Teacher's Guide to Finance

Do’s and Don’ts of investing for your child or better yet your Grand child
1. Teach yourself about the cost of an education today and what it will be in 18 years when your child goes to high school.
2. Set goals, and if your goal is for your child to attend an ivy league school or comparable, then you know how much you will have to set aside; factor in that as you age your income should be rising so you will be able to set aside more when you earn more.
3. Open a stand-alone account known as a Uniform Gift To Minor Account so the college fund is segregated in fact and in your mind, it is not an emergency fund!
4. Choose appropriate investments based on when you will need the money; invest in growth when your child is young and as you approach high school graduation shift the assets to money markets and more predictable assets.
5. Take risk when your child is young so you take a shot at ultra high returns when you have time to recover and when the amounts you are investing are smaller.
6. Grandparents are allowed to gift up to $20,000 per year, and less is ok.

Cost of an Education
While today’s costs seem out of reach you can mitigate many of the costs by analyzing all your sources of income and figure out how much you can cover and how much your child can borrow. Stay realistic, champagne tastes and beer budgets can lead to defaults on school loans. In many cases the state school provides as good an education as any other school, the contacts for the future are different but explain that to your child. That is how the world turns.

Set Goals
If you think your very young child is going to attend USC for example, and won’t be playing football, then figure the cost of an education to be about the cost of a new Range Rover every year. In 1990, the range rover cost $31,750 and in 2010 it costs $65,000. That adds up quickly but you can do it if you start early enough and plan accordingly.

Uniform Gift To Minor Account (UGTMA)
Set up a UGTMA at a discount broker and contribute to the account monthly. This has a very important impact on saving and investing for your child. If you co-mingle your assets with your child’s then you are prone to dip into the funds, like an emergency vacation or sure thing investment (rarely ever). Additionally, the account is an excellent place for grandma, grandpa, and rich aunt Louise to gift your pride and joy.

Invest for your Child’s Time Horizon
Invest so the money is available and liquid when your child needs it for the first year of college. If you have 18 years until college, invest in growth stocks or funds; you have time for them to work out if you choose the wrong investments. As you approach graduation become more liquid so you can pay for tuition, books and all the other attendant costs of college. Grandparents should consider US Treasury Bonds maturing upon graduation from high school. They can invest more at once and feel confident it will be there for your child.

Risk Taking
I paid for my kid’s education mostly with stocks I bought when they were very young. I invested in robotics (Denning Mobile Robotics), biotech (Amgen), and technology (Microsoft). Take the risk when they are young and shoot for outrageous returns, by all means research and read all the business news you can, it will pay off with good ideas for your high-risk phase of investing. Risk will always be with you, so learn how to take it and how to limit it!

Grandpa and Grandma
Encourage your parents to gift if they are able and thank them profusely if they do. The best way for them to gift is to use conservative investments that have predictability and require no management. Any time money is involved people like to maintain control. Gifts represent a way for people to influence something they believe in and want to support. Grand children are the reason to have children, after all. They are cute and loveable and they go home at night, what a prescription for on-going fondness. Grandparents can gift up to $20,000 per year, and won’t that pay for just about any education?

The last time teachers had so much to worry about was never. Even during the most significant economic downturns teachers like politicians didn’t have to worry about work or pay. What happened you ask? Well the number of people in the country has grown steadily over the years and that has set up a perfect storm. The increase in population had historically been matched by an increase in productivity. Had productivity and population remained in balance, teachers would continue to have good paying jobs and the security that comes with it.

Since productivity fell off, something had to give and God forbid the politicians and their minions take a cut. Based on recent events they will be the last to see anything resembling a reduction. Consequently, teachers have become the sacrificial lambs in the battle to keep the ship afloat.

Teachers are emblematic of our country’s goal to promote education as a way to realize the American dream. If you want to get someone’s’ attention go after teachers since they are in fact surrogates for our children and in the words of the reverend Arsenio Hall in Coming to America, “They are our future!”

