The Link between Golf and Investing



Market Turbulences

We can learn from famous characters who are known to project both positive and negative outlooks to the world in the face of dilemmas. While Chicken Little screams, “The sky is falling,” leading everyone to believe disaster is forthcoming, Shrek reassures the world, “Change is good, Donkey.”  Last week’s Alberta election saw  the toppling of both the PC government that had been in power for forty-four years and the TSX Composite Index, frightening investors who have a stake in the province’s energy sector.  Some may have seen this as the sky is falling while others took on the view that change is good.

On my recent trip to Medicine Hat, known as “The Gas City” in Alberta, I didn’t see hordes of “For Sale” signs posted on peoples’ lawns. Many jokingly predicted Albertans would move to their neighboring province, Saskatchewan.  On the contrary, the scene in Alberta appeared to be “business as usual” with people shopping in local stores, cleaning their yards, eating in restaurants, and fueling their vehicles.  Supporting the economy in the usual ways appeared to be the norm.  

The lesson to be learned from this recent event is that markets will always react to change – both positively and negatively.  Even a change in a provincial election can spur uncertainty.  If there is something investors do not react well to, it is “uncertainty.”

 

You need to be reassured about the importance of sticking to your investment plan and weathering the market storms.  As the new golf season opens and Canadians head onto the golf courses, this is an appropriate time to share the correlation between golf and investing. David Cork presents the similarities in his book, Bulls, Bears and Pigs (Published in 2005).   Some information never gets old.  On the contrary, you will appreciate the insight on how golfing and investing are related.  Learning to maneuver around the sand traps meticulously placed on a golf course can also be a much-needed lesson to maneuver around the sand traps in unexpected investment markets. 

 

Similarities between Golf and Investing

As a golfer, you fully understand the challenges which come with playing the game. Understanding the value of learning the game well helps you achieve the perfect score according to your standards. Investing is similar. Understanding the value of strategies helps you achieve the perfect returns from your money.  David shares eighteen similarities between golf and investing which coincidentally coincide with the number of holes on a golf course. How intriguing!  In fairness to the author and to entice you to read more from his book, I will only share some of the similarities:       

1^st. Both golfing and investing are counterintuitive.  I know you are probably asking, “What does that mean?”  Simply put, we do the opposite of what’s considered to be normal, the way things are supposed to happen.  David shares:

 “Think about it.  With golf, you have to hit down to make the ball go up.  If you swing harder, the ball generally doesn’t go as far.  The higher the number on the club, the shorter the distance the ball travels. It’s hard to convince yourself to do what you need to be successful.”

“Now think about the most famous statement in the investing world:  buy low and sell high.  Completely counterintuitive.  What this statement is saying, really, is buy when things don’t necessarily look great and sell when they do look great.”

 

2^nd. Starting early is beneficial.  When you have a goal in mind, the importance of beginning sooner rather than later will help you achieve that goal. David links how this truth applies to both golf and investing.

“Both your investments and your golf game benefit when you have a head start.  With investing, it’s critical to have enough time to allow interest to compound; with golf, starting young means having time to develop the proper swing mechanics.  But there are recourses in both golf and investing if you do start late.”

“The resource is the same. You have to work much harder. I know great golfers who came to the game late.  They’ve had to practice their tails off to get good.  Now the key with investing is you have to be prepared to catch up by contributing a larger percentage of your income than you might have had to if you had started young.”

3^rd. Pressure can take its toll on you as a golfer and investor.  If you put too much pressure on yourself to achieve the perfect golf score, you likely will not perform consistently every time you play. Likewise, the same can be true about staying in the markets when panic overpowers you to exit at the first indication of turbulences. David’s take on this matter is:

“Most people don’t perform well under pressure.  I play with one guy who folds like a tent if you bet a quarter on his next putt.  Even pros can fold under pressure.  Once they’ve mastered the game, they have to learn how to play under the intense pressure of tournament golf.  Some of the most talented players don’t make the big time simply because they can’t handle the pressure.”

“And many investors have trouble handling the pressure of market fluctuations. Golfers need to deal with the pressure of key shots at all levels of play.  Similarly, investors need to learn to cope with the stress of volatility, or they will forever struggle in the market.”

His advice to deal with pressure is:  “If you constantly strive for perfection, you’ll drive yourself crazy, and you’ll never get there anyway.  Know the game, know yourself, and learn to play to your potential – then relax and enjoy the process.”

Learning the Game

If you conduct a “Google” search about similarities between golf and investing, you would be surprised to discover the number of articles on this topic.  The remarkable fact is people write, sharing their knowledge from their own experiences and others, to help you understand and learn the process.  The secret to being successful, whether it is learning to golf or invest, is to put into practice valuable lessons dropped into your hands.  If the investment markets tend to frighten you, learning the game of investing will take away some of your fears. 

