Start Thinking Christmas NOW

Yes, you read that right Start thinking Christmas Now. Christmas (or whatever major gift giving holiday you celebrate) has a bad habit of sneaking up on people and destroying all the best laid budgets. So how do we save our budgets, our sanity, and still enjoy a generous and joy filled holiday? The key is to plan out as much as possible well ahead of time.

The first step is to create a list of everyone we wish to give gifts too. This covers family, friends, neighbours, co-workers, service providers, and hostess gifts. For some people this is a short list, for others it is a long list. Putting it down on paper makes it much easier to sort and decide.

The second step is to put a dollar amount beside each person’s name. Then total everything up. If you are okay with the number at the bottom then everything is great and you really don’t need to read any further. Most people though are more than a little surprised when they see just how much money they have going out in gift giving generosity.

The third step is to ask yourself do you really want to give a gift to each of the people on your list? A lot of the time we give gifts out of a feeling of obligation rather than from the heart. When we are giving out of obligation or beyond our budget we are missing the whole purpose and just adding stress to our lives. Some families have moved to drawing names and putting a price range on the gifts.

The fourth step is to decide if you need to spend money on everyone. I don’t know about you, but in my case I know I’ve been given (and have been guilty of giving) bobbles and doodads that I really didn’t need, didn’t like, and wish I hadn’t received. I understand that someone was trying to tell me that they loved me, but just didn’t quite know how to give it in a way that I would love. On the other hand I have been given some absolutely amazing gifts that cost no money but totally rocked my world. Things such as babysitting coupons, help with a household project, baking, and beautifully crafted handmade items.

The fifth step is to start coming up with gift giving ideas for each person on the list. If we have an idea of what each person needs, wants, likes it allows us to take advantage of great deals we might come across, and saves us from spending money on something that is just a check mark on our list.

The sixth step is to set up a gift giving budget. Some people prefer to shop all year round to even out the spending and lessen the shopping stress during the Christmas months. Other people choose to put money aside on a monthly basis to have available for when they do go shopping in November and December. No matter how you choose to do it it is still going to cost you money and that needs to be planned for. You might also want to look into using any credit card points or reward plan points. I love using my AirMiles for Movie Night Out Passes as gifts and have received much positive feedback from the people that receive them.

Now take a bit of time now to save yourself money, time, and stress come Christmas. Then when the snow flies you can sit back sipping your eggnog and knowing you’ve done a fabulous job and stayed on budget.

“Maybe Christmas, the Grinch thought, doesn’t come from a store.”
Dr. Seuss

Invest like you shop and your savings won’t drop!

Huge lineups of shoppers looking for deals on Black Friday and the massive retail sales that occur the weeks after Christmas are testimony to the ability of people to shop wisely.  I know many families that defer buying expensive gifts (for their kids but especially for themselves) until after the Christmas holiday in order to save hundreds of dollars.  So why are people so bad at investing their money?

A recent study by Blackrock, the largest money management firm in the world, confirmed what all of us know already:  The average investor sucks at investing.  Despite the fact that the skills and emotional fortitude necessary for successful shopping are pretty much applicable to the task of investing one’s money, it seems the average person just won’t use these abilities when making important investment decisions.

According the the American Research Group Inc., the average shopper plans to spend $854 on gifts this year. Let’s assume it will be the same next year and the next.  Virtually everyone realizes that since they’ll be spending the money anyway, shopping smartly and getting all gifts at perhaps a 20% lower price leaves them better off.  Wealthier in our example by more than $500 after three shopping seasons in fact!

But when it comes to buying investments, investors prefer to pay a premium.  What proof do I have?  Many years of observation, but the results speak for themselves.

The average investor managed to earn less than virtually all asset classes at his disposal earned over ten years according to the Blackrock study.  To be perfectly honest, I’m surprised the average investor did so well.

I’m not sure about how the study was conducted.  If everyone that participated had a home and kept all their money in a checking account….the result wouldn’t be very surprising would it?  Let’s assume that the sample was comprised of real “investors.”  Some with homes and minimal savings, but others actively investing serious money in both bonds and stocks. Where would they be going wrong?

It’s hard to imagine retail investors trading aggressively in the bond market, but assuredly a significant amount of their long term savings could include fixed income securities.  It’s equally difficult to conceive that the lion’s share of their savings might be in gold or oil.  Likely, the average investor does include stocks in his retirement savings and participates actively in decisions.  He/she would either use an adviser to implement asset allocation decisions or occasionally channel money into or out of funds.

Consider one proxy for stocks, the S&P 500 Index over roughly the same time frame as the study.  It’s certainly been a rollercoaster, but a simple buy and hold strategy would have contributed nicely to the average investor’s nestegg.  In my opinion the only way the average investor could have done so poorly is by losing money making poor investment calls along the way.

Generally, folks wait until the stock market has climbed quite a long way upward before committing their own money – see the “Buy” indicators on the graph?  This decision is made based on the past performance charts and tables that are promoted ad nauseum by the investment industry when the rates of return earned by their funds have been excellent.

Even though past performance means nothing, for some reason impressive historical returns awaken the greed in all of us, just like an extremely large lottery jackpot suddenly inspires many more people to go out and buy lottery tickets.

Unfortunately, great historical performance is very often followed by lousy market environments – evidenced clearly by the graph of the S&P 500 Index over the ten year period.  As anxious as people are are to pile into a market that has been rewarding (after-the-fact), they are just as eager to get out of a losing situation that leaves them feeling they’ve been suckered.  The average investor sells at the worst possible time.  A few of these buy high/sell low episondes is sufficient to reduce the overall return he/she has earned in other assets like bonds or the family home.

Put another way, the shopper in you is always on the lookout for discounts while the investor is more than happy to pay a premium to the list price.  Greediness completely overides any bargain-hunting intuition.

Back to our shopping example.  Imagine that you can shop wisely and get gifts at prices 20% below list.  But also imagine that you and your family can use those gifts for a time and then sell them at a 20% premium to list.  Crazy?  You can actually do this with your investment portfolio.  Apply those shopping skills to your savings and you’ll be surprised how much better off you can be.

 

 

 

Malvin Spooner.