Tonight topic is financial planning, one aspect of the Whole Lifestyle Model I wrote about on August 28. The model is one I’ve pondered as a way to look at life as a whole, rather than focusing too much some aspects of life at the expense of others.
I often wonder what the future will hold for me and my family. Will I continue what I am doing until I retire, or will I do something else down the road? Do I want to live the expatriate’s life for the next two decades, taking my family around the world? There are positive and negative reasons for doing so. Do I want to continue working in an atmosphere that becomes increasingly stressful as I move up the corporate ladder? What will my wife do? What will my son do? I’m living my dream right now, but will it be the dream I want in 10 years, or in 20 years? I’m still not sure, but I’m keeping my options open.
One option I have been mulling for a couple years is starting my own company. I am entrepreneurial, but I don’t think I want to start something and jump right into it. I want to build it one brick at a time while I am still doing what I am doing now. The model I’ve been pondering is a bit like a hedge fund such as Cerberus or private investment firm such as ESL Investments, the majority owner of Sears Holdings, holding company for Sears and Kmart. I was especially struck when I read about Cerberus’ humble beginnings as a $10 million fund in 1992. According to BusinessWeek Magazine, Cerberus now controls companies with total annually sales of $30 billion, making it larger by sales volume than Cisco, Coca-Cola, or McDonald’s. That’s absolutely mind-boggling, especially when one considers that virtually no one outside Wall Street has even heard of this obscure firm.
I don’t aspire to mirror the success of Stephen Feinberg, founder of Cerberus, or Eddie Lampert, founder of ESL Investments. If I did, I would have found a job in Lower Manhattan a long time ago and started working as an associate for one of those two-word investment houses. Instead, I chose a different path and don’t mind if the future "World Adventurers Investments" (or whatever it will be called) stays small and grows conservatively. I look at all of our current assets as investments. If you have a 401(k) or Individual Retirement Account (IRA), you have an asset. If you own a home, you have an asset. If you have a car, you have an asset. Do you know how much your financial assets are worth? Have you ever thought you could leverage these to increase your assets? Many people leverage their home equity to buy amenities such as boats or pay off credit card debt. What about leveraging this equity to invest it in something else, like a second home or a mutual fund? What about scaling back assets that depreciate quickly, such as automobiles or home theater systems, and putting it into something that earns a better return? Most people don’t look at their financial assets as assets and don’t think strategically when it comes to the mix of assets they own.
Where the Whole Lifestyle Model is applicable in financial planning in that it reminds you that making money is not the ultimate goal in life, and it shows where financial planning is intertwined with other important aspects of life, such as donating to charity, putting your children through college, being debt-free, and having enough money to hire a personal training to whip you into shape. In the case of financial planning, it encourages you to look at everything you own as assets and manage them well. In my case, I see our assets as the seed for what could become something even bigger. I’ve put our investments in play to help them grow, and I’ve looked to diversify them. We have some real estate, some equities, some bonds. I’m in touch with a couple of contacts and may invest in some petroleum ventures next year. It’s part of a longer term strategy to develop a portfolio of assets that at the very least will free us from having to work in the future, and at best could serve as the foundation of a new investment firm or hedge fund. I don’t know if either goal will ever be realized, but if we manage our assets well, I think we can achieve it within a decade.
Market Note: The market took the recent news of the recent increase in the Federal Reserve’s target overnight lending rate from 3.75% to 4.00% in stride. The market is anticipating that the Fed will continue to raise rates perhaps as high as 5.00%. Fortunately, the news had little overall affect on the markets. If the Fed doesn’t start signaling that it is near the end of rate increases soon, the market could overreact. I hope not.
