Squeeze the Stone

This was a shocker to me, but the more people I started to see after I opened my practice, the more the numbers spoke for themselves. Most of the people who had major credit card debt were people you would consider affluent. It seemed as if the more money they made, the more disrespect they had for their money.
My associate, Janet, recently did an informal survey in our area, and out of the sixty people we talked to, all leaders in the community, all of them carried credit card debt. How much debt? Only eleven had debt below $1,000. All the rest had debt ranging from $6,000 to $45,000. When we started asking around among these people if they thought others like them carried debt as well, they all guessed wrong. They would say, “Absolutely not.,,
All these people made great money and were highly regarded in the community. Credit card debt is rarely created Out of true need. It fills up, even if just for a moment, something else that is missing. If you hide it from others, as these people did, and believe you’re alone in your debt, you create a secret as burdensome as the debt itself.

When people come to see me and start facing the truth about their finances, they’ll often say, “Well, I owe my brother $5,000, but what I’m really worried about is that I owe $8,000 on my credit card bills.” But I’ve seen money destroy personal relationships so many times, and I know what loaning money to, or borrowing money from, someone you care about can do to both of you. Remember: People first, then money. Personal debt is every bit as important as institutional debt, and I would much rather have a credit card company, with all its resources, tracking me down than watch as my best friend grew more and more resentful the longer I waited to pay her back the money she lent me in good faith and that is long overdue to her.
It’s this simple: Whether it’s personal or institutional debt or both, you must face your debt head-on. Otherwise the disrespect starts to take root in your soui. Even if you have permission from the person who loaned you money to take your time, it will still weigh heavily on your heart every time you think about it (which will be often) and fail to take action. It will be harder and harder to face people to whom you owe money in person. Remember: Disrespect repels money. Not paying your debts is a serious form of disrespect that makes it almost impossible to find new ways to create new money to pay off old debts. Not paying debts will not make them go away; instead, it will make your money vanish, and possibly your friendships, too.

Credit cards can be as addictive and destructive as hard drugs, with the same ability to create a false sense of euphoria, give you a quick fix by satisfying temporary desires. Drugs are different in one respect, though. In most cases you have to seek out the drug dealer. Credit card companies seek you out. The more you use the cards, the more new cards, with enticing offers and promises, will come your way. In fact, all you have to do now is answer the phone. Credit card companies have taken to the phone lines to call you directly to see if they can get you addicted to what they have to offer.

Credit card companies are very smart and seductive, and they know exactly what to do to get you deeper and deeper into trouble. Have you ever noticed, for example, if you’re one of the many among us who are susceptible to credit card debt, that you find that as your balance keeps creeping up and up, your “available credit” total keeps going down and down? Then, right before you have used up your total credit limit, all of a sudden, without even asking for it, you get a letter in the mails saying that because you’re such a great customer, they’re raising your credit limit by $2,000. What a great company! With financial “friends” like this, who needs enemies? Before you even know it, you’ve used up that extra $2,000 limit, and you’re in more debt than ever before. Not to worry. Those magic credit genies will extend your limit again, just in the nick of time. You are a great customer!

Michael also wasn’t trusting the principle that time creates money. The first thing you need to know about investing is that there has never, in the history of the stock market, been a ten- year period of time during which stocks have not outperformed every single other investment out there, regardless of the day that you invested. Even if you had invested in a variety of stocks the day before the October 19, 1987, crash, when the market went down five hundred points, ten years later, had you left the money there, you would have made far more than with any other investment. At forty, Michael had twenty-five years for the money to grow before he would turn sixty-five, well more than the ten it generally takes to watch your money really grow. I am always thrilled for myself and my clients when the market goes down and we have money available to buy more shares.
The best investment advice I could give Michael was to go back into the 40 1(k) and take that $750 he wants to put into it every month. But this time he should diversify the money among two or three other good funds in the plan, be patient, and wait for time to touch his money.
This kind of investing is being respectful to what you have and respectful to what you want to have. It is not going out on a financial limb or taking a gamble with everything you have.
But you also have to watch over those things that whittle away at the money you want to create. You must also be respectful to the money you don’t have.

