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Tag: Financial Lessons

Control and Influence

As the father to four young men, one of my goals is to successfully make the transition from a relationship of control to one of influence. Control is easy, right?  Do this, don’t do that. For example, don’t take off your clothes and turn the garden hose on the sweet little Japanese family that your mom tutors.  In my defense, I didn’t think I would have to provide such counsel to my 4-year-old, but I guess I should have. First-time parent rookie mistake, I guess.  Or please do take off your clothes before using the restroom. Thought I covered that in the first several years or so, but I guess not. (Sophomore slump with #2 – child #2, that is.)  And one of my personal favorites of #2, please don’t tell the hairy man at the pool that you thought cavemen were extinct. On second thought, maybe control isn’t that easy. But in the world of personal finance, believe it or not, control is a bit more obtainable.

Today and every day, and in every facet of our lives, we should be focusing more on things we can control and worrying less about the things we can’t. In the world of finance, for example, none of us has any control over the markets, taxes, interest rates, inflation or the headlines of tomorrow’s news outlets. Yet, such things can affect our outlook on our financial situation and lead us down the path of worry and anxiety. And left unchecked, that worry can lead to paralyzing fear, or possibly worse, emotionally charged decisions. Both of which can be detrimental to our financial wellbeing. So, what should we focus on?  There are essentially four primary factors within your control when it comes to your finances. I’ll present these in a “self-fulfilling prophesy” kind of way.

I can control how much I spend.  Unless you have an unlimited supply of resources, your spending will need to be controlled. Similar to exercise, it can be difficult and painful, but it can be done. And you’ll be better off because of it. Let’s define spending as how much you’re choosing to live on every day and how much you’re choosing to spend to enjoy your life today and in the years to come.

I can control how much I save.  I will save X amount now, so that I’ll have Y amount to spend later. If you’re still in the wealth accumulation stage, you or your spouse likely have access to a 401(k) retirement savings plan. And in some cases, your employer may incentivize you to save for retirement by offering an employer “match.” That is, your employer will match a certain percentage of your contribution (to your plan) up to a certain percentage of your salary. In such a case, your decision to save not only provides for your contribution to be spent later, but your employer matching contribution as well.  The industry term there is “free money”. And yet another contributor to your retirement account will be the law of compounding returns – what Einstein called the 8th wonder of the world – whereby you’re earning returns on both your original investment and on returns you received previously. Picture a snowball rolling down a mountain, picking up more snow as it goes. Before long, your snowball is a heaping mound of cash. You catch my drift.  See what I did there? (Bonus Track:  Look up the Rule of 72 and thank me later.)

I control how much risk I take. Indeed, you do. Not every person that invests in the stock market is 100% invested in stocks.  In fact, an August of 2024 survey from Empower Retirement has the average stock allocation for those in their 20s, 30s and 40s to be approximately 50% of their total portfolio. Can you guess which age group from that same survey is credited with holding the 2nd highest percentage of cash at a whopping 30.8%?  Wrong – those in their 20s. Bested only by retirees 70 and older.1 A post for another day, maybe, but such a conservative and seemingly “risk-averse” strategy may be anything but.

I control the timing of my financial decisions. Yes, you do. Like when you pull the trigger on a large purchase, or decide to retire, change jobs or (these days) even take on a second job. Also within your control is the timing of when to save more, spend less, invest more aggressively. They say, Timing is everything. I don’t know about everything, but it’s a fairly big lever to pull with respect to your financial security.

As I’m sure you’ve recognized by now, these four areas of control are inextricably linked.   You’d be hard pressed to change one without affecting the other. Again, assuming resources are finite, if you choose to spend more, then you’ve also chosen to save less. If you’re spending less, you very well could be saving more. And saving more (or saving less) will certainly subject your goals to more (or less) risk, right? If, for example, you’re spending a great deal of money now on Alabama season tickets, you’ll presumably have less money saved to put your daughter through Auburn. (We’ll do anything for our kids, won’t we?) And anytime you’ve chosen to make any changes in savings, spending or risk taken – or not – you’ve made a decision in timing.

So where does influence come in? Great question. Influence certainly has its role in your finances. As we’ve stated, none of us will likely ever move the stock market, nor will we affect the tax structure or control interest rates.

Each of those, however, will influence what we can control.

Let’s say inflation rises – a lot. And you find yourself barely having the money for the things you need – much less the things you want. Now what? Well, that means you’ll need to prioritize and spend less on the things you could do without and save more for the things you really want. Or possibly change the amount of risk you’re taking to increase the chance you’ll make more money for the things you want. Maybe you’ll choose to work longer? Or maybe you’ll have to find a new job or possibly a second one?  Or it could easily be some combination of these. It’s important that we understand when it’s time to adjust the factors that are within our control – our spending, our saving, the risk we take, and the timing of our decisions. Many factors can and will influence our decision-making process. Which begs the question,

Do you know what matters most to you in your financial life?

A quick answer can be found in your check register. Or for those of you under the age of 50, your online bank statements.  Your answer to that question will guide you as you create a plan to help you live your one best financial life. And through that financial plan, you’ll be able to manipulate those areas within your control in anticipation of those influencing forces outside of it.

