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Savers, Investors, and Speculators
By Matthew G. Zanowiak, ChFC
The Planners in our Practice meet
with many different types of people
every week. The younger Planners
often meet with couples who are relatively
just starting out. They have young children
or no children, a house, two incomes,
day care expenses and tons of dreams
and ambitions. We may help them with
some life or disability insurance, establishing
an initial emergency fund, a college 529
Investment Plan or a Roth IRA.
The next group of people we help is fairly
well established and full throttle into their
goals and desires. They’ve been putting
money away for college (or have children
who have graduated), their retirement
plan at work has a couple of zeros after it;
they’re at the back-end of their mortgage
and starting to put away more money on a
regular basis. We typically help these folks
with the initial stages of Estate Planning,
make sure their Asset Allocation (which
eggs in which baskets?) is consistent with
their tolerance for risk, and analyze what
their retirement income is likely to be.
At the opposite end of the spectrum we
help clients who are a pitching wedge
away from retiring from their full time
positions. These folks usually have
grandchildren or some in the making; their
homes are close to being paid off, and
more and more they are caring for their
parents. Their larger concern is more often
the return of their money rather than the
return on their money.
This introduction is kind of a long way to
go for a drink of water, but what do all
of these folks have in common? Answer:
They have a need to balance future income
and asset goals with current available cash
flow and account balances. The difference,
however, may lie in the ways they
complete this task.
Some people are Savers; some are
Investors, and some are Speculators. While
these labels may seem like the same thing,
the differences can be substantial. Take the
couple who has decided to squirrel away
$25 every month for Junior’s college bill.
While certainly admirable, this less-than-adollar-a-day
commitment should hardly be
called Investing; this is Saving. While it can
be argued that saving will lead to investing
and, at least initially, the habit of regularly
setting money aside is more important
than the amount you are setting aside,
this is still Saving. Unfortunately, you will
not Save your way to a large dollar (aka
College or Retirement) goal in a relatively
short time frame.
Permit me, if you will, to make an illadvised
leap from Saving to Speculating.
Know anyone who watches their
investments several times a day and
changes their holdings more frequently
than the Convention Center move-in date?
This is a form of Speculator. He is trying
to time the market, get in and get out
based on the illogical, emotional whims of
the stock market. The Market’s been up
for three days so he switches to bonds.
It’s been twenty years since the Market’s
largest single day decline (October, 1987)
so I’m going to cash. The moon is full
under Aquarius so I’m buying water stocks.
All are positively ludicrous reasons to make
wholesale changes to a portfolio. Yet many
Speculators will do just that while chasing
the Holy Grail of one half of one percent
extra rate of return. The fact of the
matter is that the deck is stacked heavily
against this person. Case in point: over a
year’s time, if you were to miss the five
best days in the market (because you
speculated out) your actual returns for said
year would be decimated.
Cradled comfortably between the Saver
and the Speculator is the Investor. This
person has a big picture view of what he
wants to accomplish. With the help of
an accredited, seasoned Professional, he
carefully assesses his situation. After this
assestment, he chooses a path on which to
travel and then does something astonishing:
he resists any paralysis-by-analysis, avoids
the “on your mark...get-set...get-set...getset...get-set”
syndrome and actually begins.
Novel concept? You’d be surprised. The
road away from success is studded with
reasons not to do something.
Although two of my best friends are
Rocket Scientists, this, folks, is not Rocket
Science. With the help of a guide to design
the course as well as watch his back, the
Investor set a target, chose the best tool
to hit that target, started down the path
realizing there will be road blocks and
detours along the way, and is loath to
make wholesale changes based on shortterm
distractions.
The game plan? Once you have started,
review your progress regularly. Make
minor adjustments along the way and
major changes only when absolutely
necessary. Ponder this: When a 747 takes
off from Lancaster Airport (Check that.
That’s speculating). When a jet leaves
Harrisburg heading to Chicago, for fully
95% of the journey the pilot cannot see
his target. He knows the Windy City is out
there, but he cannot see it. In fact most of
the time, his aircraft is off course. It is with
subtle corrections along the way that he
is able to arrive safely in Chicago relatively
on time.
Your Investment Portfolio should be the
same. Discover where you are today,
choose a direction, design a game plan,
implement your strategy, make subtle
corrections as necessary, and avoid
the temptation to jump in and out of
the market. It might even help to have
someone who has been there before to
give you some guidance.
As we head into the New Year, I can’t
resist the time tattered tradition of helping
you get organized. Therefore, here are a
few tips (in no particular order) to help you
solve some Financial Problems you may be
wrestling with or accomplish some Financial
Goals you’ve had in mind:
1. Avoid Water Cooler Financial Planning.
The guy at the office usually is not the
guru he professes to be. Take the rate
of return he proudly broadcasts and cut
it in half. Now you’re getting closer to
the truth.
2. Do not marry an investment. At some
point it will be time to get out of the
mutual fund. It’s an investment strategy,
not a tattoo.
3. Stay on track and stay invested.
4. Resist the urge to change just because
everyone else is. Remember the
proverbial bridge your mother used
to ask you about jumping off with your
friends?
5. Ignore external, short-term distractions.
It’s just noise.
6. Realize you are investing for the long
term. Act that way.
7. Measure with your odometer not a
micrometer. It is forty-four miles from
our office in Oregon Commons to
Harrisburg. I can measure that distance
with the odometer in my car, a tape
measure, a yard stick, or a ruler. Each
will work. Which is more practical?
Watching and changing your investments
on a daily basis is tantamount to
measuring the trip to our Capital with
a ruler. Use the odometer and enjoy
the trip.
8. Avoid the “on your mark...get-set...getset...get-set”
syndrome.
9. Begin today.
FLL
Matthew G. Zanowiak is a Chartered Financial
Consultant with Lancaster Financial Services.
With over twenty-four years in the Financial
Service Industry his practice focuses on Total
Financial Planning, emphasizing on Retirement
Planning and College Planning. You can visit him
at www.lancasterfinancialgroup.com or call him
at 717-569-4004.
Plan
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