Great sales tips from the world's best selling brand

Apple is today one of the world's most powerful brands, its products are among the most sought after, and waiting lines for its new launches are now legendary. We know the fantastic product development and marketing skills of this great company - but a lesser known fact is how it meticulously trains its Apple store personnel to become Genius salesmen. Apple's leaked Genius training module, which is now quoted frequently as a great sales training manual, offers rich insights into how to effectively conclude sales. Its not enough to have a great product and bring consumers to the store - ultimately, the last mile connect - the salesman, has a job to do to convert intent into a purchase. The Genius training module not only educates Apple store personnel exactly how to do this, but also offers great insights to anybody in the business of selling, on how to sell effectively.

Sell Well - Grow Well, a joint initiative between SBI Mutual Fund and Wealth Forum, is an effort aimed at encouraging and guiding distributors on a path towards right selling - which we firmly believe is the best way to grow well on a sustainable basis.

Learning from the Apple Approach to Selling

Steve Jobs, who is credited with making Apple a success, did more than just manufacture superior products. He succeeded in creating a demand for Apple products, using great marketing and selling techniques. The success of Apple's marketing campaign is evident from the long queues that form outside an Apple store when a new product or version is set to be launched. Apart from this, Apple has reinvented the customer experience, not just with the product, but at the time of buying the product itself.

The leaked Apple sales training manual provides valuable insights for any sales person, including those who sell financial products. While the quality of the product has to be good, better sales techniques ensure that positive intent actually gets translated into sales. This focus on the last mile connect is one of the many things that makes Apple the champion it is.

The APPLE sales process for Apple salespersons

The Apple Genius training module has a five-point checklist that every salesperson is expected to use when interacting with customers. In addition, the sales manual has broken down the art of selling and presented the key techniques in a scientific manner. The Apple approach to selling comprises of an acronym, which is appropriately called "Apple":

1. Approach
2. Probe
3. Present
4. Listen
5. End

Approach: The first step is to approach the customer and address them by name. This is made possible as Apple has an executive take in customer details such as name as soon as they enter the store on an iDevice. This showcases the technology and also helps provide the needed information to the salesperson who will approach the customer. By identifying the customer by name, the salesperson establishes a personal relationship that helps make the customer feel acknowledged as a person.

Probe: The salesperson is then expected to gently probe or ask questions that will reveal the needs of the customer as well as something about them. Salespersons are trained to use external clues such as the type of clothes worn, the type of bag being carried, and so on to place the customer. The gentle questioning also helps identify potential needs of the customer - do they travel for work, will the device be used for work or entertainment, and so on.

Present: Once the salesperson has identified the needs, desires, insecurities, and wants of the customer, they move on to the next step - presenting the solution. These are a choice of products that will meet the customer's requirements. The customer can then choose from them.

Listen: Once the customer has been presented with choices, the salesperson has to listen to their response. When hearing them out, the salesperson will have another opportunity to understand the needs and insecurities of the customer. The salesperson will then empathize with the customer before concluding the interaction.

End: When ending the interaction, the salesperson is expected to put the customer at ease and not openly pressurize them into making a purchase. Instead, gentle persuasion is used and the customer does not feel forced to make a purchase decision immediately.

Expressing Empathy

Throughout the interaction Apple salespersons are also expressed to be empathetic towards the customer. For this Apple advices them to use three F words: Feel, Felt, and Found. Getting the conversation towards the customer's feelings and away from technical product specifications engages the customer fully and at the same time shows that you care about what the customer feels. This also gives the salesman a great insight into doubts and objections that may be in the customer's mind but are often not fully expressed, which gives him an opportunity to handle these doubts and objections effectively.

No Negativity

Apart from this an Apple salesperson is advised never to use negative words and to never openly disagree with customers. This ``customer is always right'' approach does not mean that new ideas are not presented to the customer. The salesperson introduces new ideas or suggestions by beginning the statement with ``it turns out that.'' The phrase "it turns out that" is used in English language to acknowledge that there was indeed a belief about something, but it was later found to be incorrect. Rather than correcting a customer's belief about a product with "No, that's not the way it works", Apple salespersons are trained to say "It turns out that this is the way it works".