By issuing Pink slips near the end of the school year, the politicians can deflect the wrong they have done and simultaneously pull on the heartstrings’ of the public. And the public is where they get their money to run and fill the coffers. It is about money!

What do you do if you get the pink slip? First, don’t panic, take a breath and remember you have a solid education and while you may have to do something other than what you love, the economy will improve. Hope springs eternal and the demise of our culture has been wildly exaggerated, thanks to the media. As written in The Teacher’s Pocket guide to Finance, you must look at investments as long-term endeavors. Your education was the biggest investment you will ever make, it is the foundation for a successful life. No guarantees, but plenty of evidence to support my view.

If you had followed my recommendation to put aside 10% or “pay yourself first”, you would see the pink slip and realize you built a buffer for this possibility. Finance is about using other people’s money and forecasting what could happen. At some point you will have to make assumptions and for the foreseeable future, the budget cuts and consequent pink slips will be with us. Ride it out and prepare by saving and paying your self first until this debacle of historic proportions passes. Do not panic, you have invested mightily in your self and over time that will pay off.

Stay the course and think long term, you are not alone and it will pass!

The honeymoon is over, what next, financially speaking? Every couple confronts the moment when they have returned to their home or apartment and need to acknowledge they have gone and done it. Married and wow! The marriage is on. Financially, things will need to be done to become a legal couple.

If you think in terms of the old adage, “Two heads are better than one”, then you can be successful. If there isn’t a commitment to this philosophy there could be disconnects with the finances and the relationship. I have seen too many marriages fail as a result of lack of consideration with matters related to money.

Things to do after the nuptials and honeymoon have ended:
1. Set up joint accounts to hold funds generated by the new couple.
2. Agree who will pay the bills.
3. Do an accounting of all debts, including student, automobile, and credit card debt.
4. Create a monthly budget to share exactly what your outgo and income amount to each month.
5. Agree on a tax advisor and who will take the lead for tax related issues.
6. Discuss who will do what chores around the house.
7. Discuss career plans, what you are going to do the next years.

It is normal to have questions about each person’s role in the new partnership. As individuals you might make your own decisions or you may rely on a parent for guidance. In any event, you will now be expected to consult with your partner on just about every facet of your lives together. At some point, all these roles and questions will be answered but it would be better if you discuss before they become contentious things in your new life together.

Write things down and don’t rely on chance to make things work out for you. For example create a balance sheet that shows your net worth and an income statement that shows your income and outgo. This will help keep spending in line with your means. Discuss the negative side of credit card debt; you must understand as a couple that what one of you does affects the other. Furthermore, credit cards can decimate a marriage faster than a bachelor party in Vegas. Too many couples are undone by one being the spender the other being the saver.

Set goals and stick to them. You need to plan retirement and savings as early as possible in your careers in order to reach your goals. Review your joint balance sheet once every three months and your income statement (Salaries after taxes and Bills/Outgo) each month. Try to anticipate bills so a tax bill doesn’t shock you for several thousand dollars, which crushes a vacation that is much needed for a young couple.

Communicate every day and night, respect each other’s opinions, and never go to bed mad! The patterns you create from this day forward will only be reinforced, so make them positive for a loving couple to share.

How do a young mother and father save enough for their child’s education? Saving may not be the best way as it turns out. As young parents they should have a portion of their savings redirected to discovering Diamonds in the rough. These are stocks that are going to make a difference in their child’s life. And like diamonds in the rough, they will be difficult to find. There is risk of looking and not finding any diamonds; if it were easy to find diamonds they wouldn’t be worth so much would they?

In the investment field there are two types of ‘diamonds in the rough”. One is the old well known company that is about to explode due to new technology, and the second is the company that is just starting out and has something so unique that the stock will grow thousands of percent, creating a real bonanza!