Here’s food for thought:

                                       What you hear, you forget.

                                       What you see, you remember.

                                       What you do, you understand!

At today’s low interest rates, you may have to jump into the markets simply to earn a higher return to fund your dreams.

• Approach the markets with caution.
• Start slow.
• Learn by doing.

 

 

 

When It's Time . . .

You arrive a junction in your life when all the preparation you did for retirement is now here.  It’s like a banquet. All the food preparation is complete; now it’s time to feast. In March, the blogs focused on “Retirement Planning” which certainly is an important topic, considering we are all heading in this direction.  Understanding how to create a retirement income with your hard-earned, scrimped-and-saved dollars is an overwhelming and often confusing task. 

Along comes Daryl Diamond, a retirement authority, who takes “complicated” and once again simplifies the process into a logical format anyone can clearly understand.  The mystery of arranging your investments is unraveled so that you have peace of mind knowing you can minimize risk and earn a reasonable rate of return. 

How can you tell Daryl Diamond is my favorite retirement expert?  It’s probably obvious that his name, along with his books, have been mentioned in three blogs including this one.  In 1993, Daryl developed a retirement income process, he dubbed “The Cash Wedge.”    The question he set out to answer was, “how do we maximize returns and minimize risk while still participating in the markets?” 

People do not like risk.  They will do anything to protect their principal investments.  Who can blame them?  Markets can be a scary place to invest your money.  However, settling for rates of return which are between 1% and 2% over 1 to 5 year terms is also just as scary.  Those seeking a rate of return that is absolutely guaranteed may only do so with GIC investments (Guaranteed Investments Certificates).  Can we afford to park our investments at today’s rates for long periods of time?    

Imagine if you retire when you are 65, you can still expect to live for another 19.7 years based on the information shared here from Statistics Canada.  Investment withdrawals combined with benefits from Old Age Security and the Canada Pension Plan must work in conjunction to support your needs over this twenty-year period.  If longevity is prevalent in your family, then you need to prepare for a longer time frame.  The point to this tale is to look at the markets to optimize returns on your investments.  Sometimes it’s our lack of understanding that prevents us from doing so.  The information presented in “Can Investing be Easy” explains properly diversifying a combination of cash, fixed income, and equity investments is essential to maximize rates of return.

Once we have our retirement nest egg built, we suddenly feel reluctant to stay in the markets.  The tendency is to protect the money earned from income and equity investments by shifting the majority into GIC investments.  However, your time horizon in retirement is still ten years or greater.  So what’s the answer?   Implement the “Cash Wedge Investment Strategy.”  

Daryl Diamond’s “Cash Wedge Investment Strategy” is shared in his books, Buying Time and Your Retirement Income Blueprint.  The concept recommends that our overall investments have a built-in safety feature for protection from volatile markets by simply allocating a portion to guaranteed investments or money market funds to cover three-years of annual lifestyle expenses.  Our “Cash Wedge” is the money expected to be withdrawn and spent in the current year.  Since markets generally recover within three years from any downturn in the markets, having an additional two years in guaranteed investments is for added protection. The remainder of the investments is held in fixed income and equity mutual funds which may even include a combination of individual interest-bearing or dividend-paying securities.

 

In Daryl’s blog, The Cash Wedge: An Income Delivery Process, the above diagram illustrates how this strategy is achieved.  The illustration shows the distribution of your portfolio to the different asset groups: 

 

• Money Market Fund
• 1 Year Bond/GIC
• 2 Year Bond/GIC
• Fixed-Income
• Equity Funds

These proportions would be tailored specifically to your particular needs and risk tolerance.  

Since our expectation is to earn returns higher than GIC investments, this is possible with exposure in the markets.  When the bond and equity markets are performing well shifting the gains (profits) to replenish the “Cash Wedge” will extend the life of your retirement income.  If the bond and equity markets are under-performing, then withdrawals will be made from the guaranteed investments.   Working closely with an investment advisor with the knowledge and expertise to walk us through this process is recommended.

 “The Cash Wedge” is our safeguard against unpredictable markets.   Positioning a specific amount of our retirement income in safe investments for the allotted time frame of three years offers peace of mind knowing that changes are not required to our lifestyle.  We will have established a consistent stream of income regardless of market conditions.

 

To learn more, Daryl Diamond provides explicit details about creating your Cash Wedge at his website, www.boomersblueprint.com.   Click here for his three parts series.  

