What's Really Behind Romney's Wealth

What We Can Learn From Romney’s Success

By: Brendan Magee

Jan. 2012

Saturday morning I was listening to am1210’s The Big Money Show hosted by Steve Cordasco. Cordasco made the case that the 401k system in this country is broken. As evidence to that he cited a study that showed that only two percent of the workers who have been participating in a 401k plan had reached the $1 million dollar mark. To him, this meant the remaining 98% were failing to make the grade. By comparison, Cordasco spoke of the investment success that Republican Presidential Candidate Mitt Romney has achieved. He said the advantage that Romney had over the average 401k plan participant was that he had autonomy in that he could decide the investments he would invest in.  Whereas, Romney had an endless list of investment options, the 401k plan participant could only invest in the options their employers made available.

For the time I could listen, Coradsco got a few callers to agree with his position. These were 401k participants who felt f they could do a better job of selecting investments for their 401k plan than their bosses.

In either case, I think Cordasco and the shows listeners are missing the main reason for Romney’s wealth. Bear in mind, I have never seen Romney’s portfolio. I have no idea what he invests in, nor a clue about his investment strategies. However, I don’t think I am going too far out on a limb when I say it’s not so much about the investments he’s chosen as it is his behavior that is responsible for his success. I know that over his lifetime if he engaged in a constant buy high/sell low approach, he wouldn’t come anywhere near the amount of wealth he’s been able to attain. 

Hopefully this is a good illustration of what I mean. Let’s suppose you had the money and you built a magnificent 10 bedroom house. This house had the most modern appliances, an in home movie theatre, swimming pools, marble floors, luxurious bathrooms with Jacuzzi bathtubs , tennis courts, a huge kitchen, big flat screen t.v.’s etc. The market value of your house upon completion was around $5 million. Now just after you moved in, you proceeded to take a jack hammer and sledge hammer to every room in the house. Your $5 million house isn’t going to retain its value for long. The homeowner’s and investor’s behavior has to be consistent with their asset growing in value or it will lose value.

401k plans give their participants a variety of options to invest in. There are stock funds, bond funds, money market funds, and fixed options to choose from. If we take a look at the market rates of return for just a few of the equity and bond markets from 1973-2010, the returns are more than enough for investors to outpace the rising cost of living, 4.42%. U.S. Large Co. Stocks, 9.81%, U.S. Small Co. Stocks 12.59%, Long-term U.S. Government Bonds 8.57%, International Large Co. Stocks 9.58%, International Small Co. Stocks 13.38%(As noted by CRSP). 

So the question becomes, if investors are not seeing these kinds of returns from their 401k plans or other investments, why aren’t they? It’s not as if these investments are not readily available to every investor. The answer could be that their behavior is inconsistent with realizing these returns. Could an investor be sabotaging their own financial security?

So if investors are having difficulties with their investments and are solely looking at their portfolios, they may be working on the wrong end of the problem. They might have to step back and take an honest look at themselves as investors. As painful as that may be, it’s nothing compared to running out of money in retirement, having to take a job at a fast food store in your 60’s or 70’s, or showing up on your children’s front door with no place left to go. The great thing about looking at yourself as an investor is the responsibility is in the hands of the investor not in the hands of a portfolio or a mutual fund. When responsibility comes back to the investor, so does power and control.

When Romney says in the debates he’s not going to apologize to anyone for the success he’s had, I think that comes from a history of his taking control of his finances and not being dependant on anyone else. That is something to be proud of and most people in his shoes would be just as proud.  I think most people want control of their destiny in their hands, not anyone else’s. We just won’t get it though if we fail to realize our behavior more than the investments we choose is going to determine our success or failure.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or suggestions call 610-446-4322 or e-mail Brendan@coachgee.com.

Instincts & Emotions Can Play Havoc With Couples Finances

Instincts And Emotions Can Play Havoc On

A Couple’s Ability To Deal With Finances

                                                                                              By: Brendan Magee

A couple of weeks ago I met with a very nice married woman and she shared with me some serious financial problems she was experiencing. In her early fifties with retirement appearing closer on the horizon,  Jodie told me her retirement savings took a big loss. As serious as this problem was, this wasn’t the biggest problem she was dealing with.  Jodie counted her husband, Tom’s,  lack of interest in dealing with the family’s finances as the most vexing problem. For all the years they’d been married the job of investing and banking fell on her shoulders.  No matter how many conversations she had with him about their finances, Tom just didn’t seem to show the proper amount of interest or concern.

