Customize Wall Street: Take Control of Your Financial Future

By Harvey Neiman

What are you biggest concerns about money? How have you begun to save for the important points in your life: car, wedding, college, retirement? Are you discouraged or overwhelmed by the process? The goal of this book is to empower you to take control of your financial future. There are no short cuts; no schemes or programs. It is about taking a sensible, personalized, practical approach towards your financial goals. Whether you want to invest your own money or put your financial future in the hands of a professional, you will benefit from knowing how to avoid distractions, what tools are at your disposal, and how to devise a realistic plan.

• Language: English
• Publisher: Hillcrest Media Group
• Release date: Oct 15, 2014
• ISBN: 9780986087110

Book preview

AUTHOR

INTRODUCTION

Why another book about Wall Street and personal finance?

During these times of uncertainty, do you know anybody who isn’t nervous about the condition of our economy, and the stock market in particular? Do you know anyone who seems to have a great handle on their financial goals and how to achieve them? From everything I can see, such people are few and far between. Even with all the anxiety that most of us feel, the status of the US economy should never be an obstacle to those of us who are responsibly motivated to steadily pursue our long-term financial goals. Think of it this way: instability of the economy is a condition that none of us can individually control. Thus, it should never prevent us from implementing a consistent and reasonable plan for achieving our personal goals and aspirations.

The reason this book is different from most other financial investment books you’ve ever read is that I truly believe every one of us can establish our goals, implement an achievable plan, and use the tools afforded to all of us to secure our financial future without gimmicks, luck, insider information, or serest formulas.

I set four goals for myself in writing this book: 1) clarify and educate you as to some of the leading misconceptions that tend to inhibit the average individual from financial planning success; 2) introduce and explain some of the simple yet powerful tools each of us has at our disposal very day to achieve our financial goals; 3) help you identify and establish your personal financial blueprint; and 4) put all of this new information together in a sensible and accessible manner.

Despite the distractions, at its core Wall Street represents a combination of powerful institutions that offers each of us powerful tools for saving and investing. The problem is that Wall Street’s methodology of disseminating information and promoting its products and services often deters us from using these wonderful tools wisely, reasonably, and without stress. Although it might be an uphill battle, I believe this problem can be solved and corrected. That is the purpose of this book.

The idea and the planning for this book was conceived a few years back, during substantially more turbulent times. During the period from late 2007 through early 2009, not only was this country addressing the endeavor of electing a new president, but we were also consumed with an economic crisis that saw the stock market experience its most dramatic downturn since the Great Depression of the 1930s.

What most investors and members of the public generally don’t realize is that times of economic uncertainty are really more the norm—the more common status of affairs—than times of economic prosperity. The long-running bullish stock market and steady economic growth, as experienced in the US from the early 1980s until the tragic events of September 11, 2001, was more out of character than usual—perhaps even artificial, to a degree. Times of uncertainty usually surround wars, global political upheavals, population shifts, excessive natural disasters, and unforeseen adverse climate conditions. These types of events occur with sufficient frequency on a global basis that it is truly rare that a period of economic prosperity can run unchecked for two decades.

The problem facing almost all Americans over the age of thirty is that we were raised to believe that the prosperity of the 1980s and 1990s was the norm, and not the exception. So now into our second decade of the twenty-first century, the return to economic uncertainty feels like the aberration, when economic historians will tell us that what we are facing today is more like business as usual on the economic front than we realize.

My message is simple. Let’s not panic. Let’s not throw in the towel. Let’s continue to be the resilient Americans that we’ve been since the days of our founding fathers, and find ways to forge ahead and get the job done that we need to get done.

Before I go any further, I want to make it clear that if this book has any value to an audience of readers, such as yourself, I genuinely feel the potential audience is large and includes both investment professionals who serve the investing public, as well as members of the investing public themselves. It applies equally to those who seek the guidance of investment professionals and those who go it alone.

This book is based on the premise that every American who holds gainful employment, whether working for yourself or for others, regardless of the level of annual earnings you achieve, can establish and implement long-term financial goals. Anyone who reads this book, as well as those who do not, has the opportunity and capability of implementing a simple, consistent long-range plan to build a nest egg to finance their goals. In addition, with some simple knowledge of how to avoid the myriad of pitfalls, I am convinced that Wall Street offers powerful tools for saving and investing toward those goals. Each of us should feel comfortable learning about and tapping into those powerful tools for savings and investing as they see fit. Each of us has the American right and privilege to customize Wall Street for our particular needs and our individual purposes.

