Financial Lessons from Downton Abbey: Invest in What You Know

Financial Lessons Downton Abbey

Are you familiar with Downton Abbey? It is a TV series, set  in the fictional Yorkshire country estate of Downton Abbey, and it depicts the lives of the aristocratic Crawley family and their servants in the early 20th century, with the great events in history having an effect on their lives and on the British social hierarchy.

My wife and I have been hooked on it since we started watching it a few years back (it’s now in its 5th season). It is filled with great acting and great story lines.

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When the series starts, the servants seemed to be resigned to just being servants forever. But as time passes and British society is changing, some of them begin to think of different possibilities.

The Situation: Investing for the Future

In a recent episode, the topic of investing for the future came up. The head cook in the Abbey, Mrs. Patmore, receives an inheritance from a distant relative.

She wants some advice on how to put that windfall to work for her future. She asks Mr. Carson, the butler who is in charge of the entire service for the house.

As such, he is the overseer of all the servants and everyone looks up to him with respect.

Mr. Carson agrees to offer her some advice about investing. However, his information only comes from a brief conversation with Lord Grantham, the head of the family.

The family has been considering some renovations in the estate and he mentions a particular building company to Mr. Carson. Mr. Carson does not ask many questions about it, but he thinks he has enough to go back to Mrs. Patmore.

He tells her that investing in a building company would it be a good place for her money. But, as she asks questions, it is obvious Mr. Carson does not know much more of what he heard. He can’t even tell her if the company has gone public and it is open for investing.

Mrs. Patmore is not too comfortable with Mr. Carson’s advice. She eventually figures out a different option for her investing.

She decides to purchase a property that she could rent now, and then later it could serve both as a retirement home and also as a guest house which could generate some income.

When she conveys her decision to Mr. Carson, he is a bit disappointed that his advice is not taken to the letter. He says this option is just “very small beer”.

However, Mrs. Patmore explains that she is thankful for the advice. But she has to invest in something she understands. The way she puts it I think is brilliant: “It’s my kind of beer and I know how to drink it.

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The Lesson: Invest in What You Know

There are some great lessons we can learn from Mrs. Patmore and her investment decision.

First, it is good to think and plan for the future. Mrs. Patmore was thinking ahead to the day she would no longer work at the Abbey.

You may be just concerned with the day to day operations of your household, but planning for the future should always be part of your financial plan.

Second, when it is time to invest your money, asking for advice it is always a good thing. Mrs. Patmore looked for advice from Mr. Carson, someone she respected.

Ask for advice from trusted friends and professionals and gather as much information as you can.

Third, invest only in what you understand. Mrs. Patmore understood food service and lodging, so she was comfortable in dealing with that and not with investing in the market directly.

You need to invest, not because someone on TV said so or because some family member told you about it.

You need to understand the investment vehicle well enough, so you can explain it to someone.

Of course, learning more about that particular type of investing is always an option so you can invest in it later. So maybe it is not right for you today, but down the road once you know more it could be an option for you.

Finally, and perhaps more important than anything. It is your money so it is your decision. Mr. Carson was not too happy with Mrs. Patmore’s decision.

But here is the thing: It was her money and not his money.

As you gather information and ponder your options, not everyone is going to agree. But you are in control of your financial destiny.

So have the courage to make your own decisions. At the end of the day, we are talking about your financial destiny.

Cast your bread on the surface of the waters, for you will find it after many days.
Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ecclesiastes 11:1-2

3 Questions to Ask Your Financial Planner

3 Questions Financial PlannerIf you have been a reader of this blog for a while, you know that I am all about helping you to win with your money.

I want to share what I have learned about budgeting, saving, and getting out of debt, which are the keys to prosper in your finances.

But there are areas of personal finance in which I myself need help and wise counsel.

For example, I am not a certified financial planner or investment professional.

I do have investment principles I follow, and I also understand what my current investments are and how they are performing in the market.

However, I am not an expert in the area of investing.

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What do I do then? I have an investment professional that helps my wife Stacey and me. And unfortunately, I had been remiss in meeting with him for more than one year. He had sent me an e-mail earlier this year indicating that it was time for a sit down review.

Being so busy, I promptly ignored the e-mail and went about my business. Then a phone call followed up and Stacey answered it. As a good wife will often do (Proverbs 31:10-11), she said something to the effect of: “We are paying him, we might as well take advantage of his expertise.”

Of course she was right as usual, so we made the appointment. We had a great discussion with him and we got a great sense of where we are.

I thought about the appointment beforehand, and I want to leave you today with 3 questions to ask your financial planner:

1. Are We investing in the Right Things?

As I mentioned before, we do have investment principles we follow and investment vehicles we chose personally. You should only invest in something you understand and can explain to someone else.

You should also monitor the performance of your investments on a regular basis. I don’t mean obsess over the daily ups and downs of the market. But do check it quarterly or monthly as appropriate.

So my first question was, are we investing in the right things? How have those investment vehicles performed recently? I wanted to make sure we are still making wise choices.

Our financial planner explained that most of our investment vehicles were doing well, but there was one that had underperformed recently.

Based on his analysis of the results, he gave us a recommendation for a change. Based on his counsel and our understanding of the information, we took his advice and made the change.

2. What is a Safe Withdrawal Rate for Us in Retirement?

This is a question that’s often debated in financial circles:  what to do at the point in your life where you are no longer drawing income from a job or a business? You probably have heard numbers between 4% and 8%.

Your income then will come from your retirement savings. So, how much can we safely withdraw every year in order to make the money last through our retirement?

While I have heard and read about the different percentages for withdrawal, I wanted our planner’s expert opinion as it applied to our personal situation.

