Deception of Ownership

Personal ownership of property (real and personal) is a long-held status symbol for most people. When people hear “status symbol”, they tend to think of flashy cars, designer clothing, or large homes.

However, even those who fancy themselves financially responsible own their home, vehicles, and other assets in their own name, looking with satisfaction at their modest lifestyles and “net worth.”

However, when people own their property they (1) set themselves up for disaster and (2) end up not paying themselves first.

Courting Disaster

When people own property in their own name, it can be taken from them quite easily. A lost job, a lawsuit stemming from a car accident, divorce, or any number of other risks can spring upon them at any time. Unexpected medical expenses from an accident, heart attack, cancer, or other untimely unwanted events can quickly leave one vulnerable to creditors.

Even those who have emergency funds, who can weather several months of no income can find themselves out of cash with courts ordering a house’s equity to be taken from them, equity that they’ve created by diligently paying down their mortgage with their hard-earned money.

Paying Other First

When people have earned income, others have claim to their money first. The most obvious are the various taxes taken out of a paycheck before it even hits direct deposit, but others are more subtle.

Control But Do Not Own

Courting disaster and paying others first when not necessary isn’t the best of strategies, given that alternatives exist. Rather than owning a house, a car, a load of paper, etc. it is recommended that one control these things without ownership.

For example, a properly constructed Illinois-style title-holding land trust allows one to not own a home, but still retain all the benefits of ownership. (I recommend people attend a NARS 2.5 day workshop to get a first-rate education in this area.) These are very different from the family living trusts designed to avoid probate, but which afford no legal protection.

Unfortunately, many probate lawyers give the false impression that these tools will offer protection despite endless case law in which these types of trusts are declared dry (meaning they’re invalid) when it comes to asset protection. As of this writing, experts in the field have not found a single case where a correctly constructed equity-holding trust has been declared dry. Use the traditional family trusts to avoid probate, but lock up your property in water-tight structures, such as what NARS educates people on. Put your beneficial interest in the home’s EHT in the family trust, not your home itself.

As far as paying yourself first, businesses are an excellent method to have access to pre-tax dollars, allowing one to spend before even the IRS gets a crack at the money. This must be done correctly and legitimately. Be sure to become educated on the ins and outs to avoid risk. (Remember, it’s you as the human that governs risk.)

Hopefully this will stimulate some thought. Most anything can be controlled without ownership. It takes some stretching of one’s paradigm to see how this can be possible, but it’s been the norm for money wise people for hundreds of years.

I Shot a Sacred Cow

This response is rather lengthy, so I’m putting in a new article.

In response to High Risk is Just Plain Dumb, Bob wrote,

I’ve been following this conversation with interest, but I’m done with it now because I just realized you’ve got nothing valuable to say, mostly because of this statement: “There is no such thing as a risky investment, only risky investors.”

I’ll take my paid-off house and mutual fund portfolio over this stuff any day.

Good luck with all this.

If you’re really gone, Bob, I sincerely wish you the best. It’s better to have some sort of plan than no plan. It will serve you.

It appears to me that Bob is upset because I put a bullet through the head of one of his sacred cows. We all have our sacred cows. We have deep, emotional attachments to them. When somebody shoots one, the act tends to trigger an emotional response inside of ourselves.

Bob proves my point. I would hope that Bob hangs around and engages in a dialogue to help us understand what is inside his head and heart. If he takes his ball and goes home, we’re diminished, and I’ll have to make some assumptions. That’s always dangerous, but that’s all I’m left with.

Where Does Risk Lie?

I want to follow a line of reasoning, expanding on what I wrote, so I’ll use fictional people, Alice, Charlie, and Dan.

Let’s say that Charlie has an attitude that resembles Bob’s, at least superficially. He believes in that investments have risk. He believes that putting money in a mutual fund is investing. He believes in hoarding building net worth as the Way to protect against an uncertain future.

