Investing

The following is a guest post by Lars Kroijer, who used to run a hedge fund in London and wrote the book, “Investing Demystified: How to Invest Without Speculation and Sleepless Nights“. If you’d like to guest post on Money Q&A, check out the site’s guest posting guidelines.

With President Donald Trump making headlines on an hourly basis and our social media accounts going crazy with comments on his presidency, we are left asking ourselves: Should we perhaps change our investment strategy as a result?

In short, the answer is yes but perhaps not how you think.

In earlier blogs, I have outlined how I consider it highly unlikely for the vast majority of investors that they can beat the markets themselves through active stock selection, market timing, or via picking the one out of ten actively investment funds that may do so over a ten-year period. 

And, for your equity exposure, you should pick as broad and cheap an index tracking exposure as you can get your hands on, namely a world equity index tracker. Just because Donald Trump is now President of the United States, that is no less true. You most likely couldn’t beat the markets before November and still can’t.

Editor’s Note – You may also like to see five things you can learn about personal finance from President Trump!

What you perhaps can expect is to make 4-5% above inflation. This is based on over 200 years of history of equity returns in many states of the world. And, you can expect that return to range from lottery type winnings to desperate failures – can also reasonably expect to be compensated in higher risk periods with commensurate higher expected returns, but there are no guarantees obviously. 

Editor’s Note – I think you can squeeze out a 10% return on your investments. Be sure to check out how.

So, even in a President Trump world, we haven’t found a crystal ball. So, what can we do?

In my view, there are two main things we main things we should focus on.

1. Evaluate if the risk of the markets has changed enough that we should re-evaluate the risk levels of our portfolio.
2. We should consider if the sudden change in the political landscape has changed our overall economic life enough that our risk profile should change as a result.

Market Risk

Below is a graph of the expected future risk of the US stock market. Without being too technical, it measures the expected standard deviation six months into the future. Since the index value is based on the implied volatility of equity options, it is a market price.

If you think you know the future volatility of the market better than this chart, you can get rich trading it (many try!). There are many issues with this kind of chart, including that the value itself is very volatile. So, the risk changes a lot.

The volatility doesn’t capture “fat tails”, the fact that unlikely events happen far more than predicted by the normal distribution assumption of the standard deviation. And, that it is only six months into the future. That all said, the chart gives a good idea of future expected risk. You can also find it on cboe.com.

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The following is a guest post by Steven Werlin, the author of “To Fool the Rain: Haiti’s Poor and their Pathway to a Better Life“. If you’d like to guest post on a future article on Money Q&A, check out the site’s guest posting guidelines.

Elsie Amboise joined Fonkoze’s CLM program in Fall 2012. She was living with her husband and their boys in another very poor woman’s home. Her family didn’t have its own place to stay.

CLM stands for Chemen Lavi Miyò, Haitian Creole for “the Pathway to a Better Life.” It is a program that provides the comprehensive support an ultra poor woman needs to transform her life. Fonkoze, Haiti’s largest microfinance institution, established it when it learned that there are families too poor for microfinance.

It is an example of the “graduation approach,” a poverty-elimination strategy drawing increasing attention worldwide. Developed by BRAC, in Bangladesh, the approach is now being used in dozens of countries. Graduation programs have been studied extensively, and been proven effective. They provide women like Elsie with multi-pronged support that breaks through the vicious cycle of poverty that has them trapped.

In the years before she joined CLM, Elsie fed her children as best she could with a series of small businesses. Her husband would give her $5 or $10 that he’d earn through odd jobs, and she’d turn it into an enterprise: peanut butter sandwiches, cornmeal, or whatever she thought she could sell. But she could never keep capital in any of the businesses because her expenses were high.

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Having kids is one of the biggest financial decisions you’ll ever make (not to mention emotionally fulfilling, of course), especially if you are the parents of special needs children that requires additional medical care, in-home assistance, and rehabilitative therapies. If your child was recently diagnosed with a mental or physical disability, or you’re currently struggling with your finances as parents of special needs children, there are many things to consider, both short-term and long-term.

A great place to start would be the Parent Advocacy Coalition for Educational Rights (PACER), because their Possibilities publication is a tremendously useful financial resource for parents of special needs children and have disabilities.

Financial Considerations for Parents of Children with Special Needs

Life Insurance

Life insurance is extremely important for parents, especially if there is a disabled child living at home. The trick is deciding how much life insurance you need, based on your annual income, your current (and projected) expenses, and other debts you currently have.

Many people feel uncomfortable when it comes to life insurance because it makes you think about what will happen to your family after your death, but putting off buying life insurance is not the route you want to take here. Instead, getting life insurance while you’re still pretty young will help you save money and ensure that your family is protected even in worst-case scenarios.

Reducing Health Care Expenses

In addition to tax breaks for medical and home aide expenses (more on this below), there are a many health coverage options for children with special needs. If you haven’t already, you can also apply for Social Security Disability Insurance to receive governmental assistance for your child’s medical expenses and ensure they have an income available even when you’re not around.

To save money on your own health care, you may opt for a health savings account to protect your own well-being and supplement any employer-provided health care plan you’re on.

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How would you spend money differently if you had millions of dollars in the bank or stock market? Would you drive a nicer car? Would you eat out at five-star restaurants all the time? You may be surprised by the money habits of the rich and successful that you can emulate.

Or would you continue living as frugally as you did before you acquired millions of dollars?

Being a millionaire or billionaire doesn’t always entail owning the largest mansions, going on luxurious cruises all the time, and owning multiple yachts. Recklessly splurging is something a lot of lottery winners do, but those who worked their way to the top  have some quirky financial habits that make them seem eerily normal.

Unusual Money Habits of the Rich and Successful

To give you an idea, here are some unusual money habits of rich and powerful people:

Lady Gaga’s Coupon Obsession

Lady Gaga is worth $275 million, but even with money to burn, she is well-known for her obsession with coupons. The multimillionaire singer and active Twitter user once tweeted to her 64 million fans: “Why do people look at me like I’m crazy when I use coupons at grocery [stores] or try bargaining at retail?”

No matter how much money you have, clipping coupons and scouring the sales racks for great bargains are fun and frugal-minded moves to incorporate into your shopping routine.

Michelle Obama’s Fashionably Frugal Wardrobe

Politics aside, one thing we can all admire about Michelle Obama is her ability to rock chic and affordable styles and brands like Gap and H&M while she was the First Lady. Known for being the most stylish FLOTUS in recent years, Michelle Obama always surprises people with her frugal fashion choices.

She wore a $34.95 H&M dress for her 2011 interview on the Today show or wearing a $39.99 dress from Target for a press event in 2012. No matter how much money you have, affordable wardrobes never go out of style.

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