Here's part 2 of my interview with David Murray, co-author (with his twin brother, Jonathan) of Two for the Money. I liked the book -- giving it 6 stars. So it was my pleasure to "sit down" (via email) and interview David Murray about the book. For those of you who missed it, here's part 1 of our discussion. And now, on to part 2:
Free Money Finance (FMF): You tend to not like index funds, preferring managed funds because "someone feels strongly about" the stocks in managed funds while index fund stocks are selected automatically. But don't index funds outperform the majority of managed funds on a total return basis (especially since their overall costs are much lower)? And just because some feels strongly about a stock, doesn't mean it will do well -- there are a ba-zillion examples of this. Can you explain your thinking on this subject a bit more for our readers?
David Murray (DM): Most index funds DO outperform actively-managed funds. Good financial advisors know how to find the funds that outperform the indexes over time (personal tip: see American Funds!). So yes, if you don't have a trustworthy advisor, buy a nice portfolio of low-cost index funds and/or ETF's.
FMF: I liked the "double take" sections of the book where you each take a different point of view on a financial topic. How often do you two actually agree on financial advice?
DM: Isn't that fun? It was the most enjoyable part for us, as well. You can tell where, regarding the BIG issues, we're on the same page. I think that's a function of our upbringing. We're both philosophically-alike when it comes to money, but we differ occasionally on "how" to get there. Generally, I'm more conservative (being older by 4 minutes!), I'm less flashy and more independent, I seek anonymity more than J. does, etc...
FMF: If you could give people just a few money management tips, what would your top suggestions be and why?
DM: Invest systematically, don't get hung up on day-to-day market fluctuations, and stay diversified. As far as your family budget goes, it's simple: map out your plan, cut your spending, increase your savings, and let time be your ally. These are not new ideas. Rather, we like them because they've stood the test of time. In short, the formula WORKS! People that do this stuff get rich, and most experience a reduction in anxiety and stress.
FMF: Where are most people missing it in managing their money? What are the problems you see the most?
DM: They relegate financial issues to the back burner. Telling themselves that "yeah, I'll get to that some day"...and the day never arrives. Meanwhile, credit card balances are escalating, bills are barely-able to be paid, and important savings strategies don't get implemented. Another problem people have is related to their investing habits. Too often, we become disappointed with our investments this year, and decide to "chase" last year's winner...only to find out (the hard way) that investments are cyclical. So often, what was hot in the past few years tends to underperform, and what has lagged for the past few years, finally outperforms. The key is to stay balanced across different asset classes, and to periodically re-balance into those categories that have lagged...that's what "value investing" is all about! If you don't have the time, temperament, and talent to do it yourself, hire a good financial advisor. If you need one, call either of us!
FMF: You talk about it a little in your section on retirement, but can you share more of your thoughts on giving and, in particular, how the average person should look at giving as part of his overall financial planning?
DM: Giving can be effective, both as an estate-planning tool and from a spiritual/emotional perspective. Clearly, the average person trying to make ends meet needs to focus on building his own wealth. However, as time goes by (and wealth is built), charitable giving becomes an important consideration to defray taxes. During retirement, our clients tell us that their involvement with non-profits fills a void...kind of like what we all learned about "in giving, so shall ye receive"...corny, but true.
FMF: Is there anything else you’d like to tell readers of Free Money Finance about managing their money?
DM: There are plenty of financial advice books out there. This one is really different. It's written NOT by full-time authors or TV celebrities; but by a couple of guys who've been managing the financial affairs for thousands of people since 1984! So we get it. Hopefully, it's a refreshing blend of "useful" and "entertaining". If you don't like it, we guarantee that someone in your family will!
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A couple thoughts from me:
1. Regarding index funds, that's what I thought (they out-perform most funds). However, I think the chances of finding an advisor who can consistently find funds that outperform the market (especially when you subtract the fund's fees and the advisors charges) are rather low. That's why I stick with index funds.
2. His money management tips are very, very solid, and I agree with them. They are worth repeating:
Invest systematically, don't get hung up on day-to-day market fluctuations, and stay diversified. As far as your family budget goes, it's simple: map out your plan, cut your spending, increase your savings, and let time be your ally. These are not new ideas. Rather, we like them because they've stood the test of time. In short, the formula WORKS! People that do this stuff get rich, and most experience a reduction in anxiety and stress.
conflict of interest = "good financial advisors know how to find the funds that outperform the indexes over time"
FMF, agree with you on index funds.
Posted by: Brian | June 15, 2006 at 05:36 PM