Knowledge is Power

from Persephone - Friday, August 08, 2003
accessed 1648 times

Knowledge is power – especially when it comes to managing money.

For anyone that is looking to expand their knowledge of the money world, here’s a list of books that I found particularly helpful:

For anyone interested in learning how to minimize risk, learn to understand the way the investment worlds works, as well as find out about the dirty secrets of Wall Street that most investment firms don’t want you to know, the book “ Take on the Street ” is pretty good. It is written by Arthur Levitt , former chairman of the Securities Exchange Commission & endorsed by Warren Buffet, the most brilliant investor of our time. For those not already familiar with investment terminology, parts of it might seem a bit technical and difficult to understand, but otherwise it has a lot of very good information.

For those interested in a new outlook on a broad range of money related issues including pension planning, estate planning & retirement, the books by Stephen M. Pollan & Mark Levine present the latest paradigm shift in this facet of planning & living. His book, “ Die Broke ” lays down the basic philosophy, which is: Quit today; pay cash; don’t retire; die broke (die broke, in this sense does not mean dying poor). His second book, “ Live Rich ” expands on the first principles with day-to-day specifics to allow you the freedom to live rich and is based on the philosophies of: Make money; Don’t grow, change; Take charge; Become a mercenary. One of his other books that I found helpful is, “ The Die Broke Complete Guide to Money ” which is unconventional wisdom on everything you could ever hope to know regarding the world of investment, looking for employment, negotiating raises – it’s a massive book.

Stephen M. Pollan is an investment lawyer and these books contain the advice and wisdom that he has been using with his clients over the last decade or more. While there are a number of concepts in his books that I do not plan to implement in my own financial life, the remaining information is absolutely excellent.

For anyone interested in creating wealth through passive investments, the books by Robert T. Kiyosaki and his circle of advisors are great. Robert Kiyosaki is a self-made multi-millionaire and his books reflect the wisdom that was passed on to him by his best friend’s father while growing up in Hawaii. The original book was titled “ Rich Dad, Poor Dad ”. There are now dozens of books in this series and I haven’t read them all. Of the ones that I have read, I have found the following titles to have very useful information:

“ Rich Dad, Poor Dad ”
“ The Cashflow Quadrant ”
“ What the Rich Invest in that the Poor and the Middle Class Do Not ”
“ Tax Loopholes of the Rich ” – Dianne Kennedy with Robert T. Kiyosaki
“ Real Estate Riches ” – Dolf De Roos with Robert T. Kiyosaki (this is not a how to book, only a why to).

For those who are creative &/or inventors, the “ Great American Idea Book ” is a very good run-down on everything that goes into the process of creating & protecting your creations. The book is a bit older (published in 1995) and since laws do change, some of the information might be a little outdated; written by Bob Coleman and Deborah Neville . It covers books, movies, music, inventions, businesses, and a host of other less tangible topics.

For a crash course in starting, running and marketing a small business, Bob Adams ’ “ Small Business Start-Up ” is quite good. Along this line, "The E-Myth Revisited" by Micheal E. Gerber is also helpful. While I didn't quite care for the style in which the book was written, the insight into the main reasons why most businesses fail in their first few years was helpful.

For those who would just like to get their finances in order, pull out of debt and get financially organized, the books by Suze Orman are OK. They are “ Nine Steps to Financial Freedom ” and “ The Courage to Be Rich ”. Most of the information contained in these books is pretty basic common sense practical advice. Personally what I found to be most interesting was her specifics on how to protect your financial assets when going through a marriage or divorce &/or when there is a death in the family (found in “The Courage to Be Rich”). For those who know absolutely nothing about bonds, annuities and mutual funds, the book “Courage to Be Rich” also provides very simple explanations easy for the beginner to understand. I did find these books to be somewhat “self-help”, as well as kind of “preachy” about God, but aside from that, they cover the basics pretty well.

For anybody that believes (or wants to believe) that what you think is as important as what you do, both “ Think and Grow Rich ” by Napoleon Hill & “ The One Minute Millionaire ” by Robert G. Allen are both great. “Think and Grow Rich” was originally published in 1937. The philosophies it contains were ground breaking when it was written and are still amazing in this day and age. Supposedly, this book has made thousands of people extremely wealthy. “The One Minute Millionaire” is not a get-rich-quick book. I found it to be an expansion on the philosophies of “Think and Grow Rich”, with the exception of the fact that it the people who wrote it MIGHT be Mormon (I’m not sure, I’m just guessing) and as such, there are parts of the book that seem to contain traces of the Mormon way of belief. Most of the book is very good, but I seem to be highly allergic to books that get religious in any way shape or form.

