MONEY Personal Finance

6 Crucial Life (and Money) Lessons I Learned Playing in the World Series of Poker

Players compete during the main event at the World Series of Poker Wednesday, July 8, 2015, in Las Vegas.
John Locher—AP Players compete during the main event at the World Series of Poker Wednesday, July 8, 2015, in Las Vegas.

Add these poker lessons to a long list of tips for personal and professional success, thanks to the biggest game of all.

I’m not the kind of person that can’t sleep. But at the World Series of Poker last week I found myself up both early and late, a nervous energy stealing my natural sense of calm. That’s ok. My adrenaline would sustain me—and this is just one of the things I learned playing in the biggest game of them all.

Much has been written about the life, business, and investing lessons you can learn at a poker table. The game trains you to read body language and spot opportunity; to lose with grace and focus on decisions, not outcomes; to choose battles wisely and be aware of what others see when they look at you.

It’s all true, valuable, and widely applicable. I’ve even suggested that kids take up poker (with age appropriate stakes, of course). It can help youngsters strengthen memory, improve math skills, learn to consider risks, and practice money management. Playing for the first time in the Main Event in Las Vegas, an elimination tournament with more than 6,400 entrants, I discovered still more ways this game teaches success.

  1. Passion is everything Isaac Newton’s mother had to remind him to eat because he was so busy discovering the laws of gravity that he might go days forgetting he was hungry. Newton did pretty well for himself. For me, losing sleep to thoughts of strategy and analysis reinforced that I was doing something I find exhilarating. Sleep is important. The mind must rest. But in the short run the thrill of passion more than compensates. Tournament poker is just a game, and because I enjoy it I am consumed by improvement. But the same principle applies in other endeavors. I apply it in my day job too. When you love what you do, you keep doing it better—an important ingredient of success. So do what you love, not what others expect of you.
  2. Nice guys finish last…or first You meet all kinds of people around a poker table. Some yak incessantly and others remain stone faced for hours; some are unassuming and engaging and others snarl and trash talk. None of it matters. What counts is focus. The two nicest guys at my first table went opposite ways, one to an early exit and the other to the next stage as a chip leader. Heck, I’d have a beer with either of them, and both were solid players. The only real difference was that one paid attention to the table all the time; the other only while in a hand. Guess who advanced? In life, career, or at the poker table, the things you learn while others are taking it easy give you an edge. Smiles and snarls are immaterial if you stay focused.
  3. Down is not out In 1997, a little computer company named Apple was floundering, having lost money for 12 consecutive years. But Steve Jobs returned to the company he had founded, struck gold with the iPod and by 2011 Apple had become the most valuable company in the world. At my table on the second day, the guy that started with the fewest chips kept fighting. He didn’t panic. He kept his wits. Like Jobs, he never gave up. This player, after hours on the brink, finally began to rake some pots and later advanced deep into the tournament. In any pursuit, you may fail or get bested. So you try again. You are only out when you quit.
  4. Your comfort zone should make you uncomfortable People who challenge themselves tend to rise to the occasion, psychologists have found. Children are fearless. They try anything. That’s how they grow. But most adults have tasted enough failure that they tend to avoid difficult situations, which leaves them trapped within personal and professional boundaries. Fear of failure is a powerful obstacle to growth. “There is no learning without some difficulty and fumbling,” John Gardner writes in Self-Renewal. “If you want to keep on learning, you must keep on risking failure—all your life. It’s as simple as that.” At the poker table, you can play safe a long time before your chips run out. But they will run out—unless you get out of your comfort zone and make the occasional bet that scares you half to death.
  5. There is no such thing as house money The economist Richard Thaler pioneered the notion of mental accounting, where individuals treat money gained in different ways with more or less care. You are more likely to spend $20 that you found on the sidewalk than $20 you earned at your job. Why is that? Simple: The money you stumbled into on the sidewalk was found money; you are no worse off when it is gone. Similarly, a gambler on a roll might raise the stakes, reasoning that since he is wagering only money he has won—house money—he can’t really lose. And yet $20 is $20, no matter how you got it. When you spend or lose it, you have less money than before and have missed a chance to improve your financial security. The most impressive player at my table on the second day was a guy with a bunch of chips who remained true to his game. Despite his bountiful resources, he kept methodically building a bigger pile, avoiding the trap of taking unnecessary risks with his “house” money.
  6. Sometimes you have to wing it Most information is imperfect. When you invest in a stock, you know what the company has done in the past. You think you understand how it will do in the future. But you cannot be sure. You gather as much information as possible and buy when you sense opportunity. You might be wrong. Warren Buffett bought shares of ConocoPhillips just before oil prices unexpectedly tanked a few years ago and he lost $1 billion. My tournament ended late on the second day—after 21 hours of card playing—when I bet all my chips at a time when, using the best table information I could gather, I sensed opportunity. It turned out the guy to my left was holding two aces and, alas, I had essentially bought ConocoPhillips ahead of plunging oil prices. That really hurt. But I can live with the Buffett comparison.

