liquid assets

To Cheap or Not To Cheap: It’s Not Really a Question!
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Remember Rich Uncle Pennybags? He’s the mascot from Monopoly. Top hat, monocle, sacks of cash. As kids, he might have been the cartoonish dream for some of us, the ultimate image of what “rich” looks like.

Obviously the reality is different, and our dreams mature as we do. Clients, in our conversations with you, it doesn’t seem like his life or image is the one you’re pining for.

But there is one surprising realization about the life of the “rich”: it is usually much, much less expensive to be rich than to be poor.

Why? Having money enables us to live more efficiently and avoid many painful financial pitfalls.

To begin with, credit may sound like a bargain—after all, you’re getting more money now than you otherwise could spend! But there really isn’t any such thing as “cheap credit.” If you are able to lay down cash for major purchases, you don’t just save on fees and interest: you may even be able to negotiate a better price.

If you are funding large items on a credit card, you are likely to wind up paying many times what they are worth. If you find yourself in a spot where you need to turn to high-risk credit in the form of payday loans, things get even worse.

There are other ways that having money allows you to stretch your resources out, too. Buying quality merchandise may take more money up front, but the alternative is buying shoddy products: if you find cheap furniture that falls apart every year or two, you’re still paying to replace pieces more often. You may save money in the long run by paying more up front. (Of course, care must still be taken to select your purchases carefully: higher cost does not always correlate to higher quality!)

Also, when you have a life of plenty you have the luxury of being able to shop around and wait for a better price. The rich get to be rich in time, too. Be a little choosy, not cheap.

These habits are ones that all of us can use to help us build and maintain our own wealth.

The wonderful conundrum that some have discovered is this: the less you spend, the more wealth you accrue; the more wealth you have, the less you need to spend.

Clients, write or call when you’d like to talk about what this means for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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To Cheap or Not To Cheap: It's Not Really a Question! – 228Main.com Presents: The Best of Leibman Financial Services

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Liquid Assets

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One of the keys to successfully weathering the downturns in the market, large and small, is having sufficient cash to do what you need to do in your real life. That helps avoid selling long term investments at bad times.

A few weeks back we went through investment advisory accounts to check cash balances for ongoing monthly distributions and make sure we had cash positions to last several months. And in our reviews with you, we inquire about upcoming cash needs.

As our lives unfold, our situations may change. For example, we talked with a pair of young adults a few weeks back, a brother and sister, who each are completing advanced degrees. In infancy, they received a gift of shares of stock from their great-grandfather, an old friend of mine.

Their holdings grew over the years. Each one called to talk about the strategy for paying off student loan balances later this year with the value of the accounts. When it became evident that the holding period was down to months, we advised the sale of sufficient stock to clear their balances, at once. Money that you plan on spending in the short term should not be invested for the long term.

The moral of the story is to communicate with us about exceptional cash needs that develop. If together we manage your liquidity to avoid untimely sales of long term investments, you and we will both be better off.

Clients, if you would like to talk about this or anything else, please email or call.

Case Study: The Portfolio of Mr. X

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Over the last year or so, you taught us a lesson. We are a little embarrassed it took us so long to catch on. But learn we did, and now we are enjoying the payoff.

The lesson is, some people require a layer of cash or other cash equivalents in their accounts to reduce the volatility and risk of the overall portfolio. We used to see this as a form of heresy against our beloved three fundamental principles. Clients were encouraged to maintain their safety blanket somewhere else, so that we could concentrate on our traditional research-driven, focused approach to investing.

We still aren’t comfortable with market timing, and selling in a panic will always result in an invitation to do business elsewhere. But we finally have started listening to those who desire a portion of liquid assets inside their portfolios, or a layer of less volatile investments.

Mr. X is a patient man who has stuck with us despite our stubbornness. His philosophy nearly matches ours—but not quite. When he visited the shop recently to discuss his desire for a little less risk (again), we explained that we had adapted to preferences like his, and how much cash or liquid assets did he want to maintain in his account?

