Don Steinmann's Investment Tip of the Week

Don Steinmann's
Investment Tip of the Week

Money and Trust

Money and Trust
This won’t be the cheeriest investment tip I’ve ever done, but I want to talk about some truths about money.

When dealing with your money, one of the most important questions you can ask is, who can you trust? Who can you trust with information about your money, and who can you trust to handle your money? Here are three rules.

  1. Don’t talk about your money. If you get an inheritance or are rolling over your 401k plan to a brokerage account, don’t brag about it to your friends and relatives. If they don’t have as much as you, it can create resentment. And telling them to keep it to themselves won’t help. Because they’ll tell their spouse, Uncle, or best friend, who won’t keep it to themselves. And it can lead to people wanting to borrow money. And rule #2 is:
  2. Don’t lend people money. I think this really should be a hard and fast rule. Under few circumstances should you lend any money to anyone. Think about it. Someone comes to you because they found out about the money you won in the lottery (see rule #1) and they can’t pay their rent. Or they have this great new business opportunity. Or they need a new car to get to work, etc, etc. If they are coming to you, they don’t have any savings, and they don’t have any room on their credit card either. You are the lender of last resort. And when they borrow the money, one of four things can happen.

a. They play you for a sucker with no intention of every paying it back.
b. They get sick or pass away.
c. They want to pay it back, but they can’t afford it for the same reasons they borrowed in the first place.
d. They actually pay you back.

The odds against d. are long. And it‘s going to cause relationship hassles. They won’t want to see you because you’re no longer a friend, you’re a collection agency in their eyes. And you’ll feel resentful and let down. It’s a lose lose. Now does this mean you should be cheap when you have a friend or family member in need? Not at all. I recommend that instead you get a WalMart gift card for $50, or $100 or $500 and just give it to them. No future obligation, and now you’re a generous friend, not a loan shark. And they won’t come back and ask for another gift card, whereas they may need another loan.

If they put you on the spot, tell them you have to run any money requests past your financial advisor, me. And you can wait a day and then get back and tell them your financial advisor said no flat out. You can blame me, it’s not your fault. And you don’t need to tell me anything about it since I’ll say right now “Don’t do it, it’s a trick”.

  1. Be very careful about who you trust with your investments
    There are only three classes of people who are legally obligated to do what’s best for you when dealing with your money. Registered Investment Advisors, CPAs and attorneys. Everyone else to a greater or lesser extent can put their own interest ahead of yours. The term you’re looking for is ‘Fiduciary’. Ask if they are a fiduciary. You generally want to deal fiduciaries. At the very least, have a fiduciary vet the person you’re dealing with, whether it’s a broker, insurance agent, etc. etc.

True story. Several years ago a woman came to me asking about a recommendation she had from a ‘financial advisor’ (but not an RIA). I found out what he was recommending was essentially illegal. And why did he recommend it? He owed back taxes to the IRS and he was desperate for cash.

Realize that everyone’s else’s first obligation is to themselves and their family. They may want to do the right thing. But people can rationalize a lot to themselves when money is involve.

Now wasn’t that cheery? I promise next week’s tip will be a little more upbeat.

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