How I Became Financially Independent

Every advisor can learn from these 16 timeless suggestions.

By Thomas John Wolff, CLU, ChFC

When I was a young man starting in the business, my dad gave me some advice about insurance, investing and saving. Although I listened with an attentive ear, candidly I felt his ideas were a bit old fashioned. But, as is so often the case, the older I get, the more parental advice seems to validate itself.

In view of the foregoing, I have been guilty at times of passing my dad’s philosophy on to my two sons and one grandson who are also in the business. Since dad’s ideas have worked out pretty well for our clients and for us, I thought it might be a nice idea to share them on the “Back Page.” Of course, I realize that I cannot give investment advice without several hundred disclaimers, but I doubt anyone would deny a 50-year veteran of our business the opportunity of sharing his dad’s advice. So here it goes:

1. Your mother and I have worked hard to become financially independent. You have created a family and they are your responsibility, so please don’t expect us to assume your obligations in the event of your death or disability. In other words, buy enough insurance to cover your obligations.

2. The only way you’ll ever have any money is to pay yourself first. If you increase your earnings, increase your savings.

3. Once you have accumulated some assets, be careful of what you do with them. There are a million scams out there, and people who are a lot smarter than you have been “taken” time and time again.

4. Never, never, put all your eggs in one basket. Diversification is the key to asset retention and growth.

5. Don’t listen to anyone who tells you they can get you a higher rate of return without incurring more risk. Economics 101 taught us that higher return equals higher risk. That basic law has not changed and will never change.

6. Know your risk tolerance and don’t exceed it. You’ll sleep better.

THE ONLY WAY YOU’LL EVER HAVE ANY MONEY IS TO PAY YOURSELF FIRST. IF YOU INCREASE YOUR EARNINGS, INCREASE YOUR SAVINGS.

7. Asset allocation should change with age. My rule has been as follows: The percentage of my assets allocated to equity investments is equal to 100 minus my age.

8. Credit cards are a convenience. Never, never, fail to pay your bill on time. Paying interest on credit cards is like stepping into a pit of quicksand.

9. It’s better to collect interest than to pay it.

10. Timing the market does not work. You have to be right twice: once when you buy and once when you sell. No one has ever been able to do that on a consistent basis.

11. Predicting the future of the stock market is like predicting the weather; neither has been successful.

12. One of the greatest burdens you can saddle your children with is to give them too much too soon. They will become lazy, spend the money and soon be back for more. Don’t let a windfall become a handful. Inheritances should be held in trust until later in life.

13. When investing in equities, it is best to utilize dollar-cost averaging. In other words, “KOKO” or keep on keeping on, whether the market is up or down.

14. Be careful with your marriage. Divorces are expensive.

15. There is nothing wrong with paying taxes; it means you are making money. But don’t pay more than you have to.

16. Gambling can be addictive. Look out. If you do gamble, set an acceptable limit for your losses. If you lose more than the limit, you are gambling at an unacceptable level.

There you have them, my dad’s suggestions.

Uncertainty is no excuse
We are living in uncertain times. Many are finding the “war on terrorism” psychologically difficult to cope with, and some are using this as an excuse for not focusing on their financial plans. This is a bad idea. During my lifetime I can recall people having similar concerns. First it was the Great Depression, then World War II, followed by the atomic bomb threat and the Cold War. Those that succumbed to allowing their personal plans to fall victim to outside events have paid a heavy price. If dad were alive he would tell them, “The sun will come up tomorrow; get on with your life.”

Thomas John Wolff, CLU, ChFC, served as 1979-1980 president of NALU (NAIFA). A member of MDRT since 1958, he is a recipient of the John Newton Russell Award. He is a member of Hartford AIFA (Conn.). His address is P.O. Box H, Vernon CT 06066.