 

 

MONEY financial advisers

Why Even the Rich Don’t Trust Themselves with Their Money

blindfolded man in suit
Helder Almeida—Shutterstock

When the affluent are nervous, it's time for middle-class investors to make sure their portfolios are on track.

If the wild market swings of the past week have you feeling anxious about your portfolio, you’re not alone. Even wealthy investors say a volatile stock market puts them on edge, perhaps because so much of their money is bound up in stocks.

A new study finds that almost 40% of affluent investors don’t trust themselves to manage their own investments during market downturns—in fact, more than 60% of those surveyed say they currently work with a financial adviser. (Although the study targeted people with more than $250,000 in financial assets, the group surveyed had a median $450,000 parked in the stock market.)

It’s not just wealthy investors who are worried about their finances, of course. Another recent survey found that 62% of Americans overall reported being kept awake by money concerns, though the percentage is smaller than in past years. Among those losing sleep, 40% reported worrying about retirement savings; among those ages 50-54, fully half said this concern keeps them up at night.

No question, the markets have been especially turbulent lately. After a fairly quiet spring, the VIX—a measure of volatility in the S&P 500—jumped at the end of June, as the Greek debt crisis and China’s stock market turmoil made headlines. Plus, a technical glitch shut down the New York Stock Exchange. (The crisis in Greece appears be on track to a resolution, but China’s shaky stock market may yet upend global markets.)

The Surge in Advice

Granted, investment surveys like these tend to play up market anxieties—and the need for professional hand-holding. Wells Fargo, the sponsor of this particular survey, made more than $800 million off its financial advisory business last year.

It’s just one of the proliferating number of financial services firms offering advice to nervous investors. That list includes not only brokers (like Wells Fargo) and fee-only advisers, but also the new breed of low-cost online investment advisory services (often labeled robo-advisers) such as Wealthfront and Betterment.

Established fund groups like Charles Schwab and Vanguard have also gotten into the act by offering a mix of automated advice and human guidance for significantly lower fees—or no fees at all, in the case of Schwab Intelligent Portfolios. Meanwhile, some fee-only advisers have changed their pricing model to create an offering for younger and less affluent investors, which is paid through monthly retainer fees rather than charging a percentage of assets. (Such plans give younger investors access to unbiased advice, but the resulting price tag winds up being well above the traditional 1% of assets.)

Where to Get Help

Should you opt for one of these advice services? The answer may depend on how susceptible you are to fear, greed and other portfolio-undermining emotions. If the answer is “very,” there are simple ways to get some guidance.

The easiest move is to use a low-cost target-date fund, which will give you instant diversification, automatic rebalancing, and an asset mix that grows more conservative as you approach your retirement date.

You can also consider one of the online offerings. You can start small—Wealthfront, for example, just lowered its minimum investment to $500. Above $10,000, you will pay a fee of roughly 0.25% of invested assets.

But if you think you can go it alone, you can save yourself even that modest fee. After all, that Wells Fargo data shows that 61% of those wealthy investors still do trust themselves to stay calm when markets shake. If you know you’ll be able to keep your head while flying solo, pick a simple portfolio allocation, fill it with low-cost index funds and rebalance once a year.

Read next: Meet Your New Financial Adviser

MONEY annuities

Why Millennials May Be Risking Their Retirements with This Investment

Young investors are being targeted by salespeople pushing a complex annuity with a tempting guarantee.

Memo to Millennials: Don’t be surprised if an adviser or insurance salesperson suggests that your retirement savings strategy include a type of annuity that’s guaranteed not to lose money. My advice if you’re on the receiving end of that pitch: Walk the other way.

