I love encouraging things to grow.  My backyard garden is bigger and brighter this year than it was last year.  Each year it blooms and surprises me because it never looks the same from one year to the next.  I have been thinking about this post for over a year.  The idea for it came to me one day while I was watching the birds feeding outside my window.  Before I get into this post, though, let me tell you about my ants and aphids.  I hate them both.  A few years ago, I began spot spraying in my yard.  Aphids love fast growing plants.  They tend to congregate on new growth and literally suck the life out of that new growth, distorting the plant, injecting viruses and depending on the plant’s age and overall health, destroy a plant.  Ant’s help the aphids by transporting  them up the target plant and, together, they force the new growth to secrete the juices that both insects seem to love.  I see an aphid and I go into Rambo mode, get out the insecticide and scream “die, die, die” as I spray jets of poison onto the affected plant.  Looking for aphids is part of my daily routine.  Trouble is that spraying is a vicious cycle.  I spot spray because I know I have beneficial insects in my garden that I do not want to harm.  I have aphids, however, because they seem not to be doing their jobs.  There is a part of me that screams, “kill the lot of them, and start over,” then rationality takes over and I look for other ways to solve my pest problem.  When I spot spray, I will control the pests in one area of my yard for a month or so then the problem recurs.  Once you spray, you have to continue to spray and therein lies the problem.  Pesticide is cheap, though, and what I need to do to control the problem naturally is comparatively more expensive.

Turns out that birds and wasps love ants.  Lady bugs love aphids but will get swarmed by the ants if they are present on the same plant.  I have decided that every creature in my yard must have a job and do that job.  The birds are no exception.  In order to keep them around, I actually have to set multiple water stops and feeders around the yard. Funny thing is that when the feeders are full, the birds won’t eat the ants.  A couple of days ago, I watched a beautiful green oriole perch itself on the broad leaf of a sunflower plant.  Patiently it picked at the ants.  The feeders were empty.  I imagined that perching itself on a leaf while eating was hard for that bird.

When I put bird feed out, birds eat in a predictable pattern easiest to hardest.  First they eat the seed that fell on the ground when I filled the feeder, then they sit in the open feeder and feed, then they feed at the hanging feeders with perches on them.  To use these feeders the birds have to perch on a bar or small platform and pick their food.  Then and only then do the birds forage on the ground or perch on the plants for food.

What I realized is that when it comes to personal finance, we are like birds.  We do what is easiest first and we do the hard only when forced to.  So the easiest thing in the short term is not to have a financial plan at all.  The next step up is to start saving a portion of earnings each and every month.  The next step is to decide what to do with those savings by deciding the asset classes we want to invest in, analyze investments and make sound investments while simultaneously incurring, yet minimizing, the risk of loss.  Somewhere along the way we have to protect our income and assets through the proper use of disability and life insurance.

Not having a financial plan is like standing on the ground and eating the food that just happens to spill to the ground either when the feeder was filled or while the other birds feed from the feeder.  Setting up a savings plan is like hopping into the feeder.  It requires a bit more effort, but the long term rewards are significantly greater than just waiting around on the ground.  Analyzing and purchasing investments and protecting your income and assets is like foraging on the ground or perching on the plants and picking food.  It requires a great deal of effort and some risk, but the food is in abundance.  I have ants, worms and beetles galore in my yard but I also have predators.  One year I watched a bird and a bull snake tumble on the ground near a stand of trumpet honeysuckle.  The bird lost the good fight.

The next time you have trouble putting your financial plan into action, consider the next bird that you see and realize that your brain is so much bigger than his!

Please comment!

In a October 2008 NY Times Op Ed piece Warren Buffett wrote the article Buy American. I Am.
His article was touted as an unqualified endorsement of the stock market for average people. Mr. Buffett did say that he was buying American with his private portfolio and repeated his basic philosophy to be greedy when others are fearful and fearful when others are greedy. But there are two key things that Mr. Buffett did not say and as an individual investor with a 401K who is planning for retirement, these omissions are critically important.
Mr. Buffett did not say he was buying index funds or actively-managed mutual funds. He did say that he was buying sound companies at attractive prices. In short Mr. Buffett is financially literate and understands how to value companies and how to buy them.
Mr. Buffett did not say that he was investing to live on the proceeds in retirement. In fact it is pretty clear from the article, his time horizon is infinite. While the near term may appear uncertain he feels that there will be stock appreciation due to earnings growth over the next 5, 10, or 20 years. Mr. Buffett was 78 when he wrote the Op Ed piece and is looking at what he feels the long term appreciation of the markets will be to guide his investment decisions today. In other words he is not looking at the risk inherent in any portfolio in which the owner will need to make withdrawals for income. In fact, I would guess that his personal holdings are not in a tax-deferred vehicle at all. Mr. Buffett is a prudent investor with a sound buy and hold strategy who is disciplined enough to keep his turn-over and his capital gains at a minimum. It would not make any sense for him to hold individual stocks in a vehicle that would require that he begin to sell holdings at age 70 and a half as IRAs and 401Ks do. The vast majority of individuals who read that letter are people who invest in the markets through a tax-deferred or tax-advantaged vehicle like a 401K or the Roth IRA and are worried about creating sufficient income to live on in retirement.

In retirement, I’m more worried about cashflow than where I believe the Dow will be in 20 years. I have just a hand full of ways to create that cashflow: I can invest in the market the way most Americans do and hope that when I need the money, my account has sufficient value to generate the cashflow I need. I can start businesses that create cashflow or I can do a combination of both.

What do you see yourself doing to create the retirement you want? Please comment.

Several months ago, I heard about the 1-hour special from this American Life called “The Global Pool of Money” originally aired in May 2008.  This American Life did a follow up broadcast in October 2008 called “Another Frightening Show about the Economy”.  They have since done 2 more.  All of their shows can be listened to for free online or downloaded via iTunes to your ipod.  I follow the economy through Nouriel Roubini’s site RGEMonitor and RealClearMarkets.  “Global Pool of Money” and “Another Frightening Show About the Economy” both do an excellent job of explaining the macroeconomic circumstances that helped us land in this crisis and esoteric terms such as credit-default-swaps and mortgage-backed securities.  Listening to this you realize that there is plenty of blame to go around.  Yes, there were greedy bankers, greedy investors, and unscrupulous mortgage brokers, but there were also greedy consumers who knew they were not credit-worthy borrowers to begin with.  I am afraid that greedy bankers, just like the poor, will always be with us, but so will greedy consumers.  Because of this, I honestly feel that our long-term prospects for preserving wealth and avoiding another crisis are dim.