Michael is investing here for the long term, not just for a year, and this fund is not going to stay down forever. Let’s take dollar cost averaging through another year.
Let’s say the market starts to rally, as it always does sooner or later, and he keeps putting in the $750 every month. Since the market is going up, by the end of the year he has been able to buy 685 shares, fewer than the year before; the fund ends up the year at $15 a share.
In total, he has put in $18,000 over the two years, in a fund that started at $15 and ended at $15 but was considerably down in between. He now owns a total of 1,450 shares, 765 from the first year and 685 from the second. But since the market was down so much of the time, what’s the best you think Michael can hope for—that he broke even? He did better than that. At $15 a share his total shares are worth $21,750, which is a 21.7 percent gain on his money over the two years of market fluctuation. Not bad, huh? If you’re not going to be cashing out for years to come, the more shares you accumulate the better. When the market does skyrocket, you will have made very good money.
This is not to say that if you buy stock that starts to go up, you should be sad—but here is a no-lose case, because you win in the end with a downslide as well. With dollar cost averaging you don’t lose as much as you could have if you had invested in one lump sum just before the market goes down. If the market goes straight up from the time you started, you won’t make as much, either. In my opinion, this is a really safe way to take risks—the best of both worlds.

When I say you should be happy if your fund starts to go down as you’re buying it, I mean be happy if all the funds that are similar to yours are also going down. You want to make sure that your 401(k) plan, and any other mutual funds you hold, are with a good portfolio manager (page 204), one who is able to do as well as or better than other comparable managers. If your fund is going down and the others are all going up, then you do need to take action; check with your human resources department. If the market starts to go down, just keep an eye on your funds to make sure they’re not going down more than other similar funds. If your portfolio manager can keep your money from going down as much as the others in a down market, think what she’ll be able to do when the market goes back up!

With dollar cost averaging, you are taking the money you’re investing and averaging the cost of the shares you’re buying over time. Since you are investing every month, wouldn’t you rather buy into your funds when the market is low, so you don’t have to pay so much for your shares? Of course you would.
When what you are buying goes down rather than up, that means you’re paying less and are able to buy more. I always think of it as a mutual fund sale—getting what I want for less than others had to pay just a few months earlier. Michael got upset because the shares he bought went down in price over a few months. Had he stayed in for the long run, however, he would have made everything back plus more when his mutual fund started to climb again.

Of course you don’t, nor does anyone want you to. When you begin paying yourself every month, as you do with a retirement plan, not only do you get more long-term bang for your buck, you also take the risk out of investing this money. So you don’t have to be afraid. When you put the exact same amount of money month in, month out, into the same investment vehicle, you are taking advantage of the investment strategy known as dollar cost averaging. It puts time, your money, and the market all on your side at once. (We’ll talk about this more later.)
I believe this with all my heart, but regardless of what I say or what anyone says, you should invest only if you want to. The reason I say only if you want to is that even though investing for growth may be the right thing for you to do economically, it’s not the right thing to do if it keeps you up at night worrjing or makes you afraid all the time. As you’ll see in the next chapter, you must always trust your own gut feelings about money. If you can’t live with risk, you must invest where you feel safe investing. Perhaps your new truth will make you feel stronger about taking risks. Maybe reading throughout the rest of this book will make you feel differently about risks and your fears about money. But respect yourself first, and however you choose to invest, take care to understand how things work—or you might end up doing what Michael did.

One thing that your mind will try to tell you is that when you invest money, whether in your retirement account or on your own, you have to keep it safe and sound, that you can’t afford to take risks with it. Wrong. The truth is that you really can’t afford not to take risks. You have to invest this money for growth, especially if you are under the age of fifty. The younger you are, the more aggressive you can be.
As long as you have at least ten years during which you won’t have to touch this money, invest the majority of it for growth.
Put your money in whatever stock or equity mutual funds your 401(k) offers. If you are in a SIMPLE, IRA, SEP, or Keogh, and just want to keep your life as easy as possible, look into good no-load index and managed growth mutual funds. Your investment mix can also include a very small percentage in international growth funds if your company offers it. Over the years, stocks or equities have outperformed every other investment out there—so again, the younger you are, the more aggressive you can be.
When you start approaching retirement, and know that you will soon be living off this money, it’s time to consider easing up on your more aggressive investing. Even so, it’s always best— and perfectly safe and sound—to have a nice mix of funds and keep your money diversified.