This book is divided into four sections. In the first section of the book, and at various times throughout the book, we are going to look at a variety of examples where Wall Street misleads and distracts us. Many of the messages Wall Street sends us are misconceptions. It is my job to dig down and identify the motives for perpetuating these distractions so that you can better understand how they are actually counterproductive for those of us who want to save and invest toward building a nest egg for retirement or other financial goals. By clarifying these, it is my hope that it will allow you better focus on asking the right questions, avoiding common mistakes, and creating a plan that suits your needs.

In the second section of the book, I will introduce some very practical concepts that hopefully all readers can understand and find useful. This section will introduce ten powerful tools of saving and investing, all of which are available through Wall Street products and services. I will especially focus on making readers understand the difference between things you can control and things you cannot control when dealing with Wall Street and its various investments. Each of the ten powerful tools I will present you will be things that you can control. Wall Street may not promote these powerful investment tools through their media and PR, but they are available to all investors who choose to use them.

The third section of the book is where I get practical and hands-on for readers who want to know how to create a personalized plan for saving and investing for specific financial goals. I will present a cross section of typical financial goals that common everyday people often desire to save and invest. Whether you want to build a retirement nest egg, save for the down payment on a new house, buy a car, save for college, or something else, I will present a variety of examples of how to implement a simple, straightforward method to implement a plan for saving and investing toward short- and long-term goals. I have created five key questions that you should ask and answer in order to implement an easy to understand, uncomplicated, savings and investment plan for almost any financial goal that any of us might have.

In the final section of the book, I put it all together. You will see how we can take the tools from section 2 and apply them to the financial goals from section 3 to make the process work. Most importantly, in this final section, I again emphasize my approach to accomplishing these goals without the stress and anxiety often generated by the media and professionals on Wall Street.

I want to reiterate that the purpose of the book is my desire to present practical approaches for everyday Americans to save and invest toward achieving short- and long-term financial goals. As you read this book, recurring themes will become clear—and will hopefully start to sink in—to help you better understand the steps you need to take to implement a successful savings and investing plan. It is my hope that these recurring themes will help move you to a point of dealing with your financial goals and aspirations with substantially less stress, worry, and anxiety. Some of these themes are as follows:

I hope you will be able to easily decide if you are an investor or a speculator, and then choose which you want to be. Only a lucky few can win at speculating, whereas all who wish to participate responsibly can be successful at investing.

I hope you will begin to know the difference of what you can control and what you cannot control in the world of Wall Street investing, and that you will spend more effort, energy, and resources on things you can control.

I hope you will see the benefit of combining a plan for continuous saving—along with a plan for sensible investing—to improve your chances for reaching your financial goals.

It is my desire that you learn to disregard the numerous distractions of Wall Street, especially the implied allegation that the only measure of success is that of beating the so-called benchmark index, whatever that benchmark might be.

I hope you learn that any financial goal or plan that can be measured in dollars requires the asking and answering of five key numerical questions. You have the power control and modify the answer to four of those questions based on your own economic reality. These questions will naturally allow you to self-assess the reasonableness of your goals and plan and allow you the ability to make necessary adjustments. The answer to the fifth question is simply a plug figure that you calculate.

Wall Street makes available some wonderful tools for successful investing, ten of which I expand upon in this book. I hope you will become comfortable using some or all of them, knowing you can control them and use them without stress, worry, or anxiety.

The main reason any of us should use Wall Street and its wonderful tools for saving and investing is to plan for and to implement whatever our personal financial goals might be.

It is only when we have no long-range purpose or plan for our savings or investing dollars—and allow ourselves to be distracted by the follies of Wall Street and media advertising and hype—that we spin our wheels. Saving and investing should have a goal and a purpose. If not, why use Wall Street? Casinos are a lot more entertaining.

If I have done my job well, you will read the pages of this book confident in my strong desire to show you how and why we should all set realistic goals, and implement a reasonable and consistent plan to achieve them. I wish the same for you as I wish for myself—to sleep well at night, knowing that my savings and my investments are doing their job, no matter the uncertainty and volatility of the state of our economy.

If you address the five core questions I present in this book, and select from the ten powerful investment tools available to all of us for implementing each of our respective financial plans, then in your own way, you will be customizing Wall Street for yourself.

SECTION 1

THE CHALLENGES OF WALL STREET

WHAT’S WALL STREET ALL ABOUT?