Bear in mind, Tom and Jodie have a fine marriage. He does take good care of her. He drops her off and picks her up from work every day. They have raised good children and now have grandchildren to dote on. They are definitely sweethearts to one another.

Now during our conversation, which Tom didn’t attend, Jodie became reenergized. Prior to our conversation she mentioned that if she remained on the same path she could see herself experiencing a deep depression. We were both feeling good about our conversation because she was beginning to see that when she started to ask the right questions, the investing breakthroughs she was seeking were within reach.  We decided to schedule another appointment and start to get the answers to the questions that would help her have the peace of mind she was after.

This is where things went surprisingly off track. Jodie went home and tried to describe the conversation she and I just had and how it was something she wanted to proceed with. Tom was an unmitigated "no". He did not want to proceed under any circumstances. He didn’t even want to entertain the idea of talking with me just to have a better understanding of how coaching was different and could help them. Given that Jodie mentioned how Tom avoided conversations about money his reaction wasn’t all that surprising. What was surprising were Jodie’s conclusions.

She knew that her investments would continue to suffer if she continued down the wrong path. She had known for years about Tom’s reluctance to deal with the family’s finances. She told me she had been raised by her parents to be very responsible about money and took the time to do so over the years. She felt  the disconsolation that was coming her way if things weren’t made right, but she decided to cancel our next appointment any way and not go any further with coaching.

 When we spoke she said she couldn’t proceed if it meant doing damage to her marriage. The pain of crumbling finances was more bearable than the perceived pain of disrespecting her husband.

As a coach the dilemma that Jodie is dealing with is nothing new. We are dealing with a couple who think they have money and investing problems, which is the wrong end of the problem. The biggest problem they have is they can’t see that their instinctual  and emotional wiring is malfunctioning.

All human beings are motivated to avoid pain. Jodie is feeling pain from two sources. The first is of poorly performing investments and where that is likely to lead her should that problem not be fixed. She is also feeling the pain of Tom not showing enough interest in the family’s finances. She knows she isn’t capable of fixing the problems on her own so she appropriately seeks professional help.

Unfortunately, she is getting a double dose of pain from the fear that if she goes ahead without the agreement of Tom, he’ll become upset with her. She is forced to choose the lesser of two evils, a damaged marriage or a failing retirement portfolio and all that goes along with that. Tom is no less susceptible to his humanity than Jodie. It’s painful and stressful to be asked to deal with something you’ve been avoiding for so long.

The real problem is, the conversation about how their instincts and emotions are shutting down their ability to deal with some very serious financial problems and keeping them from experiencing the abundance they both deserve and could experience isn’t happening. They are convinced that theirs is purely a financial problem.  Not having this conversation, they are to a degree enslaved by their instincts and emotions rather than masters of them.

What Jodie knows to be the right course of action gets overridden by hers and Tom’s instincts and emotions. The problems she knows needs to be fixed remain and continue to do damage, damage that time could make impossible to undo.

Until people recognize and accept how powerful their instincts and emotions are, especially when it comes to money and investing, it will remain a hidden source of frustration and confusion. The only way to effectively deal with our instincts and emotions in investing is by getting coached. A coach will provide several valuable tools. First they will help you to focus on the questions that will help you stay on the path you know is the right one. Second, with your permission, they’ll call you on it,  when your instincts and emotions are getting the better of you.

Coaching is what is lacking in Jodie and Tom’s world and they are both paying a terrible price for it. There’s no need for you to pay the same price. Find yourself a qualified coach!

Here’s the big thing as far as instincts and emotions are concerned. You were born with them. They aren’t going anywhere. In his infinite wisdom the Creator blessed us with these wonderful gifts. They make life interesting and exciting. There are just a few areas where they work against our best interests, and money and investing are among them. Given how important money and investing are to our lives, you know God must have a sense of humor.

Brendan Magee is the founder of Inevitable Wealth Coaching in Drexel Hill, Pa. With questions, comments or suggestions, call 610-446-4322 or e-mail Brendan@coachgee.com.