1,100 Words to Read Now
According to William Shakespeare in his play “Troilus and Cressida,” “Words pay no debts.”
As some modern-day scribes would have it, however, words not only may be able to help you pay your debts, they may also help you save money and secure your future.
This month marks, besides the 10th anniversary of the 1987 stock market crash, the 25th anniversary of Money magazine, a publication started with the idea that ordinary people can, with a little guidance, handle their own financial affairs.
The years since have spawned a sizable genre of finance media bent as much on offering advice as covering the news. You see it in magazines--Kiplinger’s Personal Finance, Smart Money, Worth, Your Money, Mutual Funds--in TV and radio programs, and in newspaper columns.
Clearly, this writer and these pages are part of a general effort among many publications to make personal finance an everyday subject.
But that doesn’t mean all these efforts are for the good. Throughout its history, the finance media has faced a double-edged sword: It is able to provide objective financial advice, but it also has a product to sell--itself. For the magazines, that means coming up with something jazzy every month in order to sell copies and keep the machine in motion.
And that is why Money and its ilk are both loved and reviled--often in the same breath--by investment managers.
No one questions that the magazines raise vital issues and educate a great number of people about managing money, cutting debt, investing and saving. Rather, it’s the way in which this good work is sometimes accomplished that drives financial advisors to distraction.
It’s the cover stories shouting about “10 Stocks to Buy Now,” “8 Top Funds for the Next Decade,” or “The Best Places to Keep Your Money” that are the problem.
Part of the trouble arises from the way magazines operate. Some of the personal finance publications, Money included, test-market cover lines. These are the blurbs to describe a story, the ones intended to make someone want to buy the publication on the newsstand.
Each month, the magazines develop possible cover lines for the stories they are working on. The ones that score high with the test audience are the ones that get published.
And to most people, “Where to Put $1,000 Now” is more enticing than “How to Dollar-Cost Average.”
But the short-term thinking that sells a magazine is exactly what most investors should be avoiding. Far too many investors have become unthinking collectors, ending up with portfolios overstuffed with “hot” picks that later went cold.
The magazines defend themselves against such criticism by noting that they encourage readers to dig deeper, that the suggestions must be taken in context, but that they can’t stop someone from buying a list of stocks willy-nilly. And after all, they are giving readers what they want.
“If you followed the advice of these magazines on a regular basis, you’d be turning over your portfolio three or four times a year,” says Charles Foster of the Del Mar, Calif., advisory firm Blankinship & Foster. “That’s no good for anyone. Worse yet, if an investor doesn’t know which articles to trust and which ones to throw out, they might wind up following only the bad advice.”
So the trick to getting the most from the personal finance media--be it my columns, the magazines, the Internet or television--is to be able to separate the truly helpful stuff from the trash. (That’s exactly how I read the personal finance magazines: ripping out the stories worth reading and tossing the rest.)
The financial advisors I talk with say that’s not hard to do if you know what to look out for. It boils down to four key words:
NOW!
Most of us aren’t--and shouldn’t be--investing for “now.” We’re investing for the next five, 10 or 40 years.
The concept of “now” is big in the finance media but ignored by most investment advisors and smart investors. They don’t feel the pressure to “do something now” because frequently “nothing” is the best thing to do now.
You don’t want, for example, to bail out on a holding that has been headed south for a while until you determine that the investment no longer meets your needs or expectations. And making that determination may take a while.
An exception to this warning would be “now” stories dealing with something time-sensitive--such as rearranging your portfolio before a tax deadline.
NEXT!
The mainstream magazines give broad-brush personal finance advice. It is impossible to tell someone what to do “next” when you don’t know what that person has already done.
All too often, some financial product or service will be touted on the cover as the next great investment. Once you get into the article, though, you will discover that it would only be good for people in certain unusual circumstances, or that there are many risks or drawbacks to be considered.
Before you jump into the “next” anything, you have to know where you will land. If a publication tells you what to do “next” and you’re tempted to try it, do a lot more digging first.
BEST!
On the cover of a magazine, “best” sells. In your portfolio, though, you’d rather have “most appropriate for you”--not words that would jump off the magazine rack.
What is best for one investor is not necessarily best for another. For example, whenever one investor buys a stock, another is selling it. Though their actions are opposite, each presumably thinks he is taking the best action in the deal; if he is, then each has done what’s most appropriate for him.
TOP!
All too often, the finance magazines tout top performers just as they are about to take a fall.
You can spot the symptoms of the syndrome: A mutual fund gets hot; after several quarters, it gets noticed; it hits the cover and gets a flood of new money. By that time, the market segment that drove the hot performance is cooling, the manager has a hard time investing all that extra money, and so the fund’s performance begins to fall back toward the pack.
Remember, any indication of performance only tells you what happened up to now; it’s not necessarily a prologue to what will come next.
“The key to long-term success is to stick with an approach that you believe in,” says James Owen, an investment advisor for more than 30 years and co-founder of the California Hedge Fund.
“You don’t have to be a great mastermind doing something to your investments all the time to be successful. You just need to keep in mind that these magazines sell more copies by telling you what you must do than by telling you what not to do.”
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Charles A. Jaffe is personal finance columnist at the Boston Globe. He can be reached by e-mail at jaffe@globe.com or at the Boston Globe, Box 2378, Boston, MA 02107-2378.