No Sales Quotas

While many retailers use sales quotas and commissions to inspire their retail staff to increase sales, Apple follows a counter-intuitive policy of no sales quotas. Instead, supervisors are only expected to comment on the sales approach used by the salesperson.

What can we learn from Apple's sales training?

Everything that Apple teaches its salespersons is equally applicable in the world of selling financial products as well. The 5 step APPLE process (Approach - Probe - Present - Listen - End) is a classic needs based process that seeks to strike the right balance between selling and counseling. Think of any goal based financial plan that you would like to sell, and you will notice that the APPLE process is a great way to ensure higher sales closures.

The Apple credo of no negativity is indeed a great philosophy in our business. In our business, we sell hope and dreams - of a comfortable lifestyle, of fulfilling children's aspirations. Consciously building positivity in your talk and cutting out all negativity helps keep a positive frame of reference, which helps close sales far more effectively.

Focus on sales approach rather than sales quota is indeed a wise move - one that we hope asset management as well as distribution firms across the country will embrace increasingly over time. This is clearly an inspired move, one that creates happy customers and therefore eventually perhaps generates more sales than monthly targets can achieve.

How do AMCs track suspicious transactions in mutual funds?

R&Ts monitor investors transactions in mutual funds and if found dubious report them to AMCs. Suspicious Transaction Report (STR) is shared with Financial Intelligence Unit (FIU) in order to prevent money laundering.

Suspicious transaction reports (STR) are prepared by registrar and transfer agents of fund houses. The transactions are monitored in order to comply with Pursuant to the Provisions of Prevention of Money Laundering Act, 2002 (PMLA). If the R&T comes across any suspicious transactions, it alerts the AMC. If the transactions are found dubious then AMCs report them to Financial Intelligence Unit (FIU), a government agency set up in 2004  which receives, processes, analyses and disseminating information relating to suspect financial transactions with regulators like RBI, SEBI and IRDA.

Following are some of the parameters through which R&Ts monitor transactions.

·         Use of more than five different bank accounts for investments

·         Large number of folios are opened with the same address

·     For first time non-individuals, it is Rs 40 lakh or more through non-SIP mode.

·         If an individual uses more than five bank accounts for transaction

·         If an individual invests 10 times or more to their annual income. For non- resident individuals it is 40 times or more to their annual income.

·         If a regular investor suddenly increases his/her investment capacity by 20 folds or more to his average yearly investments.

·         If an individual suddenly invests Rs 10 lakh through a single transaction in a scheme. However, dividend reinvestment and systemic transaction values are excluded from this.

·         If SIP redemptions (for more than Rs 50,000) are debited from more than 3 bank accounts in a period of one year.

AMFI and FIU also prescribed some non-financial activities to track suspicious transactions like change of address and other banks mandatory details within 12 months, failure of KYC for 2 or more times etc. The industry body also suggested the possibility of suspicious transactions if an investor uses multiple PAN in mutual fund investments.  

If an investor purchases and redeems money worth Rs 25 lakh within a rolling period of 14 days in one scheme and in the same folio then it is flagged as suspicious transaction. For non-individual, the limit for such transaction is Rs 50 lakhs. Also the transaction is considered as suspicious if there are 10 or more transactions within a folio within a month ranges between Rs 1, 75,000 and Rs 1, 99,999.  

NRI who makes payments of Rs 25 lakh or more towards his mutual fund investments other than NRE, NRO and FCNR account may come under the suspicious scanner.

Think Big! – 3 Essential Steps To Set And Achieve Big Goals

You have probably heard the phrase “Think big.”

Now let me complete it, “Think big, act bigger.”