Diamond No.1
An example of a company that is well known yet has tremendous upside would be Novo Nordisc. This pharmaceutical company has developed new products to address the diabetes epidemic and is very close to marketing multi billion dollar drugs that will dominate a part of the market that is growing worldwide. If you look at Novo, you will see a very solid performer that has not done much in the recent past. It is a good candidate for growth if its newest diabetes products make it to market as planned. The downside risk is if a competitor can come up with a product to beat the results of the Novo product. Your expected return for this stock would be to outperform the overall market over the next 1 to 2 years. It wasn’t always like this however. In the past Novo experienced huge growth.

Diamond 2
This diamond is very different than number 1, it is not well known and is a very new company. It is very hard to find but you can do it if you work hard and are willing to take a risk of losing your investment if it doesn’t pan out. This company is involved in very new and untried technology. This company is Isis Pharmaceutical.

What is interesting about these two companies in my opinion is that they are also very similar, the only difference is one is older and in a different lifecycle that the other. If you investigated Novo years ago it would look much like the much younger Isis based on the criteria I use to evaluate these diamonds.

The Criteria and Questions to Ask
1. Evaluate the founders and people making the company run.
2. What is the market for the product, size potential and demographics?
3. Who are their competitors?
4. What is the likelihood that investors will stay in the stock and ride it out over along time frame?
5. Who is the CEO and is he capable of leading the company?
6. Is the industry growing and what is the outlook?
7. Review the demographics of the market their product will address, is it growing and does it have the money to pay for the product?
8. What is my downside risk, and how much can I afford to lose?
9. Run the idea by knowledgeable investors, remembering that if it were easy to spot diamonds everyone would be rich and diamonds would be worthless.

The value of Novo in 1994 was around $5 per share; today it is worth $140, a 2800% increase! If you evaluated Novo in 1995 and compare it to Isis using the above criteria, you will see many similarities. The criteria for evaluating high risk stocks has served me well, not all winners by any means but when we were a young family without many assets, this proved an excellent strategy to prepare for our children’s education. Most importantly, a $1000 investment in Novo in 1996 is now worth $28,000, just about the amount of tuition and books for my alma mater for one year.

Take into account your own risk tolerance and read my book so you understand that this is one of the key features to investing for your child’s education. Those diamonds will lay undiscovered in the rough unless you do the digging and research to uncover them.

The Greek Tragedy that unfolds daily in the media is a sad drama and commentary on the long-term effects of largesse. They have given until it hurts and in the process created an uncertain future for one of the oldest and largest economies in the human history.

Euros were created as a way to bring the trading partners of Europe together so they could act more like the United States of America and do commerce without boundaries. However, someone neglected to account for the differences in culture between these geographically close traders. What has unfolded over the past year is a drama of historic proportions.

Greece is emblematic of how giving away social programs without consideration can cripple a country and create a wave of doubt about the entire Euro trading zone. How does this effect teacher, you ask? Primarily it has lowered our interest rates for just about every type of interest related investment or financial instrument. Additionally, it has created an aura of doubt whereby investors don’t know whether to shit or get off the pot.

Doubt=Indecision and indecision cripples economies, not decimating rather slowing them down to a crawl. For a teacher that means lower interest rates on your investments and on your loans. It suggests a type of economic limbo and until all the issues surrounding the Euro based trading partners are resolved this limbo will continue.

Here are my suggestions for dealing with the Euro dilemma.
1. Refinance and be ready to do it again in a year.
2. If you invest in bonds, look for rates to ratchet down again, which can cut your income and cause appreciation in value.
3. Stay away from the riskiest assets like gold, oil and many other commodities, unless you are willing to be a trader and stay close your computer.
4. If you are planning a vacation, stay away from areas where emotions are high, Athens, Greece for example.
5. Look for opportunities in US based multi-national companies that pay dollar denominated dividends and have most of their money coming from the USA, China, and Brazil.
A few years ago, the USA was in a very similar predicament to Europe today and it found a way out by driving interest rates down. This effort by the Federal Reserve drove the dollar’s value down and shifted people’s focus to riskier assets like junk bonds. Along with this strategy the Federal government printed billions of dollars and loaned it to big banks so they could in turn lend it to their clients at lower interest rates, in effect allowing the struggling companies to refinance their debt and save billions on interest charges. Of course the small investors saw their interest payment s from bonds drop dramatically as well.