Why does Charlie turn his money over to a third party, rather than directing his portfolio himself? Because he has no expertise in the matter. He knows instinctively that if he were to attempt directing his paper portfolio, he’s end up with a “capital depreciation fund” (a tip of the hat to the funny guys at Car Talk). His capital would disappear in a blaze of unhappiness.

For Charlie, directing his portfolio creates a huge risk. He might get lucky a few times, but eventually he’ll lose his shirt. Guaranteed. Why is this? It’s because he lacks the knowledge to utilize the markets effectively.

Let’s say that the worst thing happens, and Charlie gets lucky a few times. He start to think, “Hey, this isn’t so bad.” Dan sees this and wants to get a piece of the action, too. Charlie passes his “knowledge” to Dan, who then puts it to use. If Dan is lucky, he’ll lose his shirt now rather than later. When Dan is sitting shirtless in front of his computer, he thinks, “Man, these markets are ‘risky’.”

Are the markets themselves risky? They go up and down, certainly, but this is volatility, not the same thing as risk. Or, is the lack of knowledge inside the heads of Charlie and Dan a factor? I suggest that this is the key.

Furthermore, I would suggest that neither Charlie nor Dan were investors. They were speculating, certainly, but hardly investing.

Let’s turn our attention to Alice. She’s an actual investor. She’s developed the knowledge, insight, and systems that allow her to create a consistent positive cash flow from the markets.

If Dan were to study under Alice, gain the knowledge and expertise, and put the systems into place that allow him to obtain the same results as Alice, he wouldn’t have the same fearful aversion to the markets because he knows how to manage risk down to the point where profit is ensured. He’ll lose some but win more so to him, the markets aren’t “risky”.

Compare Alice and Charlie, the educated person and the ignorant person. They operate in an identical environment, but in one person there is high risk (Charlie), and in the other person there is low risk.

How, then, can we say that the market itself is risky when the person is what drives the outcome over time?

Another Tortured Simile

Labeling things “risky” and “not risky” is akin to calling the events in our lives “good” and “bad”. As I wrote in Life Throws Curve Balls, events are neither good nor bad. They just are. They may be desirable or undesirable… but good? Bad? How do determine “good”? Or “bad”? As a human being, some of the most powerful educational experiences I’ve had came from gut-wrenching undesirable experiences of my life. While in the process of going through the experiences, I desperately wanted out, but found no egress.

In retrospect, I cannot label those experiences as “bad” since the benefits I’ve derived from them have been tremendously powerful in my life. I don’t want to go through them again as they were horrible, but neither do I want to give up the knowledge gained.

They were not “bad” experiences, but simultaneously “undesirable” and “beneficial”. That’s one of the essences of life. How is it that I derived benefit from the “bad” experiences? I chose to. I could have chosen to be bitter and angry, but I chose otherwise. It was the human element that made the difference, not the event itself.

In a similar vein, calling a investment vehicle “risky” or “safe” is not particularily useful, seeing how outcomes are directly influenced by the individual involved in making the decisions… not by the instrument itself.

An Apology

In making the last post, I skipped some foundational concepts. I didn’t lay some groundwork and ending up shooting a sacred cow suddenly. I apologize for that and will try to avoid having sacred cow burgers for dinner again. I try my best, but know that despite my best efforts, others will be offended. So I do my best again.

High Risk is Just Plain Dumb

Most of the common ideas regarding finances and investing have been created by large fund companies. Unfortunately, a number of these ideas are wrong and dangerous. For example, a common mantra is that higher than ordinary rates of return carry with them a higher probability of failure, in other words, “high risk creates high returns”.

This idea has infected common beliefs to the point where people just accept this as true. For example, Desiree commented on One Law or Many saying in part, “I can see where a person, maybe with a tolerance for risk many… don’t have, could find these ideas too restrictive.” Stephanie O also alluded to this idea saying, “Leverage brings higher risks and rewards”. I’m not picking on anybody, but using these as examples of what we’ve been brought up believing as Truth from On High.