Thinking big is great, and essential for making any progress in life. But if the thought is not followed by immediate action, it becomes first a wish, and then after some time, another source of frustration in your life. Another “I could, I should, I didn’t” that will stay with you for the rest of your life.

Then, is it worth it to think big?

Absolutely, but you must do it the right way if you want to achieve big results. After meeting some people who have achieved big things in life, I have discovered three steps that are essential to successfully unlocking the power of thinking big in your life.

1. Get comfortable with the “You” factor

First of all, you must dare to see yourself in the biggest situations and achieving the biggest goals. If the “you” factor is missing or blurry, the equation is not going to work.

Take all the time you need to find the reasons why you are unable to see yourself in better situations. This might be uncomfortable to do and may require some time and commitment. But if you open up, you will start looking directly at some of the personal elements that are limiting your progress.

Finding them and looking at them are the first steps toward making them vanish, and realizing that you already have all that you need to achieve whatever you want in life. If you clearly know your strong and weak points, you will be capable of finding a way that allows you to reach your destination with them. If you don’t know them, you’ll just see other people achieving what you want by using some of your weak points, and then you’ll just end up thinking that it’s impossible for you, given your circumstances.

There are never two identical paths to the same destination. Never. The thing that will take you anywhere is knowing yourself. With that knowledge, you will be able to design the path most suited to the person you are. If you just follow the path of others blindly, you will either get lost along the way or struggle with trying to become like them. If you don’t know yourself or the paths others have followed, you simply won’t know how to start and will even lose faith about whether it is possible to reach the destination.

Remember, there is always a way for you to achieve your bigger goals. It already exists, but you won’t be able to see it until the moment you know yourself enough.

2. Think bigger

If the thought doesn’t make you feel uncomfortable, then you are not thinking big enough.

Whatever your thought or goal is, ask yourself, “If this was the last goal I would ever achieve in my life, the thing I want to be remembered by, would I do it bigger?”

“What would I love to add to it?”

“What would my actions be in that case?”

You have to push your thought muscles further.

They work like any other muscles. If they get used to perform at a comfortable, average level, they tend to stay there. The more you push them, the more bigger thinking becomes your natural state. But you have to keep pushing them if you don’t want to get stuck and lose your drive and inspiration. The beautiful thing is to keep pushing perpetually, and verify for yourself that there are no limits.

3. Take immediate action

The thought must be followed by immediate action. Otherwise, the possibility of it going rotten inside your mind increases dramatically. One of the worst things that can happen to you is to think about something big, see and feel yourself in that beautiful situation, and then not take any action and just let it wait on your “Someday” list forever.

There is no someday, there is now or never.

You are always taking steps towards one direction or another. If you don’t direct your steps towards what you really want now, one day you will realize that you are further from it than you were before. Remember, “The best time to plant a tree was 10 years ago, but the second best time is NOW.”

Think Big! – 3 Essential Steps To Set And Achieve Big Goals

You have probably heard the phrase “Think big.”

Now let me complete it, “Think big, act bigger.”

Thinking big is great, and essential for making any progress in life. But if the thought is not followed by immediate action, it becomes first a wish, and then after some time, another source of frustration in your life. Another “I could, I should, I didn’t” that will stay with you for the rest of your life.

Then, is it worth it to think big?

Absolutely, but you must do it the right way if you want to achieve big results. After meeting some people who have achieved big things in life, I have discovered three steps that are essential to successfully unlocking the power of thinking big in your life.

1. Get comfortable with the “You” factor

First of all, you must dare to see yourself in the biggest situations and achieving the biggest goals. If the “you” factor is missing or blurry, the equation is not going to work.

Take all the time you need to find the reasons why you are unable to see yourself in better situations. This might be uncomfortable to do and may require some time and commitment. But if you open up, you will start looking directly at some of the personal elements that are limiting your progress.

Finding them and looking at them are the first steps toward making them vanish, and realizing that you already have all that you need to achieve whatever you want in life. If you clearly know your strong and weak points, you will be capable of finding a way that allows you to reach your destination with them. If you don’t know them, you’ll just see other people achieving what you want by using some of your weak points, and then you’ll just end up thinking that it’s impossible for you, given your circumstances.