Today, I have heard elder retirees say things like, “How can I pay for anything, I am getting under one percent for my CDs.” Elders, who only buy conservative investments like bank guaranteed CDs, and did not want any risk, have suffered the most. As a consequence of the federal government lowering rates the smallest block of voters has been the most effected. What’s new? In the case of Europe, the pensioners and elderly will most certainly feel the most pain due to the crisis in Greece. Greece is not the problem; it is the canary in the mine, when it dies the other Europeans will run for the cave’s maw. Put another way there will be an exodus from risk (Euro) and a flight to safety (dollars). Which may drive rates lower since most people agree the USA is still the safest haven as long as our banks don’t load up on more high yielding European debt!

There have been many teachers retiring across the USA over the past few years but that is about to change as many more teachers begin retiring. The baby boom is upon us. If you are given a “Golden Parachute” deal, then the adjustment to retirement can be especially mind altering. Ok, so this is what you do if you have taken the “deal”:
1. This may be sudden but you have been thinking about this for quite a while, so don’t panic, although what you are going to feel is normal. The effect of a Golden Parachute is more emotional than logical so don’t feel that you are alone, everyone goes through the move to retirement, and this anxiety will pass.
2. This is a very good time to review your income. Know your sources of income and how it will be sent to you, monthly, quarterly or semi-annually. Whatever the case, compare the income to the outgo. Do a spread sheet that illustrates by month how your income will arrive.
3. Review the third Lifestyle in my book, Teacher’s Pocket Guide to Finance.
4. Consult with a fee based financial consultant if you have any doubts in your financial future. You should have started this proces months ago.
5. If you received a lump sum distribution or will receive payments for the Golden Parachute, use those funds for living expenses and continue allowing your retirement accounts to grow untaxed.
6. Draw funds from taxed accounts before you begin to draw down your retirement accounts, defer, defer, defer your taxes when possible.
7. Give yourself 6 months to one year to fully appreciate retirement. During this time the income stream from your pension, savings and investments will make more sense. It takes time to absorb the move to retirement, everyone feels it, some more, some less.
8. Begin trimming expenses when possible but don’t obsess! Having an accurate checking account leads to better cost and cash controls. Once you reconcile the new income stream with monthly bills, you will feel a measure of relief over time.
9. Do not succumb to pressure of financial hawkers! At this time, make slow deliberate moves with your assets. If you have a lump sum to invest, review my description of Dollar Cost Averaging and Laddered Bond Portfolio in the Teacher’s Pocket Guide to Finance.
10. Get in good physical and financial shape and learn to eat for a long life. The stress of the job will fade and you will experience a new type of freedom that is more relaxed than stressed. It is what you worked for, so enjoy.

Until next time, love long and prosper!

You are ready to hit the door and take off for the summer! Hooray! Well, take a breath and focus for just a few minutes; this will help you enjoy the precious time off.
1. Figure out how much disposable money you have to take a vacation. Be realistic and consider a staycation if funds are limited.
2. Review your earnings for the last school year and know exactly how much you took home. Your net pay is what counts and this is a good time to review how much you have after taxes and household expenses. Then you know how to plan your summers off and how to avoid credit cards, they are evil for teachers.
3. Make sure your checking account is up to date; after all you have been busy managing a class and a life to boot. Your checking account is the best resource for budgeting and controlling expenses. It is a cash management tool, do not give into treating a credit card as a revolving credit line, use your checks, they’re like cash.
4. Review your healthcare, pension and 403(b) accounts. You may see a way to put a little more into your retirement plan next year, especially if you get a raise. Consider re-balancing your portfolio. You should do this quarterly and make adjustments based on your view of the economy. Sadly, this is the first time in months that you have had a breather so review your financial assets. If you use a financial planner this is a good time to see her.
5. Buy at least 3 books for your summer reading, I recommend one financial, one self help and one for fun, what ever your fun is. Most of what you learn over the summer stays with you, so use this time to add to a balance in your life.
If you want to discuss any other areas of finance please go to my Facebook page for contact. Anytime you have a question, there are thousands of teachers who have the same question, guaranteed!

