My dad is partly retired at the ripe old age of 57. Many people tell him he retired too early. But he did it because he could! How did he get there? By investing wisely and making simple but smart financial decisions. Below are some of the best financial lessons I learned from my dad.
1. No Risk, No Reward
My dad has been through some very rough times in the market: the crash of 1987, the dot com crash in the 2000s, and the financial crisis in 2008. Many people bailed out of the market when times got tough and then missed out on the gains that came after. (1) But not my dad.
Advisors often caution people against taking too much risk, but they don’t help their clients properly understand risk in the first place. Some people take too little risk and end up losing purchasing power due to inflation. An appropriate level of risk is healthy and important to meet your long-term goals. Otherwise, you still risk making mistakes that can severely harm your financial plan.
2. Make Your Money Work For You
My dad has always said there are two kinds of work: people at work and money at work. You can make money working or you can put your money to work for you. When your money sits idly in a bank account, it’s not working for you.
While it’s important to have an emergency fund, you should avoid keeping too much money in cash, especially in today’s low-interest-rate environment. Many people neglect the power of after-tax investments. You may be contributing to a retirement fund, but what about after-tax opportunities? You could use a dividend-yielding investment like high-yield bonds to provide an extra revenue stream for yourself.
3. Stay Optimistic
My dad has always been an eternal optimist. He’s a strong believer in the economic prosperity and future of our country. There will always be naysayers, gloom-and-doomers, and stock market bears calling for the next crash. Over the short term, things can be volatile. But over the long run, stocks do go up. The only way to benefit from that growth is to stay invested.
My dad is also a believer in the power of the government to propel the economy and the market. He’s often said, “Don’t bet against the government!” As an eternal optimist, my dad was never a big believer in bonds, specifically Treasury bonds. This is contrary to modern portfolio theory, which suggests we should always have a permanent allocation to treasuries in our portfolios. Bonds can be useful at certain times, but we do not believe in a permanent allocation to bonds. Bonds may lose significant value in the future if interest rates rise. Warren Buffett isn’t a fan of bonds either, calling them “among the most dangerous of assets.” (2)
4. Turn Off The Lights!
My dad is a notorious bargain shopper and saver. He was the parent who scolded us for leaving the lights on in empty rooms because they drive up the electricity bill. His entire life he has sought to keep his ongoing expenses as low as possible for two reasons:
- First, to reduce financial stress in dealing with the ups and downs of his business.
- And second, to maximize the amount he could put toward his investments.
As our incomes grow, it can be tempting to continue to expand our lifestyles and budgets. But if you’re going to achieve financial independence, you need to watch your expenses and cut back wherever you can. Seemingly small expenses add up quicker than you think.
5. Keep It Simple
In the world of investments, as in life, it’s important to keep things simple. I often see portfolios of prospective clients who are working with other advisors that are over-diversified. They’re invested in 30 or more funds that are actively managed, many of which cover the same asset classes.
My dad has often kept things very simple both for himself and his clients, homing in on a few really good funds or asset classes. You don’t need to own every single asset class. And you don’t need multiple funds covering the same asset class.
Another lesson in simplicity applies to insurance products. Many brokers try to sell annuities or insurance policies with complicated provisions, guarantees, and conditions. They offer “downside protection” and other seemingly wonderful things, but these products are expensive, restrict growth, and are not true investments. Avoid high-cost, complicated annuities. Buy term life insurance and invest the difference. This is something Dave Ramsey and my dad actually agree on! (3)
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Darren Wurz is a co-owner and financial planner at Wurz Financial Services, an independent, family-owned and operated financial services firm dedicated to helping its clients transition from their working life to a comfortable retirement with confidence. Darren received his Master of Science in financial planning from Golden Gate University and also holds the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation. He operates the Northern Kentucky/Cincinnati office of Wurz Financial Services and is an active member of the Northern Kentucky Bar Association, the Northern Kentucky Chamber of Commerce, and the Covington Business Council. To learn more about Darren, connect with him on LinkedIn.