It’s hardly news that many young investors are wary of the stock market. So I was hardly taken aback when a recent survey by the Indexed Annuity Leadership Council (IALC) found that more than twice as many investors age 18 to 34 described their retirement investing strategy as conservative as opposed to aggressive. But another stat highlighted in IALC’s press release did grab my attention: namely, 52% of Millennials—more than any other age group—said they were interested in fixed indexed annuities.

Really? Fixed indexed annuities aren’t exactly a mainstream investment. And to the extent you do hear about them, they’re usually associated with older investors looking to preserve capital in or near retirement. So I was surprised that Millennials would be familiar with them at all.

And in fact they’re probably not. You see, the IALC survey didn’t actually mention fixed indexed annuities. Rather, it asked Millennials if they would be interested in an investment that may not have as high returns as the stock market, but would provide guaranteed payments in retirement and guarantee that they would not lose money.

I can’t help but wonder, however, whether those young investors would have been less enthusiastic if they were aware of some of the less appealing aspects of fixed indexed annuities, such as the fact that many levy steep surrender charges, which I’ve seen go as high as 18%, if you withdraw your money soon after investing. They’re also incredibly complicated, starting with the arcane methods they use to calculate returns (daily average, annual point-to-point, monthly point-to-point). And while they allow you to participate in market gains on a tax-deferred basis while protecting you from losses—and offer a minimum guaranteed return, typically 1% to 2% these days—they can seriously limit your upside. Fixed indexed annuities typically impose annual “caps,” “participation rates” or “spreads” that reduce the amount of the market, or benchmark, return you actually receive. So, for example, if your fixed indexed annuity is tied to the S&P 500 index and that index rises 10% or 15% in a given year, you may be credited with a return of, say, 5%.

Don’t take my word for these drawbacks, though. Check out FINRA’s Investor Alert on such annuities, which describes them as “anything but easy to understand” and notes that it’s difficult to compare one to another “because of the variety and complexity of the methods used to credit interest.”

But even if you’re able to wade through such complexities and make an informed choice, should you put your retirement savings into a such a vehicle if you’re in your 20s or 30s? I don’t think so. After all, if you’ve got upwards of 30 or 40 years until you retire, your savings stash has plenty of time to recuperate from any market meltdowns between now and retirement. (Besides, if you’re really anxious about short-term market setbacks, you can easily deal with that anxiety by scaling back the proportion of your savings you keep in stocks vs. bonds.)

Better to create a mix of low-cost stock and bond index funds that jibes with your tolerance for risk and allows you to fully participate in the financial markets’ long-term gains than to opt for an investment that severely limits your upside in return for providing more protection from periodic setbacks than you really need. Or to put it another way, why end up with a stunted nest egg at retirement to insulate yourself from a threat that, viewed over a time horizon of 30 or 40 years, isn’t as ominous as it may seem?

When I talked to Jim Poolman, a former North Dakota insurance commissioner and the executive director of IALC, he did note that Millennials shouldn’t be putting all their retirement savings into fixed indexed annuities. Rather, he says fixed indexed annuities can be “part of a balanced portfolio” that would include traditional investments, such as stock and bond funds in a 401(k). But as much as I like the idea of balance and diversification, I’m not convinced even that is a good strategy. I mean, if you’ve funded your 401(k) and are looking to invest even more for retirement outside your plan, what’s the point of choosing an investment that not only restricts long-term growth potential but that could leave you facing hefty surrender charges (plus a 10% tax penalty if you’re under age 59 1/2), should you need to access those funds?

I’m not anti-annuity. I’ve long believed that certain types of annuities can often play a valuable role for people in or nearing retirement by providing guaranteed lifetime retirement income regardless of what’s going on in the financial markets. But if you’re in your 20s or 30s, you should focus on investing your savings in a way that gives you the best shot at growing your nest egg over the long-term, not obsessing about the market’s ups and downs.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More From RealDealRetirement.com

The Cost of Keeping Your Nest Egg In Cash

5 Tips For Choosing The Best Annuity For Lifetime Retirement Income

How Boomers Can Help Millennials Better Prepare For Retirement

MONEY financial advice

How to Become a 401(k) Millionaire

Fidelity Investments' Jeanne Thompson lays out three simple steps.