There are never two identical paths to the same destination. Never. The thing that will take you anywhere is knowing yourself. With that knowledge, you will be able to design the path most suited to the person you are. If you just follow the path of others blindly, you will either get lost along the way or struggle with trying to become like them. If you don’t know yourself or the paths others have followed, you simply won’t know how to start and will even lose faith about whether it is possible to reach the destination.

Remember, there is always a way for you to achieve your bigger goals. It already exists, but you won’t be able to see it until the moment you know yourself enough.

2. Think bigger

If the thought doesn’t make you feel uncomfortable, then you are not thinking big enough.

Whatever your thought or goal is, ask yourself, “If this was the last goal I would ever achieve in my life, the thing I want to be remembered by, would I do it bigger?”

“What would I love to add to it?”

“What would my actions be in that case?”

You have to push your thought muscles further.

They work like any other muscles. If they get used to perform at a comfortable, average level, they tend to stay there. The more you push them, the more bigger thinking becomes your natural state. But you have to keep pushing them if you don’t want to get stuck and lose your drive and inspiration. The beautiful thing is to keep pushing perpetually, and verify for yourself that there are no limits.

3. Take immediate action

The thought must be followed by immediate action. Otherwise, the possibility of it going rotten inside your mind increases dramatically. One of the worst things that can happen to you is to think about something big, see and feel yourself in that beautiful situation, and then not take any action and just let it wait on your “Someday” list forever.

There is no someday, there is now or never.

You are always taking steps towards one direction or another. If you don’t direct your steps towards what you really want now, one day you will realize that you are further from it than you were before. Remember, “The best time to plant a tree was 10 years ago, but the second best time is NOW.”

Ten Signs You Are A Creative Person (Though You Don’t Feel You Are)

Paint covered hands, the clickity clack of the typewriter, or the soft strumming of a guitar aren’t necessarily signs of a creative person. You don’t need a stylish combover, nonprescription glasses, or staunch arrogance to consider yourself an artist, either. In fact, people who embody the characteristics previously listed are sometimes some of the most non-creative pretend creatives on the face of the earth.

The misconception that “creativity” is a term only deserving for those who can draw, write, or make music is more inaccurate than the “earth is flat” truthers of yesteryear.

Here’s why you’re more of a creative genius than you realize.

1. You’re responsibly irresponsible.

It’s not smart to act immature, but you take chances when you need to. You don’t live a life shackled to “should be’s”, “would be’s”, and “coulda beens”. This can be expressed in buying your first home or car, sending in a job application for a position you’re under qualified for but really want, or treating your friends to a dinner on you when you don’t have a ton of money. Creativity takes guts.

2. You understand the important difference between imagination and reality.

Edgar Allen Poe once famously said, “Those who dream by day are cognizant of many things that escape those who dream only at night.” Edgar was on to something then that you’re probably doing each day – imagining the ideal world you want. You’re able to take those fantasies, evaluate them, and put them into action taking the necessary steps to get there. But, as always, balance between these two is absolutely vital.

3. Your heart’s on your sleeve and your soul’s on your forehead.

Creatives are very open with their emotions, which leaves them susceptible to both tremendous pain and euphoric bliss. You are not unlike this. When you’re frustrated with your children, your best friend can tell when you get tea that afternoon. You just received your 15th rejection letter on your masterpiece manuscript and your wife knows it the second you put down the letter. Creative people are not afraid of their emotions, no matter if they are negative or positive.

“Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.”

-Martin Luther King Jr.

4. You can admit it’s not your best work, but you’ll never say it “sucks.”

I belong to an artistic collective who’s mantra is, “There’s no such thing as bad art.” Though we strongly believe that, each of us are able to recognize when our output or the outcome of our vision is not exactly intended. However, you, like us, are able to accept and appreciate the fact that whatever you just created was not in the world before you made it. And sometimes that’s more than adequate. Eleanor Roosevelt put it best, “No one can make you feel inferior without your consent.”

