Interviewer: It seems that the idea of “Socially Responsible Investing” is very near and dear to your heart and become your #1 teaching platform with your clients – Why?
Zach: Like many of my investors, I believe I was put here on Earth for a reason and it wasn’t exclusively so I could earn a lot of money and think only of myself. I think most of us that think this way can visibly see tragedy and destruction in the world today but we also see hope and opportunities to do good. One of my core beliefs is that we literally create the world and economy we live in by how we decide to allocate and invest our resources. After doing a lot of research and study on how money works and flows through the world today, I was shocked to say the least at what I found. To make a long story short, we are not financially disconnected from the political, economic and social problems of the world today but rather we are very connected and our connectedness begins with how we spend and invest money.
Most people would be ill to find out they are accidentally funding through their savings and retirement accounts, organizations and causes that don’t readily align with their value structure or promote well being in their local community.In fact, many of these investments are part of the system that ultimately makes our neighborhoods less safe, dilutes the education in our school systems and harms the moral development of our children. It lines bankers and politician’s pockets, funds war machines, eliminates local job opportunities and even allows corrupt organizations to stay in business because of their political connections and the appropriations that come with it.
Many wonder how these types of organizations continue to exist and the answer is simple – just watch where the money flows. Unfortunately, these are only a few examples of causes that are receiving “American investor financing” and I haven’t met a potential client yet who said they agreed with any of those issues so I believe it is very important to make sure my clients avoid funding the things they so strongly disagree with.
On the positive side of the things, there are many ways to significantly help and improve a local economy from a financial and well being standpoint. The forming of healthy relationships between investors and local entrepreneurs is a must for local economic growth and seeing virtuous principles come to pass. My clients have been very surprised to find these investments are both rewarding financially but feel great because of the tangible benevolent outcomes they can see with their own two eyes.
Interviewer: Zach, What do you feel is the most important issue facing investors today?
Zach: I think that’s a difficult question to answer because I think there are a number of things that are making investing very challenging today for investors. I think the market is sending a lot of confusing signals to everyone. We’ve never seen such a season with so many factors that are affecting and manipulating the markets – huge government bailouts of epic proportions, monumental capital injections by the Fed, the unwinding of the credit, mortgage, housing crises, new government involvement in the marketplace and industry and on top of all that, you have investor reactions by the people attempting to figure it all out.
If anyone was looking for a “sure bet” using the conventional investment tools of the past, I think they’re in for a big disappointment. On the other hand, I would say for those showing diligence and aren’t paralyzed by fear are finding a metropolis of profitable opportunities.
However, I think the biggest challenge right now, especially for the baby boomer generation, is to keep their eyes focused on NOT just protecting what they have but understanding, now more than ever, they need to be earning a strong R.O.I. moving forward into the future. I think it’s easy to allow our natural fears and inhibitions to guide us into a place of “security” by transitioning everything we have into “safe places” like the banks and secure investment instruments but the truth is that these are not long-term vehicles (nor are they as secure as what most would like to believe) and the market conditions we are experiencing now may not be as “short-term” as what we are all hoping for. In fact, all the economic data I can get my hands on suggests we are entering into what Alan Greenspan calls through his new book “The Age of Turbulence”.
I’m confident that as our economy continues to shift globally and governmental politics (on behalf of the new international community) play a bigger role in “protecting” and “regulating” the markets, investors definitely need a mentality shift in the way they approach their investments because the markets as we have known them have changed forever.
Interviewer: What does it look like for someone to adjust their mindset towards a better way of thinking and evaluating their investments?
Zach: I think the beginning of that conversation centers around who is really in control of an investor’s portfolio. The first major mindset shift is that it’s not your financial planner, investment advisor or insurance agent. It has to be known that the investor is the Chief Portfolio Manager who is ultimately responsible for due diligence and the ultimate decision-making. The investor may decide to delegate some of these roles to a professional but there is still a large leadership role that must be played from the investor’s standpoint. Many investors think they are delegating when their financial planner is calling all the shots and they have little knowledge or understanding of what’s really going on in the investment. The truth is they are really “abdicating” their responsibilities as an investor and given enough time, will probably pay dearly for it.