For millennials, retirement is something that feels like it’s forever away, which is a good thing when it comes to preparing for it. Jeanne Thompson, Fidelity Investments’ vice president of thought leadership, lays out three simple steps for hitting the ultimate 401(k) milestone: a million dollars.

1) Save a lot. Seriously, save as much as you can. One of the BrightScope co-founders phrases it simply as “Save until it hurts.

2) Start now. When you start saving while you’re young—Thompson says 25 at the latest—you give your money as much time as possible to mature alongside you.

3) Invest for growth. Keep your eye on stocks, and don’t shy away from aggressive investments.

Read next: The Painful Secret to Retirement Success

MONEY stocks

How China’s Stock Market Crash Affects You

Even if you (and your mutual funds) don't own a penny in Chinese stocks

At first glance, it may not seem as if troubles in China directly impact you.

For instance, the Vanguard Total International Stock fund, a popular way for investors to gain exposure to overseas stock, currently holds less than 4% of its assets in Chinese equities. Assuming you keep one quarter of your stock investments in foreign funds like this—which is a big assumption, as MONEY’s Taylor Tepper points out—that would mean China at most affects about 1% of your strategy.

Hardly worth mentioning…until, that is, you start considering the indirect impact of China.

#1) The role of Chinese consumers.

Not only is China the second biggest economy in the world, its households have finally started to have a major impact on global consumption. Right now, companies in the Standard & Poor’s 500 index of U.S. stocks generate more than 40% of their sales overseas, with Asia Pacific (led by China) accounting for about 8% of revenues.

But for some big American companies, the numbers are actually much, much higher. Right now, around 40 companies in the S&P 500 routinely break out their revenues specifically from China, according to Bloomberg. And Bloomberg reported that those firms — led by companies such as Intel and Yum! Brands — generate more than 18% of their overall sales from this one market.

The trouble is, as powerful as Chinese consumers are, they’ve just been hit with not one, but two market crashes in rapid fire succession.

The first was in the country’s over-developed real estate market, which accounts for around 15% of the Chinese economy. For nearly a year now, home prices in China’s major cities have precipitously fallen. This has put serious pressure on Chinese consumers, since around two thirds of the typical Chinese family’s wealth is tied to their homes.

When housing started going bust, Chinese investors shifted gears and started to pour their money into the stock market, which helps explain why the Shanghai composite index soared in the 12 months through mid June:

^SSEC Chart

^SSEC data by YCharts

That is, until the Chinese market started selling off, and investors lost around a third of their investments in equities in less than one month’s time:

^SSEC Chart

^SSEC data by YCharts

How big was this sell off, given the size of the Chinese market? Ken Peng and Steven Wieting of Citi Private Bank say that so far, the sell off has erased $3.3 trillion worth of wealth. “For perspective,” they say, “the value wiped out is equivalent to 14 times Greece’s GDP.”

#2) The impact on the dollar.

The crisis in China—coupled with the separate debt crisis in Greece—is already being felt by U.S. investors through the dollar. Since the Shanghai market started crashing in mid June, the U.S. dollar has gained 3% in value against global currencies, as investors seek shelter in the relatively safety of the U.S. economy.

A strong currency sounds like a good thing. But it raises the prices on goods that U.S. exporters sell abroad, crimping their sales and profits.

Even before this bounce in the dollar, U.S. companies have been having trouble lately at generating profit growth thanks to the already strong buck. As the dollar has risen in general in the past year or so, S&P 500 profit growth has slowed from a pace of around 10% last year to less than 1% this year.

If China’s market continues to plummet, expect more investors—including the Chinese themselves—to seek refuge in U.S.-denominated assets such as Treasuries, stocks, and just plain cash.

And if that’s the case, it will be that much harder for U.S. companies to boost their profits. And ultimately, that’s trouble for U.S. stocks.

Read next: 3 Charts That Explain the Stock Market’s Correction

MONEY

Don’t Let Greece or China Stop You From Investing Overseas

Stock prices at a brokerage office in Beijing, China, July 6, 2015
Kim Kyung Hoon—Reuters Stock prices at a brokerage office in Beijing, China, July 6, 2015

Despite all the bad news you've been hearing.

These are heady times for the global economy, and investors can be forgiven for wincing in terror as they stare at their nearest computer screen wondering why they even bother buying foreign securities.

Greece is on the verge of bankruptcy and possible exit from the euro, while China’s stock market seems to have burst. Meanwhile, the U.S. continues to add jobs at a solid clip, housing prices are jumping and consumer confidence is high. Why bother?