He picked me up in his Mercedes Benz S class for our luncheon interview. Riding with a millionaire, the first thing you notice is the ease and confidence in his voice and the way he drives. He has a very calm demeanor, but you know he is listening and processing; you must respect his aura.

Interviewer (I): So how did you make your money?
Millionaire (M): It took me 30 years to get where I am now, and the money was a by-product of getting here.
I: So getting here was the important part of making the money?
M: Don’t get me wrong, look, the money was always the over-riding goal but focusing on making money and always moving up, was more important than saving money. I figured if I made enough, the accumulated payoff would happen.
I: You don’t think you could have made a million bucks if you focused on saving it rather than focusing on making it?
M: I never focused on saving, it was all about making more of it and then I thought once I had made enough, then I could worry about saving it. While I was making it, though, I always did my homework and learned about what makes money work and how to use its value to my benefit. It was always about the deals and single-minded goal of getting things done, no matter how long or how much effort it took.
I: Your intentions were to make a lot of money then learn how to manage it?
M: That’s about right.
I: Switching gears then, if you were advising a teacher how to make a million, what would you tell them?
M: Hmm, a teacher? That’s challenging, in my opinion that is a real conundrum because I think goals guide us and in general I don’t see teachers’ as focused on goals related to making millions of dollars. In general, I would say the first thing a teacher would have to recognize is their goal setting would have to take a new direction.
I: For example how would you advise a teacher who chooses to make a million dollars?
M: I would tell them;
First, goals to be a millionaire should be set in increments of 5 year, 10 year and longer term.
Second, the goals should be put in quantifiable terms, for example to make a salary that would achieve geometric growth in salary, way beyond the established annual cost of living increases called for in most educator contracts.
Third, a teacher must be able to imagine that what they are doing will allow them to live, spend and accumulate material things like a millionaire, not a struggling educator.
I: Breaking the mold, so to speak?
M: Yes, I tell young people I know, that if they want to be a millionaire, go to a very upscale neighborhood and see what the people in those neighborhoods do to live in that lavish lifestyle. It is so simple and common sense, see what a millionaire does to make a million and try to do the same thing. Teachers are smart and able to motivate people, and that is more than half the battle to making a lot of money.
I: What would you tell a teacher that wants to teach children but wants to make a million anyway, since not many millionaires in high-end neighborhoods are teaching 5th grade.
M: I would say to them, that it would be very difficult to make and keep a million dollars available for retirement. Furthermore, teachers would have to sacrifice, and/or meet someone you can share your life with and combine your talents to save and invest. That is your best shot if you want to make a liquid million for retirement. It can be done but it takes discipline and focus on long term investing. Investing in stocks has done the best job for anyone working on a salary that has upside caps on earnings.
I: To summarize then, a teacher can set goals but must find out what someone in a high-end neighborhood does for a living and try to do that, it will usually involve their teaching skills but maybe not. And the other way to make a million is to have a partner and invest for the long term in stocks.
M: Very true, over simplified but accurate.
I: Thank you; hopefully we can continue this dialogue. Especially, if teachers want to hear more.
M: I am glad to help; I am now in a savings mode and wanting to give back, let me know.

I have over thought this area of finance, so please forgive the depth to which I go.

The stock market is a reflection of worldwide growth or contraction of companies. The growth or contraction is in number of employees, real estate, plants, trademarks, secrets, and any other tangible or intangible asset. The stock market, as measured by the Dow Jones Averages, has grown from 610 to 12,414 over the past 50 years. Your investments in the stock market, had you left the money in the market and reinvested your dividends, would have grown nearly 25 fold or 2,500 percent!