5. You observe everything. Eve-ry-thing.

The world is a huge dinner party, buzzing with gossip, eccentric characters, and the perfect fodder for creation of all kinds. Though many creatives carry around a pocket, purse, or backpack sized notebook, this is not necessary. Your brain is a steel trap and your conscious is a straightjacket. Mental note it, and get busy.

6. You don’t wait for opportunities, you create it.

Stagnation is something that all creative people hate, and you are no different. The “routine,” the “grind,” and the “day to day” is never the same for too long in your world. If you feel it becoming that, you quickly seek out new sensations, feelings, people, and experiences to keep it fresh. If you don’t know where to look start wandering. Eventually, you’ll find and create the opportunities you’re looking for.

7. You “fail forward.”

Eric Thomas has encouraged his millions of YouTube listeners to do exactly what’s in the title quotations. When you succumb to failure, you don’t stay down for long. Instead you look for ways to learn, grow, and continue forward. Creative people don’t let their downfalls get the best of them.

8. Your risk is worth your rewards.

Creative people are by definition extremely bold. Your actions and plans are easily justifiable because they are normally in accordance to what you believe in. Any time you’re confronted with something that has a somewhat likelihood of backfiring, you don’t run away. You run towards it. Creation, the act of making something from absolutely nothing, is one gigantic risk. Nothing more, nothing less. Forbes contributor Steven Kotler adds,”This is not a job for the timid. Time wasted, reputation tarnished, money not well spent – these are all by-products of creativity gone awry.”

9. You immerse yourself in beauty and talent.

A lot of creatives have a knack for beauty, even if it’s peculiar and unique to their style. You’re no different. From your writing group to your children and the way you decorate your house, you blanket yourself in the things you love. No matter who thinks what about your space and choices, you stay true to what you’re about. One of the most successful basketball coaches of all time John Wooden once said:

“Whatever you do in life, surround yourself with smart people who’ll argue with you.”

10. You chase dreams and live your passions. Period.

No two ways about it, creatives are generally happy and content with nothing but producing quality work. Definitions and standards of brilliance are self defined, and you realize that. You’re the graceful angel taking tango lessons. You’re the old man at the gym dropping NBA caliber dimes and hitting 35 foot three pointers. You’re that really cute old lady posted at the coffee shop piano who I really want to give my number to for conversational purposes only. Your drive to perform, compete, and produce is intrinsic. So is the true reward. No matter how many or little fans, accolades, or appreciation you have, only one thing matters:

You’re doing it.

One Swallow does not make a Summer: Comparing India and China

In its latest update of the World Economic Outlook, the IMF has predicted that the Indian economy will grow faster than China in 2016-17. Real economic growth for India is projected at 6.5%, as compared to 6.3% for China. If this happens, it would be the first time since 1991 that India has overtaken China in GDP growth. The IMF announcement pushed up Indian stock markets to all time highs- the NSE Nifty index gained 1.6% and the BSE Sensex rose 1.8% in one day!

Markets have been bullish since the Modi government took over last May with the promise of generating growth and employment. Now, as expectations build up for a reform-oriented Union Budget, any news that supports the India growth story leads to a strong rally. Last week it was the 25 basis points cut in the repo rate, this week it is the conviction that India is “racing ahead” of China. Stock prices move on rumours, and markets tend to be volatile. But economic analysis should be driven by facts and supported by a thorough understanding of theory, past trends, and possible future developments. In this context, it is necessary to de-sensationalize the “India Overtakes China” headlines and understand where India stands relative to China in terms of economic progress.

Picture 1 compares real GDP for India and China from 1980 onward. Growth rates for 2015 and 2016 are IMF estimates; growth rates for earlier years are sourced from the National Accounts data of the respective countries. The vertical bars represent the growth differential, in other words: China’s growth rate minus India’s growth rate. China has grown faster than India for 32 of the last 35 years. The average growth differential between the two countries during 1980-2014 was 3.6%.