May I ask that people take a moment to think about the “high risk = high returns” idea. Is it true, or just accepting a dumb proposition?

Question: Who in their right mind would want to increase their odds of failure, motivated by a potential of greater rewards?
Answer: Gamblers. Adrenaline junkies.

If you’re wanting to be a responsible steward over your material possessions, gambling is somewhere on the opposite end of what you want to do. (Avoiding risk is also the opposite of what you want to do.) I’ll talk about this later, but roll this idea around for a while. Putting money in the markets per conventional wisdom is speculation, not investing. And by speculation, yes, I mean gambling.

The truth about true investing (rather than speculating) has several points, but one of the governing principles that I wanted to point out here is the following:

Risk lies in the investor, not the investment.

There is no such thing as a risky investment, only risky investors. Now, I’m getting ahead of myself here, as I’ve not laid down the reasons this is true, but let’s just run with it for now.

A corollary is, good investors don’t avoid risk. Rather, they manage risk. Before they pull the trigger they create conditions to minimize negative impact of a wrong decision.

An ironic thing is that seeking security and safety is frequently highly risky.

Digging the Foundation

I had a dear friend and mentor (sadly, now passed away) who was the first to expand my perspective on the world beyond what is commonly taught by the big companies that have for decades defined the common perspective of success. This man, named Mark, was at once a savvy businessman and multi-millionaire, and a very spiritually-minded man who donated much of his time to the religious instruction of young people. His business supported his twin passions of his family of 11(!) children, and the development of well-rooted young people that could think critically.

His background was one of an ordinary person, who in his 30’s was tutored by persons of… rare productivity. I may be slow at times, and a tough nut to crack, but he was patient, gracious, and insisted that if I wanted to learn, that he’s point out the path, but I’d have to move my own feet.

Frequently when I had questions he would have me buy a book, read it, and not until then would we talk. Some people — usually those who despised Mark’s financial success — told me that was a sure sign he was mean spirited (or just evil) because “a good person would just tell you”.

I admit, at times I wanted to scream my agreement with those folk to his face. I was never so rude, but I did question his method at first. He would drive me batty with “go, do, and then we’ll talk”. One reason he gave me made no sense at the time, and made me as mad as a rattled hornet’s nest. He would say that the worst thing he could do was to just answer my questions outright. That made me question his sincerity or honesty for a some time.

I learned that his way was quite wise. He wanted me to wrestle with the mind of another human first, people he had learned from. If had just told me, he would have robbed me of precious experiences. I gained knowledge beyond what he could have given me, for he could only give me what was right for him. He could never have given me the rich mixture of ideas that spoke to me in the place I was at the time. This method also helped me to increase my own ability to discern between ideas, what was useful, what was not.

The First Book

This is the first book Mark ever suggested that I read.

George Clason wrote his classic work The Richest Man in Babylon as a series of pamphlets; I believe starting in 1926. The all presents a story, akin to a parable, set in ancient Babylon. Each pamphlet becomes a chapter in the book. Each story is designed to teach one or more basic ideas of personal finance.

I would recommend that people not be fooled by the easy style. It’s full of precious ideas. One will find some overlap with Dave Ramsey’s preaching, but I’d caution about reading with Ramsey’s assumptions in mind.

Click on the picture to see the book on Amazon.

One Law or Many?

Context: I pulled this response out of a mailing list because the entire discussion is heading off topic.

Writing in this colour combination were my remarks. Writing in this colour combination were Allison’s remarks.

So, here we go…

Whether Ramsey’s advise is good or bad is situational. Of course, but isn’t this really true of ANY advice?

Let me step aside for a moment to lay down a few premises. Any particular bit of natural law has a realm in which it operates. This I believe we can agree on. I believe we can further agree that as other natural laws have more influence, the first natural law can appear to be violated, when in fact it has not.