 

 

 

An Everlasting Impression

 

 

 

Ronald Read’s Story

Until Ronald Read made the headlines in early February, most did not know of him. From multiple articles, we learn Ronald Read was an “unbelievably frugal” man with a generous heart.  He led a modest life, working with his brother as a mechanic for 25 years.  After the garage was sold, he took a part-time job as a janitor for JC Penny for 17 years.  Mr. Read was born in the small town of Dummerston, Vermont, in 1921.  Like many stories we hear today from parents and grandparents, he, too, had to walk to school, a distance of four miles from his home, to obtain an education.    He was the only member of his family to graduate from high school.  After his military service in World War II, he contently returned to his hometown where he took up his occupation as a mechanic.  In 1960 Ronald married Barbara March, a mother of two children.   Barbara passed away in 1970; Ronald remained a widower until his passing in June, 2014, at the age of 92.     

People may not have paid much attention to him or his activities but one thing is for certain, he did something well.  He was an astute student.  His textbook on investing was the Wall Street Journal.  His vocation went beyond his menial tasks as a mechanic and janitor; he had a knack for picking rock-solid, dividend-paying stocks which rewarded him royally over the years.  He had the foresight to stay on course.  He stayed invested and kept on investing.  Mr. Read may have never read the book, “Automatic Millionaire” by David Bach, yet he put into practice the steps which not only made him a millionaire but a multi-millionaire. 

The heart-warming part of his story is the generosity he showered upon his community, the beneficiaries of his treasure.   From his accumulated wealth, Ronald Read bequeathed $4.8 million to the Brattleboro Memorial Hospital and $1.2 million to the town’s Brooks Memorial Library.  

After Mr. Read’s story was released to the public, many questioned how he obtained such wealth on a modest income.  As of last count, 319 comments appeared under CNBC’s storyline, Here’s how a janitor amassed an $8M fortune.  The quest for an answer began with an examination of his lifestyle.

Lessons Learned from Ronald Read

Surely, if Mr. Read faithfully read the Wall Street Journal, as many people attested he did, he no doubt heeded the advice from Warren Buffett, world’s most successful investor and wealthiest person.  Mr. Read may have digested words of wisdom about investing from this well-known guru and teacher. One such message, “Never invest in a business you can’t understand” attests to his choice of investments in AT&T, Bank of America, CVS, Deere, GE and General Motors.  Regardless, whatever investment advice Mr. Read gleaned from the Wall Street Journal’s teachers, he demonstrated their advice was rock-solid.

There’s a lesson in everyone’s story.  In an interview with Chris Horgan, a strategist with Ramsey Solutions, Chris delivered a message to both investor and advisor.  

·         For the investor, your part is “to identify how much you want to save and how much you want to give away, then figure out how to get there with the help of an investment professional.”

·         For advisors, you need to be “someone who has the heart of a teacher and not someone trying to sell stuff.”

Chris Horgan’s closing comment clinched the importance of investing. "It can be done. In America we need to start believing back in the American dream and stop buying the stuff that's on commercials."   The word, dream, is key.  We are so easily swayed by things we don’t want or need that we lose sight of things that we do.  We simply stop dreaming because things appear unattainable. Regardless of the amount of a person’s salary, we can achieve the dream if we are determined to put effort into working and saving. We have Ronald Read as a role model who clearly confirmed that acquiring wealth is possible.

Everlasting Impression

Mr. Read’s fascinating story left a number of impressions. I wasn’t sure which one made the greatest impact: 

·         His ability to save and invest

(or)

·         His ability to be unselfish and put the needs of others before his own.

Then I decided I did not have to choose, I can accept the fact all these points made an everlasting impression.

You, too, will draw your own conclusions from Mr. Read’s story.  When I think of making “an everlasting impression,” I will think of Mr. Read.  Although he didn’t make his fortune from owning a multi-billion dollar corporation, he did own pieces of multiple companies by buying their stocks.   He applied the slow-and-steady, invest-in-what-you-know investment strategy which led to the accumulation of wealth.  In the end, his family and community benefited by his generous donations because of his choice of life and investment styles.

 



Can Investing Actually Be Easy?

Most people have the perception that investing is complicated.  Making decisions about suitable investments, anticipating whether the markets are headed north or south, and then timing the sale to reap a profit can be overwhelming.   

Investors often hear common phrases such as:

“It’s not timing the market; it’s time in the market.”

“Buy low. Sell high.”

“Buy and hold”. 

Although there is truth in these messages, everyone’s investment strategies are different.  When considering appropriate investments for you, you want to take the appropriate steps.  Confucius, a philosopher, said, “What you hear, you forget. What you see, you remember. What you do, you understand.”  You need to arrive at the point where you understand investing; this will only happen when you take some interest in the process.

To help understand the world of investments, let’s follow a few basic steps.