Pic 1  Growth in Real GDP: India Vs. China 

Sources: CSO, National Bureau of Statistics China, IMF
Note: The year 1980 for China is considered to be comparable to the financial year 1980-81 for India

To put that in perspective, between 1980 and 2014, on an average, China’s real GDP grew by 3.6% more than India annually. The impact of that continuously higher growth shows up in China’s per capita GDP. In 1985, India’s per capita GDP, at $313, was higher than that of China, at $295 (Pic 2). But by 2014, China’s per capita GDP at $7572 was nearly five times more than India’s achievement of $1625! One can argue that per capita income does not take into account actual disparities in income levels within a country; but given the vast difference in per capita incomes between India and China, there can be no dispute that China has achieved a significant overall improvement in living standards.

Pic 2 Per Capita GDP in US$: India Vs. China

Source: IMF database

There are at least three areas in which China has a head start on India. First, balance of payments. China is an exporting powerhouse: it has run a current account surplus for many years (Pic 3). As a result it has accumulated forex reserves of over $3.8 trillion, the highest in the world. India consistently runs current account deficits, which are funded through foreign capital inflows. This makes us vulnerable to external shocks which have the potential to dry up the inflows and set off a currency crisis. Our forex reserves, at $300 billion, are about one-tenth of China’s reserves.

Pic 3 Current Account Deficit: India Vs. China

Source: IMF

Second, fixed investment. In China, capital formation as a percent of GDP has been in the range of 30% to 50% since 1980, and consistently above 40% in the last decade (Pic 4). India’s capital formation crossed 30% of GDP only during the 2004-07 boom, with a peak of 38% achieved in 2007-08. Since then the decline in private investment has kept it below 35% of GDP. As a result India has a large infrastructure deficit, which is one of the main reasons for supply side constraints on growth.

Pic 4 Capital Formation: India Vs. China 

Finally, employment generation. Both China and India have large working populations, but China has maintained a healthy balance between sectoral growth and sector-wise employment. In 2011, about 10% of China’s GDP came from agriculture, 47% from industry, and 43% from services. The corresponding employment shares of these sectors were 35%, 30% and 36% respectively. In India, agriculture employs nearly half of the population, but generates only 14% of India’s GDP. On the other hand, services employ about a quarter of the workforce, yet contribute nearly 60% to GDP! India’s growth story is based on the fast growing services sector, which is not labour intensive. So we run the risk that a good part of our workforce, which is unskilled and inadequately educated, will end up unemployed, unless we take immediate steps to make them employable.

Indian media often compares India and China, and every small data point in India’s favour is a cause for celebration. But it is necessary to understand the back story of China’s present success: it has been growing at a fantastically high rate for three decades, adding investment and jobs, exporting goods of various types, and improving standards of living. It is now slowing down to what its policy makers are referring to as the “new normal”. The growth slowdown is the outcome, at least partly, of a deliberate shift to cut back investment and revive consumption, to improve environmental standards, control the unchecked growth in credit, and to create a more balanced economy. India is not in a position to opt for a slowdown. It has to grow rapidly, and for many years, before it can reach the level of income that China has delivered to its citizens. Until then, just as one swallow does not make a summer, a single year of higher GDP does not make India a winner

Investing and Personal Finance Hacks

You’ve probably seen one or two of the listy articles about life hacks which are little tricks that can make the day to day routine a little easier. Some are for very mundane aspects of life like using a paper clip to mark the spot where the roll of tape starts or laying a wooden spoon across a pot of boiling water to prevent it from boiling over. I saw one of these lists a few days go where one of the hacks was a little off the beaten track, suggesting you always carry bolt cutters with you.

These are relevant to other aspects of life too. I give out little rolls of duct tape to my colleagues in the fire department to keep in their wildland fire packs (I am the chief of the all-volunteer department where I live). In addition to everything else you might use it for it also comes in handy for blisters. There are also hacks for all aspects of investing, investment management and personal finance.