Despite recent developments, chances are you’re not invested enough internationally. In fact most American investors have a home bias, as Charles Schwab’s chief investment officer for equities Omar Aguilar recently told me. Now is no time for protectionism in your portfolio.

You’ve probably heard that investors have a nasty habit of buying high and selling low, as those who bailed out of stocks and into cash in 2009 can attest. This phenomenon tends to occur when well-meaning investors pay too close attention to noisy financial news and act on fear.

To be fair, folks are worried for a reason. Actually, multiple reasons:

Europe’s economic union is flux: On Sunday, the Greeks took to the polls and voted against a proposal offered by the nation’s creditors after Prime Minister Alexis Tsipras called for the referendum as negotiations with European leaders of broke down. After a less-than-productive meeting yesterday, European Commission President Jean-Claude Juncker said Europe has a plan to kick Greece out of the euro. Whether Greece and the rest of Europe can find a path to monetary coexistence remains a fifty-fifty proposition, which is slightly vexing given that no one understands the full impact of what a Greek exit will entail.

A bubble is bursting in China: The Shanghai Composite Index recently fell to a three-month low, despite strong governmental efforts to stem the decline. Close to a thousand companies have suspended trading, while the government has cut interest rates and announced plans to investigate short-sellers.

This pullback, though, comes after a dramatic increase in Chinese equities. Valuations are still frothy and the Shanghai Composite Index is up year-over-year. Chinese investors are experiencing market turbulence as national economic growth downshifts to around 7% growth, well below it’s pace ten years ago. Whether equities have more room to drop, or have found a bottom, remains to be seen.

Why no skip the dram? Because if you’re not investing overseas you’re missing out on a key element of your portfolio: diversification.

A little more than half of the stocks in the world are located outside of the U.S., yet U.S. mutual fund investors held only slightly more than a quarter of their portfolio in international stocks, according to a 2014 Vanguard study.

“The rationale for diversification is clear—U.S. stocks are exposed to U.S. economic and market forces, while stocks domiciled outside of the United States offer exposure to a wider array of economic and market forces,” says the study. Because one market can rise as another falls, investors holding between 20% to 40% of their equities in international funds experienced lower overall volatility.

Right now, it may appear obvious that the U.S. is the place to be. But other times, foreign markets outperform our own. In fact, that’s been the case for much of this year so far.

sp5

As MONEY’s Susie Poppick points out here, Greece is a tiny fraction of the world’s economy. And while China’s stock market free-fall may pose a larger threat to world finance, most stocks are owned by Chinese investors and most Chinese citizens don’t own stocks.

To get broad expsure to global market, look to a couple of MONEY 50 recommend funds. Fidelity Spartan International FIDELITY SPARTAN INTL INDEX INV FSIIX -3.03% offers investors access to blue-chip European fare like Nestle. Or if you want a one-decision fund, look to Vanguard Target Retirement 2035 VANGUARD TARGET RETIREMT 2035 FD VTTHX -2.36% , which mixes U.S. stocks, foreign stocks, and bonds. About a third of its stock portfolio is in foreign companies.

MONEY financial advice

The Painful Secret to Retirement Success

The co-founders of retirement and investment analytics firm BrightScope share the secret of a well-funded retirement.

BrightScope co-founders (and brothers) Mike and Ryan Alfred say saving is the most important thing you can do for your retirement. Start saving early and start saving a lot—way more than the 5% or 6% that workers put in their 401(k) to get an employer match. Ryan, president and chief operating officer, said he knows it can be hard to start saving when you’re young and just started a career, but he thinks you should start saving a little bit and try to increase how much you save each year.

MONEY Financial Planning

9 Money Lessons from Baseball

556731623
Haila Rosero / EyeEm—Getty Images

Just like on ball field, financial planning involves optimizing for past results and probabilities.

From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating. Look for these classics on the weekends.

As you cheer your team in this year’s World Series, consider that America’s favorite pastime can teach you a lot about America’s main preoccupation: money.

How does baseball resemble your investing or financial decisions?

