so much each day.

PFC: What CEO or person in general inspires you to do what you do?

AH: My family. They are wonderful.  My mother is an incredible woman, and my father cannot do enough for his family.  They are both entrepreneurs, and they’ve set a great example for me.

PFC: When you were in college, did you ever think that you would be spearheading an international lingerie company?

AH: I always wanted to be an entrepreneur. Lingerie was never a thought though.

PFC: What are three major things that you’ve learned as a result of running your own business?

AH: 1) I can handle a lot more stress than I thought. 

2) It is incredibly important to have a great support base.

3) You have to be grateful.

PFC: What advice would you give to those who are interested in starting their own company?

AH: Firstly, it’s really important to research your idea to make sure that whatever it is, it’s valid. Make sure you really believe in the idea especially if you’re working in another job. If you’re up at 2 am or 4 am working on this, then you want to believe in it. You also need to be willing to work really hard. Everybody who is going to start something anticipates that it’s going to be difficult, and that it’s going to be hard, but it will be so much more difficult and so much harder than you can prepare yourself for. And also – have faith in yourself. If you don’t believe in yourself, then who will?

PFC: What are the downsides of being an entrepreneur? The perks?

AH: One downside is the element of risk! The biggest perk is that you’re working on something you love!

PFC: Why’d you decide to headquarter the company in England as opposed to the United States? How big is the market for lingerie for women of color in England and Europe?

AH: I decided to headquarter in London because this is where I live. The market for lingerie for women of colour is big here, but the US is definitely key.

PFC: Are you looking to eventually open up stores in the United States?

AH: We'll have to see how it goes, but it would be amazing.

PFC: Your collection was recently picked up by Nordstrom’s in America and was made available in stores in Portugal. What was the process of forging those business relationships like?

AH: It takes a lot of perseverance, particularly when you’re a new company! 

Tradeshows have been good for us because it's a chance to meet all sorts of buyers.

PFC: Your four signature colors are “Berry”, “Cinnamon”, “Caramel”, and “Café Au Lait”. Do you have plans to come out with any other hues? Can you look at a woman and automatically tell what “flavor” would best suit her?

AH:We don’t currently have any plans to come out with any hues – although we would look into it if the demand was there, but for now these four colours work really well. I do tend to have a good idea of which “flavor” would suit each woman best – after all I did spend a year coming up with the colours! 

PFC: Thanks so much again, Ade, and best of luck to you and your company!

In Order to Be Successful, We Must Be Decisive and Singularly Focused

Hey everyone.

Today's topic is about two articles I read a few months back that had a major impact on me. The first was an article from Business Insider about how rich people are decisive. By "decisive", the author of the article was referring to the fact that people who obtained or created massive amounts of wealth were able to quickly and confidently come to decisions, and changed those decisions very slowly if and when they needed to.

The second article was about how you need to focus on one thing in order to be successful. 

Why did these articles have such an impact on me? Well, I'll tell you that sometimes I have had trouble making decisions. Not decisions about what to eat or what to wear or what to do with my weekends. I actually make those decisions fairly quickly and easily. In fact, I've never understood why someone would have trouble making those sorts of decisions. I mean, those types of decisions are so inconsequential. The decisions I have had trouble making as of late have pertained to my professional life.

You see, I have a lot of ideas that pop into my head about how to make money. In fact, ever since college, I've been trying out various ideas about how to make money quickly - or at least more quickly than just through hard labor. I've tried investing in the stock market, playing poker, and playing fantasy sports. I've also thought about turning my law firm into a law firm that focuses exclusively on medical marijuana given that New York State has recently passed medical marijuana legislation and given that there are no law firms that focus exclusively on medical marijuana in New York State. 

The truth of the matter though is that there are a lot of ideas out there in the ether that can make one a pile of money. However, if we are indecisive and try to execute on all of the ideas that we have in our head at once, then we will undoubtedly fail. The reason for this is that it's virtually impossible to achieve any level of excellence within a field while trying to be excellent in another area also.

What's more - and I know this from personal experience - all  of this wavering back and forth about what route to take will leave you feeling absolutely exhausted and unmotivated! And it's really hard to be successful when you're not particularly motivated. 

So what's the moral of the story? Even if you're not an entrepreneur, if you you want to be successful, you have to make a decision about what exactly it is that you want and focus on one particular method of achieving. And if you're having a tough time trying to figure out what route you want to take or what you want to focus on, here are 3 actionable pointers to help you make the best choice.

1) Figure out what your priorities are in life. What do you value most? What is the most important thing to you? Is it family? Is it money?

2) Choose the route that you believe in the most. That is to say, choose whatever choice you care about the most or aligns most closely with your values. If you listen to your heart, you know what route this is.

3) Realize that if you make a decision, and it turns out to not be working for you, you can usually change it. Very few decisions are absolutely immutable.

 Fortunately, all of the pointers above are simple in theory and simple to execute. Lastly, guys and girls, be sure to check out my Facebook page where I give out free finance tips of the day, along with my YouTube channnel where I break down complex financial concepts.

Stay tuned!

JP $

The Daily Dollar: The Power of Dividends