 1^st Step: Set the Ground Rules

Making choices about the appropriate investments clearly starts with identifying your goals, dreams, and aspirations.  This important step cannot be ignored.  For obvious reasons, your goals will dictate the appropriate investments to align within your time horizon.

2^nd Step: Define the Time Lines

Knowing when you want to accomplish something for the purpose of investing is important if you want the money to be ready when you are.  Whether you are buying a new vehicle next year, planning your elaborate vacation in five years, or saving for retirement over thirty years, you must pace your investment strategy.  Gradually tucking money aside for each important activity is vital, so you are not cramming to save as the deadline looms closer.    

3^rd Step: Select the Appropriate Investments

Diversify, diversify, diversify!  Don’t keep all your eggs in one basket!  How many times have you heard that phrase?

When you are starting to invest, you may not understand the world markets.  The terminology may be enough to either scare or intimidate you.  The word, “risk”, makes you want to run.  Yet if you think about different types of investments as food, investing is not so intimidating.  Here’s your menu:

Light Stuff = Salad

Medium Stuff = Vegetables and Potatoes

Heavy Stuff = Meat and Fish (food with more substance)

Now compare this menu to your present diet. Common sense says you should eat a balanced diet. That’s true.  Yet everyones’ likes are different.  You are unique.  You are not like your neighbor, your best friend, or any of your family members.  Therefore, you select your portion size based on your needs and health requirements.  This holds true for selecting your investments.

In the investment world as in your food world, your choices are the same: light, medium, and heavy stuff.

Deposit-Based investments (Light Stuff) consist of savings accounts, guaranteed investments, and money market funds.  These are your “liquid investments” or investments you can turn quickly into cash.  When you use these types of accounts, your intention is to ensure your money remains safe and the value does not fluctuate.

Income-Based investments (Medium Stuff) are also referred to as fixed income investments.  These investments can be fairly liquid because they are primarily invested in government and corporate bonds.  With income-based investments, you are lending your money to the government or a corporation who in turn pays you interest.  Although a loss on these investments is possible, the threat is minimal.     

Equity-Based investments (Heavy Stuff) involve ownership in publicly traded corporations.  You own a piece of these companies, either directly by purchasing common shares or indirectly through mutual fund investments. Your expectation is either to be paid dividends for your vested interest in companies or to have your investment increase in value. 

4^th Step: Choose the Weighting to Match Your Investment Needs

Do you get queasy when markets fluctuate?  The ride experienced in the markets can be compared to the same ride experienced on a roller coaster: peaks and valleys, highs and lows, good and bad times! Your reaction provides a clear indication of how much risk you are willing to take with your money.  How well you handle the rise and fall in the value of any investment is a measurement of risk tolerance.  

Choosing the percentage allocated to each investment (or asset class) is matched closely with your risk tolerance.  Each investment type is gauged according to low, medium, or high risk. This in turn is linked closely to the rate of return earned at any given time in the market.  When you hear, “asset allocation,” this, in essence, is what you are doing.  You determine how much money you will allocate to bonds versus stocks. You determine your comfort level.

Remember the portions of your balanced diet are similar to the portions of your investments which are related to your saving purpose, time horizon, and risk tolerance. Some examples are:

• You may choose to invest 100% in strictly deposit investments if your vehicle purchase occurs in a year.
• You may choose to invest 25% in deposit investments and 75% in income investment for your trip to Hawaii occurring in five years.
• You may choose to invest 20% in income investments and 80% in equity investments for your retirement occurring in thirty years.     

Understanding the different types of investors helps you recognize who you are so you can select the appropriate investment strategy; BUT remember you can be several investor types simply because you have different purposes for investing with different time horizons.  It’s like having multiple personalities, depending on the situation, yet you are still the same person.  

Here are some examples of investor types with respective allocations (estimated). Determine which aligns with your investment needs.  

Investor Type	Investor Description	Investment Allocation
Safe Investor	Very Conservative	100% Deposit Investments
Income Investor	Conservative	80% Income-20% Equity
Income-Growth Investor	Moderately Conservative	60% Income-40% Equity
Balanced Investor	Moderate	40% Income-60% Equity
Growth Investor	Moderately Aggressive	20% Income-80% Equity
High Growth Investor	Very Aggressive	100% Equity

Final Step: Payoff–Getting Your “Big Toe” Wet

Taking an active part in your investment strategy by understanding the different types of investments will help accomplish your dreams. 

•      The dream retirement
•      The dream vacation
•      The dream vehicle

You need to ensure your investments are going to make your dreams a reality.  There’s two parts to growing your investments.

           ONE: The money you put into the investment account.

           TWO: The money you earn on the money you invest.

You do your part.  The markets will do theirs in helping you build wealth to fuel your dreams.