EQ VS IQ-Its Effect on Career Success and “Geekiness”
I read with interest this article on Emotional Intelligence recommended by Michael Kitces as part of his recent weekend reading recommendations for financial planners. Its premise is that high “EQ,” or Emotional Quotient, is a greater determinant of career success than IQ, but that the correlation may be overstated. As someone who has worked in both high EQ and IQ fields, I have often reflected on this topic. Certainly, a combination of the two quotients is optimum, and I strongly believe that these softer emotional skills can be cultivated and enhanced.
I have had the opportunity in my career to work with extremely brilliant individuals who unfortunately could not communicate their ideas in a way that was universally understood. Characteristically, these types often avoid eye contact and have a difficult time understanding the ebb and flow of conversation. What good is your knowledge if you can’t socially connect to your audience?
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Market Mayhem- Let’s Do the Twist
I spoke with the morning crew at WLTX about the current market mayhem. Here is a copy of the clip and some additional commentary below:
What is the reason for the market decline?
Financial markets declined due to the announcement from the Federal Reserve this week regarding a strategy called Operation Twist. While this was already expected, there was anticipation that the Federal Reserve would announce some additional measures to prop up the economy. Instead they warned of “significant risks to the economy” and did not provide any further anecdotes for the sluggish recovery.
What is Operation Twist?
It is a mechanism by which the Federal Reserve will attempt to lower longer term interest rates, particularly mortgage rates, in order to stimulate lending and invigorate the economy. They will buy $400B of US treasuries with 6-30 year maturities through next June and will also sell and equal amount of short term Treasuries. This will “flatten” the yield curve. Unfortunately, this move will help debtors but hurt savers.
Will this help the economy?
If you look at how financial markets responded, they are telling us that there is not a lot of confidence in this strategy. Prospective buyers are not buying homes because rates aren’t low enough, they aren’t buying homes because housing prices are still declining, credit is tough to obtain unless they have excellent credit scores, and banks are requiring decent down payments.
Plus, this reduction in long term interest rates will have other negative consequences. It will hurt banks, which rely on the spread of short term and long term rates for profits, as well as insurance companies and pension funds who use longer term Treasuries to meet their obligations.
Unfortunately, the effect of monetary policy on the economy at this point is limited as we are already have historically low interest rates and high money supply. This leaves us with the alternative of fiscal policy which will be tough given the divisions in Congress.
This is a crisis of confidence; and, Americans need more certainty with respect to their future. Solutions are required to address the oversupply of housing and indebtedness of homeowners, the stubborn unemployment rate, and lack of clarity on long term taxes and regulations.
What is an investor to do? Here are some financial mistakes you want to avoid in the midst of this volatile market.
What Not To Do:
- Stop contributing to your 401K.
Don’t get too scared of the market and stop contributing to your 401K or move to cash. You need these contributions and growth over the long term to reach your goals so focus on the fact that most often markets will recover losses over 3-5 years periods so as long as you don’t need the money now you should not be cashing out as you lock in the losses.
- Jump on the “bubble” bandwagon.
Investors should not rely on one asset class that seems to be on a tear (like gold) to bail them out of these meltdowns. Holding a diversified mix of assets is the best protection against this volatility. Exposing yourself to only one asset class just increases your risk. Remember what happened to real estate, which was a “sure thing” only a few years ago.
- Don’t just sit there.
Paralysis and procrastination are also not ideal. Have a methodical plan and stick to it. Re-balancing is something you can do that is constructive, as you buy low and sell high. This may be a great time to see a financial planner so that he or she can put together a comprehensive financial plan for you.
- Take an early retirement.
People who retire in the midst of a market downturn (or at periods of high valuations) are at greater risk of outliving their funds. Make sure to rerun your projections and or adjust spending to improve your chance of success. If you can work longer; even a year or two can make a huge difference.
- Focus on spending the money on short term expenses.
When people experience sharp market downturns like we have had recently, they are more likely to “spend for the day” because they are concerned what the put aside will only lose value quickly. Make sure that you are not jeopardizing your long term goals.
Join me this Monday between 5-7AM on WLTX Channel 19 for “Money Monday”. I will discuss this topic and take viewer questions.