Once an investor understands they are the “intelligence center” of their investment strategy, they must commit (if they want to be successful) to some type of ongoing education curriculum about investments and basic economics. This overall mindset will dramatically help investors form more solid relationships and provide a concrete foundation for the investment to stand on – which ultimately reduces risk and improves performance.
Interviewer: What kind of education is suitable for someone aspiring to gain more control over his or her investments and financial future? Can it be accomplished through working with financial services industry agents or watching major news networks for their viewpoints?
Zach: Well, I have to answer that based on two different types of investors. The investor who is okay with “just seeing what happens” in their portfolio and isn’t overly concerned with being involved much with their money, may be better suited to take what the financial networks and the financial planners say as the absolute truth.
Unfortunately, for the investor wanting control, protection and the possibility for extraordinary returns – they don’t have that luxury. They understand that in order to accomplish results outside the mainstream,they’ll have to get their information outside the mainstream. They also recognize that, like it or not, every organization offering passive investments has their own agenda and their agenda may not always be consistent with the investor’s financial goals. So no, they can’t rely on major news networks and financial planners exclusively.
The good news is that the individuals and companies that provide the best, most high quality information are all very networked together and if you have a relationship with the right person, finding them and their resources is not difficult. In fact, that’s exactly what I provide for my clients.
Interviewer: If there were one particular area in investments or personal finance you would advise people to “maybe spend a little more time” in, what would it be?
Zach: That’s easy. Basic Economics. In only the last 10 years, we’ve seen two enormous bubbles affect our country and now the globe. In 1999, the dot.com bubble burst along with the stock market and in 2007, the real estate bubble burst. Investors obviously lost a lot of money in these busts I don’t think many people have a clue why. They don’t know the root causes or problems that turned the economy upside down so hard.
After a lot of research and study, I’ve discovered that the answer lies in very basic economics and few people alive today have even the most basic grasp of it– including those paid big salaries labeled “economists”. What I love about economics is that is begs the best question in the world – “Why”.
A very small number of investors were interested in why stocks were jumping 50 and 100% in only months back in 1998. Few really cared why real estate prices were climbing at 25% per year in 2005 – well above salaries and wages. The only “why” most investors asked themselves was “why” am I not selling everything I have to get into this “rising tide that will obviously carry all ships.”
Without a doubt, the scariest part is now that so many have either lost their retirement or even their homes in all of this mess, it still seems like few are asking “why” it all happened. I continuously hear the same politically motivated, totally disempowering commentary – “It’s just some “unpredictable market phenomenon” or “systemic risk from the financial sector” or just a bunch of greedy people who all had fun together.
The unfortunate part of those stories is that they provide no educational basis for an investor to plan effectively looking into the future. If there’s nothing learn from these huge events, then the investor just watched 10 years of economic history and has drawn no conclusions and is now a sitting duck for the next “economic tsunami” that may just wipe out everything he has.
The answer to all of this is just a little common sense and basic economics. Economics help investors understand why the economy is where it is and provides a basis for logical future evaluation based on very visible factors. There is no better information for an investor than that. The economic resources featured on the Education section of my website unveil the best resources and will take a novice to a near professional economist in only hours. You’d be amazed at how simple economics really is if you study it post-college and not in an academic textbook. The best economics books today are easy and fund to read and are incredibly insightful.
Interviewer: You mentioned briefly before about the financial planning industry and I know you spent a good amount of time working in that world, can you give us some thoughts generally about how it works, what you think of it and what value it has for investors?
Zach: Sure. The financial services industry is no different than any other – you have people who are excellent at what they do and take pride in it and you have others who cut corners and are mostly concerned with themselves and their personal income. The biggest question is who will you end up with and what will your experience be like?