The New York Stock Exchange is located on the corner of Wall Street and Broad Street in the financial district of lower Manhattan. Just a few blocks away on Trinity Place is the American Stock Exchange. Along with the NASDAQ, the primary electronic stock exchange, these entities are often considered the center of what most stock investors refer to as Wall Street. In fact, today almost all stock trading is computerized, and the retention of formal stock exchanges serves as a primarily nostalgic value rather than as a necessity for the trading of stocks in both large volumes and small. When referring to Wall Street as an entity, it also includes all the major wire house brokerage firms and investment banking firms. Simply stated, for purposes of this book, references to Wall Street are merely a shortcut for referring to investments in the stock market.

Wall Street, to the extent it stands for New York finance and the broader world of stock market investing, has a rich history. Its history is integral to the history of American economy and finance. Our economy is often measured by landmark events in our stock market. The market crashes of 1929 and 1987 are often referred to as key turning points in our economic development. The stock market is often used as a forecasting tool, or leading indicator, for the economy in general. It has historically made moves, sometimes favorable and sometimes unfavorable, before other economic indicators. The longest running bull market in our history, covering much of the 1980s and all of the 1990s, began in August 1982, at a time when no one expected it. In contrast, the first decade of the new century marked the severest downturn in our economy since the Great Depression of the 1930s, first with a bursting of the dot-com bubble in 2001, and later the failure of subprime mortgage financing in 2008 and 2009. The combined effect witnessed a relinquishing of much of the stock market gains of the bull market of the 1980s and 1990s.

With all that said, Wall Street and the general stock market continue to provide ample opportunities for individuals and institutions to accumulate tremendous wealth. In my opinion, these opportunities mean that Wall Street has far greater importance than merely serving as a reflection of key turning points in our economy. Wall Street offers the most awesome and accessible tools for investing that will allow anyone using them to their advantage to potentially meet their most important financial aspirations. As you will see during the course of this book, the element of time is a critical key to successful investing. In most situations it often takes longer to achieve your goals than desired. But, everyone who makes a concerted effort to save and invest has the potential for success—allowing enough time for your plan to work. The problem is that Wall Street, and the media reporting on the markets, and other economic activities, distorts the impact of financial and economic events. The messages are frequently delivered in such an alarmist fashion that they distract us from what is important in our saving and investing programs, causing us to make improper or unnecessary shifts. As we will discuss in later sections: we need to let time do its work; we need to let compounding do its work; we need to let dollar cost averaging do its work. It takes patience, discipline, and consistency to attain your financial goals, which actually applies to most of life’s endeavors. But, in exchange, the prize is well worth it.

The purpose of this section of the book is to introduce a substantial cross section of Wall Street messages and expressions, often repeated and even exaggerated by the financial media that, more often than not, distracts and misleads the average American. The effect of these distractions often results in dissuading individuals on a large scale from carrying out their common sense, rational, and straightforward saving and investing programs.

Just as important, methods used by Wall Street firms to market themselves, and to convey their messages, have the effect of dramatically increasing stress levels and reducing comfort levels and confidence in a substantial majority of the investing public. Investors become programmed to fear down markets, and worse, they are induced to think they need to predict the direction of the market in order to become successful investors.

I firmly believe that my experience has taught me that the discipline of consistent systematic saving and investing need not be a stressful endeavor, and that predicting the moves of the market or the economy is not a requirement for successfully building a financial nest egg. The two are mutually exclusive. Wall Street’s ever- present message that investors need to time the market, and rotate from sector to sector, is at the very least distracting, and at its extreme, a major contributor to the stress and fear of most Americans seeking to build personal nest eggs through the use of the powerful tools the stock and bond markets have to offer. I sincerely believe that irrespective of stock prices and interest rates rising and falling, a systematic, disciplined, patient investing plan can be implemented and be largely stress-free and profitable. I believe that the tortoise and the hare parable applies to long-term, steady investing. There may be times of economic slowdown, but the media and Wall Street does not do us a favor by making us think all is lost, and there will never again be good times. History has shown time and again that patience and discipline will allow all of us in this free market capitalistic economy to build a financial nest egg, during all economic conditions.

In this section of the book, I will begin by presenting the distractions and misleading messages that Wall Street promotes, markets, or disseminates to the investing public. In many cases, these messages appear to be truthful or even axiomatic, from the perspective of traditional investors. But, when we dig deeper, we find that there is often an underlying agenda that misleads us, confuses us, or distracts us from our true investment endeavors. When we analyze them at their core, we will see that they are attempts to program us into pulling the trigger and engage in trading, either buying or selling, sooner and more frequently than we otherwise would do. Though other authors have presented myths of Wall Street, this book will refer to them as misconceptions because they are not myths; they are real and they pro actively distract, confuse, and mislead us.