1. Probability of outcomes matters, whether concerning stolen bases or investment returns and financial goals.

2. Separating a manager’s skill and luck takes a long time.

3. A quality process matters more than immediate or short-term outcomes.

4. Dazzling past performance clouds present decisions and doesn’t guarantee future outcomes.

5. Specialists work best where they add the most value.

6. Scouts are to fans as investment managers are to average investors, making informed decisions using advanced data and resources. No informed decision is foolproof.

7. Best to worry only about what you can control.

8. Good teams and investment plans use a documented approach to evaluating present conditions and building for the future.

9. Most mutual fund managers are the equivalent of common baseball cards.

Baseball is our most statistically driven sport; we can digest piles of data about each game. Investing offers a similar ton of data to evaluate company stocks, bonds, economic conditions and investor psychology, to name just a few conditions. Beyond past returns and the price/earnings ratio of a stock, investment evaluation goes much deeper with formulas, algorithms, and even a measure called “batting average” that evaluates how an investment manager’s results compare with an unmanaged benchmark.

When I was a kid I loved Strat-O-Matic Baseball, an old-fashioned game in which you roll dice to manage a team and consult player cards for the outcome based on probabilities from past performance. Luck did figure heavily in any single roll of the dice; play long enough, though, and probabilities won out. Much as on Wall Street.

Baseball also evolved into a game of specialists filling specific roles. Pitchers, catchers and shortstops use distinct skills. Investment management is similar: A balanced approach that considers the broad universe of return-seeking opportunities and risk management requires a diverse mix of specialists.

The mix of luck and skill can be hard to evaluate in investment managers. Sometimes you misinterpret a single lucky event to the point of inflating the performance of the manager for years to come.

The probability of any investment manager consistently identifying winners and timing entry and exit with such holdings is low. Just as past performance doesn’t stop baseball general managers from offering obscenely lucrative long-term contracts to players whose careers are fading, investors steer a lot of capital toward money managers based on past market performance and returns.

How does the probability of scoring change if a baseball team has no outs and a runner on first base, compared with one out and a runner on second? Who’s at bat and what’s that batter’s past performance against the pitcher?

Will company earnings continue to grow and justify higher stock prices? How far and fast will interest rates ever climb? Will eurozone stagnation drag down the global economy, and, if so, how far?

To cite one financial firm as an example, my partners and I rely on probabilities of outcomes when creating long-term financial planning and asset projections. We use Money Guide Pro software – the Strat-O-Matic of financial planning – to model how assets, future income streams and expected investment returns might satisfy your retirement income, college savings, travel, health care and other long-term goals. We’re comfortable with a 70% to 80% probability. Insisting on much higher probability means building a plan for only the worst possible financial scenarios and can cause shortfall in your funding.

The investment world always carries an element of uncertainty, the relationship between risk and reward. Even if we accurately gauge the probability of investment outcomes, we won’t make successful money decisions every time. Fluid factors can disrupt probabilities.

An untimely double play quickly ends a promising rally. Retire a year early or spend more than you planned right before your golden years and your probability of funding retirement income changes. Lose your job and automatic payday funding to your investments temporarily dries up.

The challenge in financial planning and on the ball field: We optimize for past results and probabilities and still retain little control over outcomes, especially when we move beyond numbers and into your situations and goals changing through your game of life.

Gary Brooks is a certified financial planner and the president of Brooks, Hughes & Jones, a registered investment adviser in Tacoma, Wash

More from AdviceIQ:

MONEY financial independence

Financial Lessons of America’s Founding Fathers

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation.

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Here are some of the lessons, still applicable today, that can be drawn from these historic financial lives.

Have a Back-up Plan

Alexander Hamilton may have been the greatest financial visionary in American history. After the Revolutionary War, as Washington’s Treasury Secretary, Hamilton steered the fledgling nation out of economic turmoil, ensured the U.S. could pay back its debts, established a national bank, and set the country on a healthy economic path. But it turned out that he was far better at managing the country’s finances than his own.

When Hamilton was killed in a duel with vice president Aaron Burr, his relatives found they were broke without his government salary. Willard Sterne Randall, biographer of multiple founding fathers, recounts that Hamilton’s wife was forced to take up a collection at his funeral in order to pay for a proper burial.

What went wrong? Hamilton’s law practice had made him wealthy and a government salary paid the bills once he moved to Washington, but he also had seven children and two mistresses to support. Those expenses, in addition to his spendthrift ways, left Hamilton living from paycheck to paycheck.