That said, how could you best benefit from the growth of business around the world? Based on history, stay the course.

Consider what has happened in Europe in the past year. Every week there is a calamitous prediction of the end being nearer and nearer. Simultaneously, the stock market has reflected wild swings in the businesses of the world. This is a phenomenon I like to call, “The Heart of business is beating wildly”.
During the past year, if you had stood the course of investing in solid companies that have worldwide exposure, you would have done ok. What this says, is that in the past year, according to the “reflector” of business i.e. stock market, things have been ok, not great, but ok.
Put another way, if you were 28 years old and in the Silicon Valley, you would have thought God chose you and things are fantastic, right? Yet in Spain, if you are 28, you are probably unemployed and ready to lose it. Thank God for Sangria, no? So add up the situations for these two people and divide by two and you get ok. Worldwide activity of businesses is analogous to these two 28 year olds when you average them out, which is ok.
In any event the market truly reflects the world of business, and over one year or over 50 years the stock market has performed admirably by reflecting what it “sees”. What you have seen in volatility, or huge moves up and down over the past year reflect what is going on in our trading partners’ countries economically. A 250 point move in the Dow Jones Averages lets you know things are occurring to businesses in the world that make investors jittery. Like the first day of class we all get jitters, they will pass too!

Here is today’s lesson;
1.Think very long term, not 3 months or even one year,
2. Stay the course and consider The Teacher’s Pocket Guide to Finance’s lesson about dollar cost averaging, and
3. Jitters are for the new kid; you are cool, calm and collected.

In its current form and after Supreme Court Review The Patient Protection and Affordable Care Act, or Obamacare, will make it mandatory for everyone to buy insurance. How it is enforced will be determined over the next 6 months, and that is with an election in the middle.

Until enforcement is in place the overall effect on teachers is a non-event. Longer term the implementation of the Obamacare will create unforeseen consequences. If we base our projection on other countries’ experience with national or universal healthcare plans, we can get some insight into how this might affect you.

Europe’s Universal Healthcare
For example, if we follow Europe’s Universal Healthcare system, we will most likely see two types of insurance develop in the long run. In some European countries, citizens’ can buy private insurance or they can avail themselves of the “free” healthcare system. After many years of experience, Europeans who can afford private buy private. The rest get by. If you travel to Europe, do not get sick, public healthcare is slow and worse, when going for a routine treatment is as bad as a Saturday night in a Vegas emergency room, where you are taken in accordance with severity of your pain or injury.

This points out that with Obamacare teacher’s covered by collective bargaining agreements will enjoy solid coverage for the foreseeable future. With Universal Healthcare you will be given a choice to buy private or pay into the universal health plan. If insurance costs spiral upward, districts’ will eventually raise your contribution to meet your needs or integrate a universal plan with your private plan.

Canada Health Act of 1984
Canada has a public/private funded plan that attempts to meet most of the needs of its citizens. After years of patient care that is funded by both public (taxes) and private sources (employer and employee payments) Canada has what many citizens call adequate care. Canadians’ only complaint is the high cost for extreme situations but most everything else is covered. In the early 1980s, many well-regarded physicians fled Canada when the Health Act of 1984 was discussed and looked like it would pass. That brain drain won’t happen in the USA since the doctors don’t have anywhere else to go.

If we follow Canada’s lead then teachers can expect insurance costs and service to remain about the same until the cost of covering the rest of the population begins to lower their quality of care long-run, everyone is covered in an equal manner. Teachers currently have excellent coverage so the net effect will be a lowering of quality relative to today’s services.

Summary
In my opinion, Obamacare is not good for teachers’ health since it will dumb down the service you receive today whether it is with Universal health coverage or Canada’s system. It’s like teaching to the norm not the gifted.