The list of misconceptions is by no means exhaustive or universally agreed upon by all who are critical of Wall Street. My list is presented with a twofold purpose. Firstly, I want readers to start to see a pattern in the types of misconceptions and confusing messages Wall Street disseminates, so that you can understand the motivation behind disseminating the misconceptions. Secondly, knowing that the list is not exhaustive, if you are a saver and investor you will almost definitely be confronted with other hard sell messages. Thus, I want to empower you with an understanding and fortitude to resist being distracted and deterred from your agenda.

As a final note before delving into this section of the book, of the numerous ideas and themes I will present in these pages there are two that readers should keep in mind throughout all sections and topics presented in these pages. Firstly, I feel it is important for the reader to frequently think about, and eventually decide, is he or she is an investor or a speculator. This issue will be addressed shortly and referred to frequently throughout the book. Secondly, I will encourage readers to constantly divide variables, events, and phenomena they encounter in the world of finance and economics, into two categories—those things you can control, and those things you cannot control. We cannot control if the markets go up and down. If you decide to set aside fifty dollars per paycheck to invest in your employer’s 401(k) plan, you can control that. You will be encouraged within these pages to spend more time and energy on that which you can control, and not on those elements over which you have no control.

Discipline, consistency, and patience are critical ingredients of a successful recipe for saving and investing toward reaching your financial goals and dreams. Even though there are no guarantees in the world of finance and economics, avoidance of distractions and sticking to your plan are actions each of us can control, at least to a substantial degree. Let’s put our energies into things we can control, and this should take us a long way toward reducing stress and increasing the probability for success.

WALL STREET’S DISTRACTIONS

The point of this section is not to bash Wall Street or to discourage you from participating in the world’s finest group of financial institutions. The goal in this section is to help make you aware of the broad spectrum of distractions and obstacles in achieving your financial goals, which emanate from Wall Street’s approach to marketing its products and services. There are a certain number of Wall Street sayings, or a certain amount of common Wall Street dialogue that unfortunately perpetuate misconceptions—or as I call, distractions—preventing Wall Street professionals, along with a vast number of their clients and customers, from successfully and efficiently achieving their individual financial goals and their financial peace of mind. These distractions are presented and perpetuated by both Wall Street and a majority of investors, but once you are aware of them you can be better suited to ask the right questions, make the right decisions, and take the right steps implementing a well-devised plan to achieve your financial goals.

Writers and commentators have frequently addressed the myths of Wall Street. These often consider misconceptions promulgated by the public relations and marketing divisions of the big Wall Street investment firms. These bullet phrases or common cocktail party expressions are also distractions. They get all of us wrapped up in showing how clever we are in dealing with the stock market and the numerous alternative investment programs presented by Wall Street to the investing public. In reality, virtually all of these expressions and sound bites carry a small kernel of truth, but in the big picture they tend to throw all of us off the path to successful saving and investing toward the achieving of our financial goals. In the following pages, I will present of pretty good cross section of well-known phrases and expressions that—if followed and adhered to—will distract us from the efficient pursuit of financial success, without the stress and worry that most of us endure.

One last point about the names or titles of each of the distractions listed below. Some of them are catchphrases or expressions often stated by either the media or Wall Street professionals or even members of the investing public. Those will be stated in quotes. Other distractions represent Wall Street processes, investment styles or categories, and axiomatic truths believed and followed by the entire industry. The reason I bring them up is that even though they are truths that I myself subscribe to, they still represent distractions from the real work of saving and investing efficiently and wisely in the attempt to meet our individual financial goals.

Distraction #1: Are You an Investor or a Speculator?

As customers and clients of Wall Street, almost all of us would say we are investors, not speculators. But are we correct in our own self-assessment? This misconception alone underscores the central theme and purpose of this book.

An investor is defined as a saver, depositor, financier, shareholder, or one who backs an enterprise seeking to share in its earnings and profits. A speculator is defined as a gambler, risk taker, venture taker, deal maker, trader, or one who puts capital into an opportunity with higher than average risk, seeking higher than average return. One who engages in quick trades, or buys a stock, an option, or a commodity for the purpose of quick gains, would seem to be a speculator. On who purchases stocks or bonds for the purpose of earning dividends or interest payments, and intends to hold them for the long term, would be categorized as an investor.

Anyone who purchases a stock or other instrument for the primary purpose of selling that instrument at a higher price is a speculator, a trader, and is not an investor. If a person