1. To include financial professionals, the first one is remind clients regularly that markets can go down a lot. Ideally they will get to the point that they will simply accept it as true that markets go down, scareother investors, and then recover over some period of time. Clients need to be reminded of this so they don’t panic, sell out after a large decline and then watch the market rally back from sideline.
2. Don’t carry balances on credit cards. You’re probably thinking, yeah, everyone knows that and while they might know it, they don’t live it so it is worth including here. Although the stats are a couple of years old, Nerd Wallet reported that at the end of 2013 46% of households had a credit card balance with an average of $15,257 owed. The numbers might be a little different now but it’s not like the numbers went from 46% back then to 8% now.
3. Manage your clients’ portfolios conservatively. Obviously suitability comes into play here but the point with this is that it is far better to have tough conversations with clients where their starting point is impatience,why don’t we have more exposure to the thing that is hot now, than when their starting point is panic.
4. Manage your own portfolio conservatively. Mediocre returns when combined an adequate savings rate can get the job done in terms of having enough when you need it. Here the word mediocre is a synonym for boring. Investing should not be a thrill ride, it should be boring. Another way to think of this point is that with an adequate savings rate you don’t need to take quite as much risk with your portfolio than you’d otherwise have to do.
5. Avoid investment dogma. People at Bogleheads passionately defend indexing, people at Seeking Alpha passionately defend dividend growth and I am sure that there are other sites where people passionately defend swing trading, penny stocks and everything else. Passion is an emotion and ideally there should be less emotion in investing not more. Save the passion for your work, sports team or your volunteer work.
6. You don’t need to beat the market. You need to have enough accumulated for your goal (presumably retirement). There will be times where you do beat the market and times where you don’t. All that matters is whether you have accumulated enough for when you need it. Financial professionals don’t need to beat the market either, they need to give their clients the best chance possible for having enough for their goal and then spending through that goal. Along the way the financial professionals also needs to be there to prevent clients from giving into emotion (fear or greed).
7. True diversification is important. What this really means is not getting impatient with diversification. If everything you own has gone up a lot in the bull market then you’re probably not as diversified as you think because if everything went up with the market, then what is likely to happen when the market goes down? In terms of managing money for clients it is common for them to ask why don’t we have more equity exposure when the market is going up and then for them to ask why do have so much equity exposure on the way down. Where no one can trulyknow when the market will turn which makes the case for always maintaining at least a little exposure to market segments or strategies that you expect will have a low correlation to equities.
8. Your house isn’t an investment? That’s sort of right. It used be set in perceptual stone that real estate can’t go down in value. That myth was of course shattered by the Great Recession and so came a new and somewhat widely accepted sentiment that your house is not an investment. I don’t think that is quite right however. Buying a house with the expectation of selling it for a profit sometime in the next five years has certainly been revealed to be a crapshoot but the idea that house can no longer offer some modest positive return over a longer period of time seems like an overreaction in the other direction. In 2013 we sold our cabin (primary residence) after 15 years for about double what we paid. Yes it was down a lot from what we think the peak value was but the return was still more than adequate. With this sort of thing there will always be great success stories as well has horror stories but buying a house to live in long term is still a fine idea but now price matters.
9. Live below your means. Everyone knows they should do this but how many do? Living below your means makes every aspect of financial planning easier and makes absorbing some sort of financial shock much easier.
10. Defining success. We all have our own definition of success but I would say if you are able to pay the bills, have an adequate savings rate and have a little left over for whatever your idea of fun might be then you’re pretty well of regardless of the dollars involved.
11. There is no way to know what the future you might want to do.This can be tied to number ten about success. If you decide you want to do something completely different with your life such that there would be little to no income then you obviously need to have had a high savings rate over the years. If your job comes to make you unhappy but don’t have the financial flexibility to make a change then something will have to give and that probably would be happiness.