Not to frown on it, but after spending several years involved in it – I’ve found that the great advisors are few and very far between. I think it’s accurate to say that most are nothing more than commissioned sales agents for companies that developed products to make a profit for their owners and shareholders. There are obviously times when those products are suitable and appropriate for investors and times when they are not. But as I stated earlier, it is purely naïve to think there isn’t a common conflict of interest between the clients desire for profitability and the advisor’s pursuit of income and lifestyle for their family. After having worked in this environment myself, it is almost frightening to know the amount of discretion that is in the hands of financial planners when they are creating and designing many of these programs.
I think the better question to ask is “Do these products perfectly align with the investor’s goals and ambitions”. And I don’t mean to say which “financial services industry product” is best for your goals but rather “in the entire world of investments”, which ones are simply the best for what you are trying to accomplish.
It goes without saying that 99% of advisors will only advise their clients on products that are manufactured from the financial services industry (the ones they have contracts to earn commissions). Their licenses and all the regulations that come with them prohibit these state-sponsored agents from looking outside the industry for alternatives. In fact, it is downright illegal for agents to offer any investment that is not approved by their employing “broker-dealer”.
Interviewer: How do you feel about financial services industry investments overall?
Zach: There are exceptions to every rule so I won’t answer that question in absolutes. What I will say is that most of these investment contracts protect the companies selling the products more than their clients. Most of them cost more than they should for what they offer. Most of them do a poor job of helping the client manage risk in a cost-effective way. Most of them are extremely susceptible to market movements or severely limit or cap investor upside potential.
But on the other hand, I also think these investments offer an invaluable service to those that simply don’t want to deal with the struggles of being a truly responsible investor. These products are probably their best shot at experiencing some level of financial success.
As for the responsible investors, I think these industry investments have limited value. Do some fit in certain circumstances? Sure. Holistically though, I find the investments that offer real control, flexibility, risk management, relationship, transparency and a benevolent focus are not easily found in the mainstream financial planner’s back of tricks.
As an important side note, these investments also, by design, do a poor job of promoting local investment directly into local economies. These investments are a surefire way to centralize wealth, political power and economic influence in New York and Washington D.C. – which is precisely what has happened over the last 100 years. As a secondary consequence, many great causes or opportunities locally are starved out because of an “industry investment only” mentality by American investors.
Interviewer: What investments do you think are the best for the times we are in?
Zach: Any investor can make money investing in about anything if it’s done correctly and with an educated manager behind it. You see, most investors place too much emphasis on the particular “investment” versus qualifying the manager behind the investment. This faulty mentality leads people to a lifelong search for “the great investment” when the truth is — they are their greatest investment and if they’d just invest some purposeful time and energy into making themselves a little sharper in the economic and investment world, they’d have more of an asset in themselves than any one stock, bond or mutual fund could ever represent to their portfolio.
A great example of this is Warren Buffet. He’s not solely successful because of the investments he holds. Other people invest in Coke, IBM and Cisco but don’t have his success. In fact, many have held the same investments and even lost their tail. The Oracle of Omaha is successful because he has the right judgment and discernment over what to invest in, when to invest in it, how long to hold it and what purpose it holds inside his portfolio. He’s successful because he’s awake to the #1 success principal for investors – ongoing education about the economy, business and investments – which ultimately drives his investor earning potential through the roof.
The difference between Buffet and most investors is simple. Buffet is always shopping for valuable information he can leverage while most investors are casually awaiting for the “next great investment” to present itself.
With that being said, an aspiring investor should pick an area of investing with a business plan they find value in and become a student of it. Meanwhile, they should find a mentor, consultant or an association of investors and collaborate on ideas and strategies. Many of these things today can be done relatively quickly through on-line research or making a few phone calls. With even a basic education (which is more than most), an investor can create healthy alliances or even partnerships with business owners seeking the same. There are hundreds of thousands of businesses looking for investor relationships that have amazing business plans that offer wonderful products and services to their communities.
As far as what do I like specifically? I like any investment that offers the investor a large degree of protection and risk management, excellent upside potential, doesn’t weigh down the returns with fees, has a lot of transparency, is built on a strong relationship with where the money is being deployed and is ultimately funding causes that produce real economic growth. If it meets those criteria, I love it. If it doesn’t, I wouldn’t waste my time because better things exist.