Make Wall Street Work for You

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Become a Savvy Investor

The stock market sounds a little scary, right? After all, we often hear about its booms and busts -- and those poor, unfortunate folks who lost all of their savings from one bad investment.

But it doesn't have to be scary; in fact, it can be a useful tool as you plan your financial future, save for big purchases, or get ready for retirement.

And your guide to learning how to make Wall Street work for you is instructor Lauren Vignec, who has taught our Do It Yourself Investing class for several years.

In addition to many other achievements, Lauren gained financial freedom by the age of 40 using the very strategies that he shares with his clients and students.

What inspired you to teach Do It Yourself Investing?

Wall Street is the world's most sophisticated misinformation machine. They will have you believe that investing is terribly complicated and that you need to be able to accurately predict the future in order to invest well. Neither of those things are true.

Effective investing can be very simple, and the most powerful tools available to retail investors do not require any ability to predict markets or the economy.

I wanted to teach this class so that I could show people those simple methods of investing and encourage them to focus on questions that really matter, which are questions about how much risk you can take, how much you should be saving, and how much you can afford to withdraw from your portfolio when you retire.

We do discuss more complex investing methods, but I hope the students keep in mind that, if the simple methods aren't good enough, the complex methods aren't going to improve things enough to make a difference.

You can achieve all of your goals as an investor with a low-cost, low-maintenance strategy that avoids all the Wall Street hokum and hoo-hah entirely.

What do you enjoy the most about teaching this class?

The best thing about teaching the class has nothing to do with investing, actually. Or at least, it's not directly about finance.

As part of the class we discuss behavior as well as math, and that means discussing how emotions relate to decision-making. There are certain stories and studies about that subject that I use every time I teach the class. Those stories have become my favorite aspect of the class because, as I have repeated them over and over, I have seen my own life change dramatically.

Here is an example: In every class I talk about the book Descartes Error, where the author relates a story about a man who had a particular brain injury that made it impossible for him to feel emotion. This man had no trouble, for instance, driving through an ice-storm because he didn't feel fear. It was easy for him. On the other hand, he could not make basic decisions. When asked to choose between an appointment on Tuesday or an appointment on Thursday, he simply could not pick one over the other. He just sat there, listing all the pros and cons of each possibility. I use this story to point out that, at bottom, we all make decisions with our emotions.

And here is what I have noticed as the years have passed: I get better and better at understanding my own emotions and how they relate to decision-making. Repeating that story has changed my life. So every time that part of the class comes around, I remember who I used to be at the various times I told the story. I have changed, and as I have changed, the meaning of the story has changed.

When I watch the reactions of the students in the class, it's often these stories about emotions and decision-making that seem to have the most impact, probably in part because they impact the teacher so much.

Tell us about an inspirational teaching moment.

The most interesting moments are those where the students realize how useful rebalancing is.

Briefly, rebalancing just means returning your portfolio to its original composition. So for instance, if you have a portfolio of 60% stocks and 40% bonds, and stocks have a fantastic year, now the percentage of stocks in your portfolio has increased. At the beginning of the year, you had 60% stocks, but stocks did great, and bonds just did what they usually do, which is not much.

So let's say your portfolio is now 64% stocks. Rebalancing just means you sell some stocks, buy some bonds, and now you are back to your original portfolio composition of 60% stocks and 40% bonds. This rebalancing is mechanical, it requires no ability to predict the future, and it works. It works because you stay in control of your portfolio and you maintain the risk and return profile that you prefer.

But it also works because it forces you to slowly but surely sell higher and buy lower. "Buy high and sell low" sounds great, but being able to magically predict the high and the low is impossible. With rebalancing, as stocks go up you sell a little bit of your stock portfolio every year. Even if a bubble is forming, it doesn't matter because you are benefiting from that bubble by always selling higher. Finally, when stocks go down, when that bubble bursts, you have less exposure to risk because of your bonds. Then, you rebalance again by selling some bonds and buying stocks after the stocks have dropped. So you are buying lower. And this process is completely mechanical. There is no need to guess where the bottom or the top is.

When students see how this works over time, they can see how it's possible to invest without any concern about the fear and greed promoted by the media. They can see why it is useless to try to predict the future, and why the smart investing strategy is to focus on what you can control.

Who would benefit the most from taking Do It Yourself Investing?

The people who benefit most from the class are those nearing retirement and those who are struggling to understand things like their 401(k) plans.

Also, people who are suddenly in a position where they need to invest (because they got an inheritance or sold a business or large property) seem to benefit enormously from the class.

If for whatever reason you are suddenly in a position to invest in financial markets but you've never done so before, investing can really look like a fog. It's easy to just get paralyzed.

And of course, for a lot of people retirement is also financially scary. People think, "What's going to happen when I don't have that steady pay-check anymore?" I think the class helps quite a bit with that because we focus on issues like how to make sure you don't run out of money in retirement, or if you're younger, how much you need to save for retirement.

Key Takeaways

  1. Simple investing is effective
  2. Rebalancing is the most powerful tool available to the average investor
  3. The importance of focusing on the things you can control, such as how much you save, how much you spend, and how much risk you take

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