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Money Monday- Test Your Financial IQ
This morning I spoke with Nat and Curtis on WLTX Channel 19 about how to become more financially fit as well as knowledgeable. Here is a copy of the clip. Your financial life means much more than must your investments. It also centers around proper cash flow management, insurance planning, estate planning and retirement planning. Most comprehensive fee-only financial planners, like myself, are similar to “general practitioners” for your finances; so if you are sick in some of these areas, you may need a little help. In fact, most Americans score a D on this quiz. See how you fare:
Financial Health Quiz- Answer Yes or No to the following questions:
Do you have an emergency fund of at least three months’ living expenses?
Having cash reserves of three to six months expenses outside of your retirement accounts will provide a cushion when you are most vulnerable due to unemployment or illness.
Do you follow a monthly budget?
This is the most important question as cash flow is the lifeblood of financial plan. If you aren’t aware of how much income after taxes is coming in and how much is going out, you will have not control over your important financial goals. Start getting a handle on this today by using tools such as mint.com or quicken.com.
Are you contributing at least 10% to your retirement fund at work?
This is a minimum goal. If you are young 10% may be adequate; if you are starting to save later in life 15% or 20%+ may be more appropriate. The number will also depend on the amount of reliable income you can rely on in retirement such as a a pension and your Social Security benefit.
Do you have a will?
This is important, as roughly 50% of people die without estate planning documents in place. An untimely death could result in a lengthy, costly and complicated probate process. Provide clarity not confusion upon your death. Also make sure to properly title your accounts so that your wishes are carried out and that you avoid probate. You should review your titling once a year to confirm that your primary and secondary beneficiaries are accurate.
Are you properly insured and do you shop around for the best insurance quotes?
Unfortunately, if you are like most Americans, you are woefully under insured and are at risk of major financial problems in the event of a death, disability, or property/ liability claim. Make sure to do an insurance review every two or three years and shop around for the best prices for appropriate coverage.
Do you check you credit report annually?
This is an important report as many prospective employers and landlords will check this. A poor or inaccurate report could prevent you from getting the best rates on a loan. You can check this for free annually at credit.com or creditkarma.com.
How many of these questions did you answer “No” to?
1-2 “B”
3 “C”
4 “D”
more than 4 “F”
How did you do? If you scored a C or worse, it is time to make your finances a higher priority on your list.
If you did well and want to test your financial IQ, here is another True- False quiz:
True or False?
1. A bear market is a period of time in which stock prices move upward. (False; stocks move downward during bear markets).
2. An equity is a stock or any other security, like a mutual fund representing an ownership interest. True.
3. When interest rates rise the prices of bonds increase. False; they decrease. Rates are at historic lows, so bonds may have limited potential going forward.
4. Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost. True. For example, if you have $100,000 in a savings account with a 1% yield (earning 1% interest), you will have $1,000 in income for the year.
5. Fiscal Policy is….actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. False; this is the definition of monetary policy.
6. Quantitative Easing- monetary policy used to increase the money supply. The Federal Reserve buys government securities thereby increasing the money supply and decreasing interest rates to improve lending and liquidity. True. The Federal Reserve just finished QE2 (or quantitative easing round two) and may propose a third round in the near future due to concerns over the economic recovery.
If you got over half of these wrong you need to do more homework. Subscribe to a personal finance magazine; do a web search each time you find a financial term you don’t understand; and, of course, watch WLTX on Money Mondays between 5 and 7AM for the latest in financial news and insight as well as financial tips.
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Brokers versus Fiduciary Advisors
I really enjoyed this blog post by Michael Kitces; especially the entertaining video about the differences between brokers and fiduciary advisors. For more on that topic see my previous press release on this topic here.
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Happiness Means Having a Financial Plan
Happiness is correlated with having a financial plan, yet most Boomers don’t have one. Fifty-five percent of boomers who have a financial plan are happy compared to 31% without, while 37% are relieved, versus 22% of those without.The top three pieces of advice that boomers and pre-boomers recommend for the next generation are: start saving earlier, pay off your mortgage faster and save more money. See article.
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Six Steps to Finding a Great Advisor
The Garrett Planning Network is mentioned in this Kiplinger’s article on how to find the adviser that is right for you. Choose a fee-only adviser who does not accept commissions.
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