The Game of Risk and Return

The game of risk and return is an interesting one.

If you study historical returns and historical risk and the relationship between the two, it is pretty clear that investors get rewarded for taking risk, IN THE LONG RUN, by receiving higher returns on their investments.

The strategy for winning the game of risk and return has two key steps:
– first, you have to have a plan that incorporates your short and long-term goals and how you will invest to meet those goals
– then, you have to follow that plan.

The reward comes from taking risk. The reward is higher investment returns. The risk is varying investment returns – up and down.

Your investment plan has to recognize that there will be ups and downs in the market and that some of those ups and downs may be unnerving and difficult to deal with. But you have to commit to handling them correctly – because this is a precurser to getting the rewards.

When the market falls dramatically, many people decide to pail out. This is one of the biggest mistakes you can make. David G. Booth, Chief Executive Officer of Dimensional Fund Advisors says “You’ve already paid for the risk, so it might be good to stick around for the expected return.”

Because of the risk factor, you do not want to have money that you need in the short term invested in “risky” investments. I recommend that you have two types of money set aside in “cash or cash-equivalent” investments:
1. Emergency funds
2. Any money that you need to use in the next five years. This would include money for college expenses, big vacations, an addition to your house, etc.

The law of risk and return is a law that can pay you big dividends – if you use it correctly.

Black Friday

It’s Black Friday – the day that retailers count on to bring them into the black for the year.

I’m not out out shopping.

I didn’t get up at 4:00 AM to be one of the first in line a Best Buy to POSSIBLY save $200 on a laptop computer or to save $30 on a toy for my grandson or to rush around to see what other bargains I might just happen to find.

I’m not out fighting for parking spots and bruising my elbows as I fight my way through hoards of people to buy things for people (including me) that they don’t really want or need.

I slept in a little and am now sitting by the fireplace in my office doing what I really want to do.

As I mentioned a day or two ago, it is not your patriotic duty to spend money.  I believe that it is you duty to manage your entire life (including your financial life) in a responsible way.  This is not a country that was built on people spending more and more money, but a country that was built on people following their dreams – whatever those dreams may be.

Don’t be bullied into being financially irresponsible by spending money for the sake of spending money.  Instead, spend energy building the life you want and be financially responsble so that you have the freedom to follow that life.  You will be far better off by making wise decisions that support your plans and  your dreams.  Spend within your resources and buy things that support the life you want to live.  You will be better off – and so will your country.

Enjoy the day!




Henry Van Dyke said: “Be glad of life, because it gives you the chance to love and to work and to play and to look up to the stars; to be satisfied with your possessions; to despise nothing in the world except falsehood and meanness, and to fear nothing except cowardice; to be governed by your admirations rather than by your disgusts; to covet nothing that is your neighbor’s except his kindness of heart and gentleness of manners; to think seldom of your enemies, often of your friends…and to spend as much time as you can, with body and with spirit. These are the little guideposts on the footpath to peace.”

From Cicero to Buddha, many philosophers and spiritual teachers have celebrated gratitude. The world’s major religions, including Christianity, Judaism, Islam and Hindu, prize gratitude as a morally beneficial emotional state that encourages reciprocal kindness. Pastors, priests, parents and grandparents have long extolled the virtues of gratitude, but until recently, scholars have largely ignored it as a subject of scientific inquiry. This has changed with the recent study by Dr. Michael McCollough, of Southern Methodist University in Dallas, Texas, and Dr. Robert Emmons, of the University of California at Davis, who have discovered that gratitude plays a significant role in a person’s sense of well-being.

The results of the study indicated that daily gratitude exercises resulted in higher reported levels of alertness, enthusiasm, determination, optimism and energy. Additionally, the gratitude group experienced less depression and stress, was more likely to help others, exercised more regularly and made more progress toward personal goals. According to the findings, people who feel grateful are also more likely to feel loved. McCollough and Emmons also noted that gratitude encouraged a positive cycle of reciprocal kindness among people since one act of gratitude encourages another.

McCullough says these results also seem to show that gratitude works independently of faith. Though gratitude is a substantial part of most religions, he says the benefits extend to the general population, regardless of faith or lack thereof. In light of his research, McCullough suggests that anyone can increase their sense of well-being and create positive social effects just from counting their blessings.

To do this (count your blessings), many people recommend that you keep a gratitude journal. Just sit down once a day and write – “Today I am grateful for …” and then make a list of everything that you are grateful for. If you would rather do this online, you can visit . This site has much more information about Gratitude and allows you to log in and create your own online gratitude journal. Another gratitude resource is or you can Google “gratitude journal”.

I think that Albert Schweitzer summed it up best when he said “To educate yourself for the feeling of gratitude means to take nothing for granted, but to always seek out and value the kind that will stand behind the action. Nothing that is done for you is a matter of course. Everything originates in a will for the good, which is directed at you. Train yourself never to put off the word or action for the expression of gratitude.

Happy Thanksgiving


Your Patriotic Duty?

Is it your patriotic duty to rescue the economy?

As I watch TV and listen to the radio lately, I have been hearing a lot about stimulus packages and the importance of spending our way back into financial health. The implication of these messages is that it is our job to spend ourselves out of a recession and that it is your patriotic duty to help by spending as much as you possibly can.

I have a somewhat different perspective. I believe that it is NOT our patriotic duty to spend, spend, spend or to single-handedly pull the country out of these difficult financial times.

But I think that it is our patriotic duty to manage our lives with personal and financial responsibility so that we can withstand difficult times and contribute to the success of our nation.

One of the biggest reminders I have gotten over the past few difficult months is the importance of having a sensible financial plan that allows you meet your goals. A big part of that plan should be to maintain adequate emergency funds and to have enough liquid assets to withstand difficult financial times.

As you receive “stimulus” checks, remember that it is NOT your duty to run out and immediately spend it. It is your patriotic duty to use that money to get yourself into a solid and responsible financial situation. If we all act responsibly, the US will be much better off.