Mr. X could scarcely believe what he was hearing. He asked if we were really going to skip the part where we argue. When we assured him we would simply carry out his wishes, he was surprised and pleased.

Of course, we discussed the central tradeoff. Higher cash levels will generally result in lower long term returns. Mr. X pondered the issue, and specified a relatively modest fraction of the account to be in cash.

Trading lower returns for less volatility can have desirable effects. The cash layer may enable a person to stay with the overall plan in tough times. Financial confidence is a very nice thing to have, and the cash layer may help address it.

We have not abandoned our principles. We simply came to the realization that we could help more people invest more effectively if we listened to them more carefully. Life is better for us, and more pleasant for Mr. X as well.

If these issues are pertinent to you, please write or call to talk about your situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Should You Spend Like You’re Rich?

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When children think about rich people the mental image might be something like Rich Uncle Pennybags from the Monopoly game: a monocled fat cat in a top hat with bulging sacks of money.

Obviously, the reality is much different. As we mature we typically develop a more realistic picture, but there is one surprising realization: it is usually much, much cheaper to be rich than to be poor. Having money enables us to live more cheaply and avoid many painful financial pitfalls.

To begin with, paying cash is often cheaper than paying with credit. If you are able to lay down cash for major purchase such as vehicles or even houses instead of having to borrow, you don’t just save on fees and interest, you may even be able to negotiate a better price. If you are funding large items on a credit card, you are likely to wind up paying many times what they are worth. If you are hard up enough that you need to turn to high risk credit in the form of payday loans, things get even worse.

There are other ways that having money allows you to stretch your money out, too. Buying quality merchandise may take more money up front, but if the alternative is buying shoddy products need to be replaced more often, you may save money in the long run by paying more up front. (Of course, care must still be taken to select your purchases carefully: higher cost does not always correlate to higher quality!)

Also, when you have a life of plenty you have the luxury of being able to shop around and wait for a better price. If you have two of everything, it is not an emergency if one breaks or gets used up. Without that surplus, you may find yourself having to go out and buy a replacement whether you like the price or not.

These habits, paying cash and shopping carefully and not being in a hurry to spend, are ones that all of us can use to help us build and maintain our own wealth.

The wonderful conundrum that some have discovered is this: the less you spend, the more wealth you accrue; the more wealth you have, the less you need to spend. Please call or write if you would like perspective or conversation about your situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Money in the Bank

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We have learned over the years that money in the bank is useful and worthwhile for a variety of reasons. It helps us deal with emergencies and take advantage of opportunities. The confidence that comes from having that certain amount safe and sound is perhaps the best thing about it.

With the right amount of money in the bank, people may have more tolerance to the ups and downs of longer-term investments. With today’s low returns on safe, liquid investments, for some living with volatility is the only way to have a chance at decent returns over time. (We are using ‘money in the bank’ as a term to include a variety of conservative investments likely to maintain value.)

As with so many things, there is a gap between how people usually think of their money and how the financial industry talks about it. For example, when you think about the balance you need to have in order to sleep comfortably, you think in terms of a dollar amount. It might be $2,000 or $200,000 or some other number—a matter of circumstances and personal preference.

But the financial industry talks about it in terms of percentages. For example, a blend of 80% stocks and 20% conservative, or 60/40, or 40/60. We see things a little differently. Like Warren Buffett, we believe a temporary dip is not a loss, we are optimistic about the long term, and we know that tolerating volatility is crucial to successful investing. But you still need to sleep comfortably at night, and you still need those advantages that come from having money in the bank.

Our proposal: we will be working with you in the weeks and months ahead to sort out how much if any of the funds entrusted to us should be devoted to capital preservation first. We won’t be talking about percentages like 80/20 or 60/40; we’ll be looking to help you ascertain that dollar amount in conservative investments that strive to leave you feeling comfortable.

This is slightly harder than it sounds, since the trade-off for more stability is less growth potential over time. But we are here to work you through these issues. Write or call if you would like to discuss your situation in detail, or have other questions about this.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

There is no assurance that these techniques are suitable for all investors or will yield positive outcomes.