We only have one son and he is on his own and no longer dependent on us. We also carry no consumer debt and our mortgage should be paid off within the next 10 years.

So given all of that, what’s that number for us? Because he understood our situation and also knows how our investments are performing, he gave us an answer that we feel very comfortable about.

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3. Are We on track for Retirement?

This is the ultimate question in terms of finances, right? Will we have enough to carry us into our golden years? Will we have enough or will have to work into our 80s and depend on Social Security?

Now listen, I want you to work and do something you love doing until the day you die if that’s your choice. Work is a blessing and we were created to work, excel, and bless others with the fruits of our labor.

But, I only want to do something because it is my choice. I don’t want to work because I have to work. The point of prospering with money is that gives you options and freedom to do what you want to do.

So that’s the question I had: given everything you know about our situation, are we on track for retirement?

I wanted to know if everything we have done in the last 8-9 years was putting on us on the path we wanted to be.

I have been blogging for about 4 years now and sharing with you what I have been doing and encouraging you to do the same so you can prosper.

So this was a good litmus test for all that advice I have been dispensing.

Thankfully I can say that based on our planner’s analysis of our current savings, our current investment rate, and our plans for retirement, we are definitely on track to retire with dignity. We are on track to reach our goals to enjoy our later years in the strength of our financial resources.

Now, no one can predict the future. But you have to analyze and plan as if you are going to be here for a while. You have to understand where you are headed with your money in case you need a course correction.

I am glad we took the time with our financial planner. I am glad he has a vested interest in our well-being. I am glad he took the time to explain to us how we are doing.

So remember, we all need help sometimes. We all need wise counsel from time to time.

You don’t have to go at this alone. Take advantage of the expertise available to you.

Make an appointment with your financial planner today!

Question: Do you know if you are on track for retirement?

The Best Way To Catch The Stock Market Upswings

Dow Jones over 15,000 (May 2013)

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Did you catch it? Did you get to ride this week’s stock market upswing? On Tuesday (May 7), the Dow Jones Industrial Average closed over 15,000 points for the first time in its history. If you are new to the topic of investing and the stock market is as foreign to you as a farmers market, don’t worry. I will try to give you the basics.

The Dow Jones is simply an index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market. In combination with other indices it gives us one perspective on the health of the national economy.

It was a big celebration day for Wall Street (commemorative caps were even made) and rightly so. I do believe that a key component of your financial plan should be investing for the future and I believe the stock market is still good place to invest for retirement and for wealth building. Whether  you are new to investing or a seasoned pro, I want you to be ready to make the most of it.

The best way to catch the stock market upswings is to find your balance, learn about investing, pick an investment strategy, and staying consistent with your investing.

1. Find Your Balance

The stock market consistently has ups and downs (you might remember that the Dow Jones got as low as 6,000 points during the 2008 recession). It changes constantly so it reminds of those massive waves that surfers try to negotiate on a regular basis. Now, I don’t surf but I have observed that one of the keys for negotiating the waves is to find a balanced position.

How do you find that balanced position with your finances? There are some foundational steps you need to complete before you start diving into investing:

  1. Get control of your money via a monthly budget.
  2. Pay off your consumer debt (everything but the mortgage).
  3. Save 3-6 months of expenses in an emergency fund.

If you complete those 3 steps above you will be on a firm foundation with your money. You need to invest from a position of strength and not a position of weakness. Build a firm foundation and never, never borrow money to invest.

2. Learn about Investing

As I watch surfers, I don’t think they began by simply jumping in the water and braving the waves. That would be a sure way to get hurt. You need to understand terms, techniques and you need to practice. Most likely you will need a coach to guide you through the learning.

When you are ready to begin investing, learn all you can. You need good information: What’s a stock? What’s a dividend? How do I get into mutual funds? Are bonds or stocks better in the long run? Is it all right to invest in single stocks?

Find someone who is already investing and doing well and ask questions. You can also find a financial planner that is not simply interested in selling but is interested in teaching and helping you to reach your goals. Read about investing via books or good press/blog articles. The more you learn, the more comfortable you will be with investing.

3. Pick an Investment Strategy

Now we are really talking about the core issue. What is it that you are trying to do? I bet if you ask one of those surfers, their strategy for riding the waves is not very complicated because they need to act and react very quickly. Similarly, just like with anything around finances simple and basic is the way to go. You need to make sure you understand it and that you can explain it to someone else.

For example, my investing strategy is simple. In both my 401K and Roth IRA I am investing solely in 4 kinds of Stock Mutual Funds with a long track record (of at least 10 years). A mutual fund is an investment where thousands of people combine their money to purchase a wide diversity of stocks, bonds or other types of investments. The mutual funds are limited to the type of investment shown in their prospectus.

I am avoiding investing in single stocks and I am not investing in any bonds funds. My wife also has an IRA and a Roth IRA and we are applying the same approach to those accounts. This has been my strategy for the last 7 years and I am sticking with it. I have seen good results so I know this can work.

4. Stay Consistent with Your Investing

Did you know that for those surfers to ride the waves, they need to actually be in the water? Sounds silly, right? Investing works the same way. You have to stay in the market and not panic every time it goes down; or get super excited and alter your investment strategy the next time it goes up. If you stay in the market, you will catch the upswing of the market every time!

The market will change. I got a little worried when the Dow Jones hit 6,000 points in 2008 but I stayed the course and I have reaped the benefits. I have also learned to ride the lows. You have to think long term if you are going to invest. If you need the money within 5 years (car replacement, down payment on a home) you are better off saving it into a money market savings account where it will be safe. If you have more time (like for retirement, college, wealth building), then invest the money and leave it alone. Be consistent!

What’s your investment strategy? Leave me a comment and let me know!

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