The take-away: Don’t stake your family’s financial future on your current salary. The Amicable Society pioneered the first life insurance policy in 1706, well before Hamilton’s demise in 1804, and term life insurance remains an excellent way to provide for loved ones in the event of an untimely death. Also, don’t get into duels. Life insurance usually doesn’t cover those.

Diversify Your Assets

Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.

During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson in particular continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.”

After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focussed on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.

Invest in What You Know

Warren Buffett’s famous piece of investing wisdom is also a major lesson of Benjamin Franklin’s path to success. After running away from home, the young Franklin started a print shop in Boston and started publishing Poor Richard’s Almanac. When Poor Richard’s became a success, Franklin reinvested in publishing.

“What he did that was smart was that he created America’s first media empire,” says Walter Isaacson, former editor of TIME magazine and author of Benjamin Franklin: An American Life. Franklin franchised his printing business to relatives and apprentices and spread them all the way from Pennsylvania to the Carolinas. He also founded the Pennsylvania Gazette, the colonies’ most popular newspaper, and published it on his own presses. In line with his principle of “doing well by doing good,” Franklin used his position as postmaster general to create the first truly national mail service. The new postal network not only provided the country with a means of communication, but also allowed Franklin wider distribution for his various print products. Isaacson says Franklin even provided his publishing affiliates with privileged mail service before ultimately giving all citizens equal access.

Franklin’s domination of the print industry paid off big time. He became America’s first self-made millionaire and was able to retire at age 42.

Don’t Try to Keep Up With the Joneses

Everyone wants to impress their friends, even America’s founders. Alexander Hamilton blew through his fortune trying to match the lifestyle of a colonial gentleman. He worked himself to the bone as a New York lawyer to still-not-quite afford the expenses incurred by Virginia aristocrats.

Similarly, Thomas Jefferson’s dedication to impressing guests with fine wines, not to mention his compulsive nest feathering (his plantation, Monticello, was in an almost constant state of renovation), made him a life-long debtor.

Once again, it was Ben Franklin who set the positive example: Franklin biographer Henry Wilson Brands, professor of history at the University of Austin, believes the inventor’s relative maturity made him immune to the type of one-upmanship that was common amongst the upper classes. By the time he entered politics in earnest, he was hardly threatened by a group of colleagues young enough to be his children. Franklin’s hard work on the way to wealth also deterred him from excessive conspicuous consumption. “Franklin, like many people who earned their money the hard way, was very careful with it,” says Brands. “He worked hard to earn his money and he wasn’t going to squander it.”

Not Good With Money? Get Some Help

In addition to being boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife Abigail was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘Thats all well and good, but you’re making 1% on your land and I can get you 25%.'”

She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.

As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.

Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant, and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.

Make A Budget… And Stick To It

From a financial perspective, Thomas Jefferson was one giant cautionary tale. He spent too much, saved too little, and had no understanding of how to make money from agriculture. As Barnard history professor Herbert Sloan succinctly puts it, Jefferson “had the remarkable ability to always make the wrong decision.” To make matters worse, Jefferson’s major holdings were in land. Large estates had previously brought in considerable profits, but during his later years farmland became extremely difficult to sell. Jefferson was so destitute during one trip that he borrowed money from one of his slaves.

Yet, despite his dismal economic abilities, Jefferson also kept meticulous financial records. Year after year, he dutifully logged his earnings and expenditures. The problem? He never balanced them. When Jefferson died, his estate was essentially liquidated to pay his creditors.

 

MONEY Financial Planning

Two Founding Fathers Who Died Broke and One Who Retired Early

What can the men who adorn our currency teach us about our own finances?

In theory, the founding fathers should be the ultimate financial role models. After all, they’re literally on the money. Warren Buffett might be every investor’s hero, but even he can’t count his earnings without seeing the faces of Washington, Hamilton, Franklin, and Jefferson. Even John Adams, perhaps the most neglected of the founding fathers, has been commemorated on the dollar coin.

What can the men who adorn our currency teach us about our own finances? Quite a lot, actually, but not because they were all as good with money as they were at creating a nation. Jefferson, for example, amassed a great fortune but later squandered it and ended his life all but penniless (despite, of course, the economic advantages of being a slaveholder). But others, including Washington — a shrewd and even ruthless businessman — died very wealthy men.

Read the full text here.

Your browser is out of date. Please update your browser at http://update.microsoft.com