I’m always on the hunt for more information; so if anyone has a suggestion of some good, sound reading material, please post it!

None of these books can take the place of a real life financial advisor, but they can be helpful in giving a person ideas for which direction they want to go financially & this can help your financial advisor to know what it is that you want. If, for example you tell your financial advisor, “I want to follow the “Die Broke” & “Live Rich” financial philosophies” your financial advisor will know quite quickly where it is you’re coming from and get you headed in that direction.

Also, if, for example, you are sold on the “Rich Dad, Poor Dad” concepts of creating wealth through passive income, and you meet with your financial advisor only to find out that he/she has never read the books or doesn’t really know what you’re talking about, then you have a good clue that you might need to keep looking until you find someone that’s on the same wavelength and who can get you moving in the direction you want to go.

If you don’t know what it is that you want for your life financially, then you are pretty much left to taking your financial advisor’s advice in what he/she thinks is best for your life financially. Maybe I’m a control freak, but when it comes to my money, I like to be the one calling the shots and then let the financial advisor figure out the best way to get me there.

On the subject of financial advisors, a lot of people get burned every year and lose a lot of money by allowing others to tell them what to do with their money, when those people may or may not be qualified to do so.

The difficulty in the financial planning industry is that it is pretty much unregulated. Your hairdresser can hang a sign outside his store claiming to be a "financial planner". If the person who's doing your planning wants to sell you stocks/bonds/mutual funds/insurance, etc. (particularly if the compensation is no load -- fee-only/non commission) then there are certifications they have to obtain. But these are minimal, amounting to a mere fraction of what it takes to get just about any occupational license (real estate, hair dresser, inspector, etc.)
The fees that highly successful financial planners/advisors charge can go over $300 per hour. In large firms, the best-trained & most highly certified advisors are usually reserved for high volume clients. If a financial planner has spent a considerable amount of time as a broker, it may be that his/her take on the investment world is going to be through that particular lens. I'm not saying that the investment firms do not screen their advisors. They have to do it or their reputation is shot, I’m only saying that they may not always have a well-rounded financial background for your particular needs.

The way I understand it, any person that calls himself or herself a financial planner/advisor & that charges a fee for securities advice is usually required to register within their state and is required to register with the SEC. As such, they are titled a "Registered Investment Advisor". This is not a degree or certification of any sort, it merely means they've registered themselves as a financial planner/advisor. By law, this person must provide a prospective client with a document detailing their experience, their education, fees, any conflicts of interest and any other information that their potential client might need to be aware of to decide if the planner/advisor is competent and objective. Just because someone has RIA on their resume doesn't automatically mean they actually know what they are doing. Amazing as it sounds there are numerous "financial planners" that haven't even registered and don't provide this information to their clients.

Actual certification is given lowest to highest in terms such as CFP (Certified Financial Planner), CHFC (Chartered Financial Consultant), CFA (Chartered Financial Analyst) & finally MSFP & MSFS (Masters of Science in Financial Planning / Financial Services).

If you want your financial future planned by someone that really knows what he/she is doing, you go with an MSFP or an MSFS, but these specialists do not come cheap, and that is why I said in a previous post that you basically get what you are paying for.

Being handed a resume by a prospective financial advisor doesn't help much if you don't know what you're looking for. My advice is to try to find someone that has 1) experience in the insurance industry & has the license for this. 2) Charges by fee & not commission. 3) has a good financial background such as MBA or CPA. 4) Has experience in the investment/securities industry. 5) Is registered with the SEC as an RIA.

These are the basic standard recommendations that I've read over and over from the various sources that I've studied & which I hold to be true from my own experience.

If you don't have the time (or desire) to research these various points, you would be much safer going to one of the large financial institutions (such as the ones ThinkingDavinci recommended in his article “go see a money shrink”) rather than any of the smaller advisement firms while at the same time keeping in mind the particular angle financial advisors in those firms will be coming from.

Lastly, when it comes to the subject of financial planners, to quote someone I read recently, "Regardless of who you use or what method is employed, there is one element assuring greater competency by the planner. And that is where the client does an extensive amount of reading and research BEFORE engaging any professional. The more knowledge a client possesses and the more intelligently they can discuss critical issues with the adviser, the more beneficial the meeting and process will be. Everything else being equal, there is less risk in any venture the more one tries to understand the fundamentals of what the adviser is doing."