Book excerpt

Money Wise

How to Create, Grow, and Preserve Your Wealth

St. Martin's Press

Introduction

Many people who do not have wealth believe that it bestows upon its holder a sense of well-being and satisfaction. Alas, they are often wrong and, were they to become wealthy, would soon discover why. Wealth brings with it tremendous responsibilities, not only to one’s self and family, but to the general welfare of society. How wealth is generated, invested, and spent has a tremendous ripple effect through the economy and society. Some people handle the responsibilities of wealth well, and some handle them poorly. But the mere weight of the responsibility is often enough to create a vague sense of unease. Am I investing correctly? Can I trust my advisors? Are certain family members feeling slighted? How should I determine which worthy organizations will get part of my wealth?

Ridding oneself of these and other related concerns is not easy. I think I know why. Too many people are thinking too conventionally about every aspect of wealth. We all have heard the phrase conventional wisdom, something that "everybody knows" without knowing how or why we know it. In many cases the term should be a red flag indicating that the person using it is preparing to introduce some kind of "unconventional wisdom" that is intended to challenge the conventional wisdom. Beware! More often than not that unconventional wisdom is a thin disguise for a sales pitch for an unproven or unneeded product or service. Only occasionally does the unconventional wisdom really consist of a genuinely new way of thinking about a subject.

This is a book about selected unconventional ways of thinking about wealth. I am presenting my ideas here because I believe people of wealth can benefit from them. They are based on my personal experiences, those of my clients, and years of careful observation of the investment world as the founder of Lipper Analytical Services, the operating assets of which I sold in 1998. If my coauthor and I do our jobs well, you can use these ideas to think about and manage your wealth with increased satisfaction and greater confidence.

I emphasize that not all conventional wisdom is wrong. Quite the contrary. Most of it is right and should not be ignored in favor of ideas that are merely different. The problem with conventional wisdom is that it is too often stated in a summarization or a generalization that, while it might have broad applications, fails when applied to specific situations. That is particularly true in a financial environment, where no two situations are identical, yet broad generalizations are most often used as the foundation of decisions.

My objectives for the reader are threefold. First, to help identify and think about what constitutes the conventional wisdom. Second, to understand the challenges confronting a person seeking satisfaction from wealth. Finally, to assist in the development of a series of philosophies and strategies that are tailored to individual needs.

I do not believe in complete solutions, and this book is certainly not an attempt to be a complete solution. I am not going to tell you that you should have 67 percent of your investment portfolio in equities, 32 percent in fixed income, and 1 percent in cash. Individuals and their circumstances are all different and are all constantly changing. Indeed, the one lesson that I hope comes through most clearly in this book is that one must at all times be prepared to recognize how change is affecting every aspect of your finances and life. People do not like change. We are comfortable with what is. But one cannot totally avoid change eventually. Little changes are happening to us all the time, and we manage them, for the most part, without even thinking about them. Even big changes, if they take place over time, can be handled with aplomb. Think about how different you are today from when you were an infant, a teenager, a young adult. Some of those life changes probably felt a little traumatic or confusing at the time, but now they are just memories, perhaps good, perhaps bad. But every so often there will be a monumental change, a life-altering event. Too few people are prepared to handle those changes, the ones most likely to disrupt one’s sense of satisfaction and well-being.

Change in our own lives is one thing; change in our environment is quite another. Most people go through the various stages of maturation at about the same ages, thus at roughly the same pace. But scientific and technological change is occurring increasingly rapidly. As mankind left the nomadic stage, people probably traveled no more than a day from their home site during their entire life. A century ago most Americans did not travel more than one hundred miles from their homes during their lifetime. Today we routinely travel thousands of miles from our homes without thinking twice about it. A mere fifty years ago most business was transacted face-to-face. Today I have "virtual offices" with people in a number of locations whom I rarely see face-to-face, yet we communicate easily and frequently via the Internet. The pace of change has significant implications for investment portfolios. We know, based on history, that we can confidently predict that current forces at work in the world will lose some of their potency at some point. Precisely when is a more difficult question to answer. But the most difficult question to answer is what will replace them? This is one reason in this book I recommend investing in numerous possible new trends. I realize at the outset that my batting average will reflect more strikeouts than hits. That does not worry me. I am hoping that my production of runs will be reasonably high and that some of the successes will be huge. This approach lacks certainty, but anyone who is totally certain about something in the future is a fool or a liar.

The ideas I put forth here are arranged, I hope, logically, but are not intended to build on themselves sequentially. You can read the fifth chapter before the first and it should not make much difference. This book is for browsing. You can stop to read something of interest, skipping the topics that do not seem relevant. We have tried to keep the chapters short and to the point.

We are all overwhelmed with information; to be useful we need to explain our ideas as quickly and efficiently as possible. No one is likely to agree with everything written here, and that is fine. Mine is not the only correct approach. All I ask is that you question the assumptions that lead to disagreement. Thinking is what this book is really about.

—Mike Lipper

Summit, New Jersey

Excerpted from Money Wise by A. Michael Lipper, CFA

Copyright © 2008 by Whitridge LLC.

Published in 2008 by St. Martin’s Press

All rights reserved. This work is protected under copyright laws and reproduction is strictly prohibited. Permission to reproduce the material in any manner or medium must be secured from the Publisher

A. Michael Lipper founded Lipper Analytical Services Inc., the preeminent provider of unbiased comparisons of fund performance and management in the United States. He is now the president of Lipper Advisory Services, Inc., and Lipper Consulting Services, Inc.

Douglas R. Sease is the former “Money & Markets” editor for The Wall Street Journal and a veteran financial journalist.