As for my boys, #1 is married and finishing up med school, #2 is a junior at Auburn and literally creating his own path toward a career of film/sharks/ecotourism, #3 is a senior in high school and likely to change the world through music, and #4 is a sophomore in high school and winning the hearts of college basketball and soccer coaches alike. All accomplished young men in their own rights, but all benefiting from the influence of those who’ve gone before them. I’m honored to be a part of that counsel.  Whether serving as a father or a financial advisor, having influence for the betterment of one’s life is a legacy I’m proud to be a part of.

Article by:  Billy McCarthy, Investment Advisor

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or www.capsouthwm.com/what-we-do/ Call 800.929.1001 to schedule an appointment to speak with an advisor.

What is the average allocation by age? (Empower Retirement, The Currency, 08.07.24)

 

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results.

 

 

 

Big Hat and No Cattle – 5 Financial Lessons from Cowboys

Those that know me, know that I love horses…I might have always been a bit obsessed with them.  Life in western times seems idyllic to me in many ways.  There were hard times, but there are financial lessons we can learn from the ponderosa.  Here are five financial lessons:

Don’t be afraid to fall

Few things in life are accomplished without taking some risk.  If we sit back and coast easy through life, we will miss those moments of thrill with achievement.  “Courage is being scared to death and saddling up anyway.” – John Wayne 

In investing, I believe this risk should be considered within the context of a solid financial plan.  I often refer to the terms “risk capacity” and “risk appetite”. 

Risk capacity refers to the range between the minimum amount of risk you must take to have a reasonable chance of meeting your goals and objectives, and the maximum amount of risk you should take to still have that reasonable likelihood of success.  Some clients would love to take all of their money and stuff it under their mattress, and others would love to take it all to the casino and bet on black; neither of those is likely a good option, nor is either of those likely to help them accomplish their goals.

Within that range of risk capacity falls a client’s risk appetite.  Once the financial plan has been established, it should be stress tested at varying risk levels to evaluate the risk/reward trade-off of varying allocations.  How much potential growth are we giving up if we maintain a lower equity allocation?  How much sleep are we going to lose if we go after that extra return?  There is a place on that spectrum for each individual, and it is part of the advisor’s job to help guide you to finding yours.

Get back on the horse

Unfortunately in life, things do not always go as we plan.  We set off in the morning with hopeful expectations of the ride ahead of us…the glow of the sunrise, the breeze in the air, the sounds of the birds.  However, as we gallop around the next corner of the trail, we (and our horse) might’ve forgotten about that rain shower from yesterday…and the resulting water puddle showing our reflection back to us.  Your noble steed balks…does he run through it, jump it, go around it?  As he fast approaches the puddle, he decides to jump around it in a quick maneuver fashion that you were not prepared for…and off you go into the mud.  Yes, I’m writing that one from experience.  My horse, Apache, actually loves water and would’ve done just fine.  However, that day I decided to ride a different horse with a bit more “spunk”.  I can say, though, that I did get back on.

In our financial lives, some endeavors will not play out in the manner we intended.  That business venture, that career position, or even that stock purchase – not every idea is a winner.  However, the important thing is to dust off your boots, learn from your mistakes, and go again…in maybe a more prudent fashion the next time.

Don’t squat with spurs on

Sometimes we can be our own worst enemy.  We know our vices and weaknesses, and yet we put ourselves in the same positions.  It could be as simple as going to the grocery store while hungry and ending up with loads of junk food and nothing of substance.  Or maybe we think we will just go test drive that new truck to see the new features, but not buy one.  Or maybe we have had a bad day, and it’s too easy to escape to the shopping mall or Amazon for some retail therapy.  In either case, we know better; we just get careless and set ourselves up for failure. 

A little self-discipline can go a long way.  Take time to know yourself and to create a budget and calendar to help set some guardrails.  You will be glad you did.

Big hat and no cattle

Ever seen that “cowboy” that is dressed to impressed…he has the Stetson hat, the pearl snap shirt, the boots, the Wranglers…he is styling.  But have you ever seen him even ride a horse?  Or is it all just show?

I would liken this to the family with the designer clothes, the newest of luxury cars, that new house on the corner…are they really doing well?  Or are their banks and credit card companies doing well off them and their debt?  Don’t be so quick to judge the book by its cover and be too easily impressed.  That neighbor down the street with the classic chevy may be debt free, have substantial savings for retirement, and fewer concerns.  Don’t get me wrong, I appreciate nice things.  We just need to make sure we aren’t sacrificing our long-term success for short-term luxuries.

Always drink upstream from the herd

Everyone seems to have ideas about everything.  Turn on any news channel, ask any friend, and they likely have at least a few suggestions for you on any given topic.  Change the topic, and all the sudden they go from an engineer to a chef to an investment expert to an estate planner.  And of course, they have all taken time to consider your values, your goals, your particular assets, and how they all fit into your financial plan, right? 

Seek wise, qualified, and appropriate guidance.  I wouldn’t want my financial advisor diagnosing my medical needs, and I wouldn’t look to my physician for financial lessons and direction on my investments. 

Most of us don’t wear spurs on a daily basis, or maybe ever.  However, these are timeless financial lessons that apply to everyone.  If these premises generate any thoughts for you about your personal situation and you would like to discuss further, please reach out to a CapSouth advisor.

By: Scott McDowall, CFP®/Wealth Advisor

To learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or https://capsouthwm.com/what-we-do/financial-planning/ or call 800.929.1001 Click to Schedule a Discovery Call.

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice.

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