As an example, hoist an airplane with a crane and release it. It will fall every time it’s dropped . Gravity dominates this scenario.

Now, instead of dropping the airplane, we fly it. This at first blush may appear to violate the law of gravity. However, gravity has not been violated. Gravity still has its previous influence, in fact. Nothing about gravity has changed. Instead of causing the airplane to fall, gravity is one of four complimentary laws acting in unison — gravity, lift, thrust, and drag.

If I may construct a twisted metaphor, Ramsey preaches gravity. He’s very good at showing people how to use gravity to benefit their lives. My point from the beginning is that there are additional complimentary laws that govern finances.

If his advice is generally sound, then it serves a large audience, which does seem to be the case.

This is something I have never disputed. It is like gravity. It’s real. It exists. It works.

Ramsey is for good for people who have no financial basics.

I still find him to be informative and solid.

You’ve just set up a straw man: the idea that Ramsey is not useful for people with no financial basics.

I never said that he wasn’t. On the contrary, I said (am getting tired of saying?) his ideas are foundational. Therefore let’s give another Hallelujah.

His advise is bad if you want to move beyond the hoarding mentality he advocates.

OK, enlighten me. As I said, I’m not terribly well-versed in his philosophy, but haven’t heard anything from him that remotely related to a “hoarding mentality.” Could you explain what you mean by that? And maybe what you mean by productivity, too?

It’s a few days later, and on reading what I wrote, I have to apologize for rushing past a fuller explanation. I was in a rush, but the fact remains that I’ve left some people confused or wanting more information. May I tackle this one bit at a time in other posts? I’m not willing to launch into a book right now, and will point to other great minds anyhow.

Again, if you don’t have the basics down, listen to Ramsey.

Sincerely, this a bit like ad hominem.

You’ll need to explain yourself here. How is this “a bit like” ad hominen?

An ad hominen logical fallacy is essentially where one impugns the messenger to imply that the message is flawed. It’s entirely possible that somewhere I have erred and made an attack on Dave Ramsey himself, rather than the idea that he is the One True God of finances. If I have, I’m grateful when it’s pointed out because it’s something that I didn’t realize or intend.

I was attempting something entirely different.

The entire purpose of my post was to stimulate thought. My purpose was not to repeat information readily had elsewhere. I thought to perhaps cast forth the idea that while Dave Ramsey’s message can be very useful, it’s not the “be-all and end-all”.

I’m starting to weary of saying this, but:

1. Dave Ramsey teaches ideas that will allow people to enter into a state far better than financial chaos.
2. He’s very good at what he does
3. If one’s personal goals match his goals, then one should listen to his advice religiously.
4. I also emphasized that if one is in financial chaos — what I called “not having financial basics” — it’s imperative to develop the skills he preaches.

This last point is very important, as it’s common for people without basic financial discipline to enter into business, real estate speculation, futures trading, or other “investments” and eventually find their financial house sinking on the quicksand foundation.

That kind of thing might make one wonder what your financial credentials are

Here I’m very — let me emphasize very — disappointed because this is an unvarnished ad hominen argument. This is quite unlike Allison, and I can let it pass.

I’m not entirely sure what she was driving at. I can see a couple of things, and one is flawed. I think it’s worth addressing because it’s a foundational idea. Foundational ideas are dear to me.

How does one go about discerning truth? This is a huge topic, but let me address an aspect or two.

Ponder this question: Can one ascertain the degree of truth in a message by examining the messenger?

Let me give some examples to think about:

Example #1:

A druggie says, “Drugs are harmful.”
A person who has never so much as taken more aspirin than directed says, “Drugs are harmful.”
A physician says, “Drugs are harmful.”

In whom is the pudding proof? The druggie has experience traveling through that hell. One might tend to give his message more credibility because of that. However, does that — or should that — be a factor in exploring the idea? The “I never have taken three aspirins at once in my life” person could also be considered more credible since that person has lead a clean and sober life. And what of our dear doctor? This person has a degree in medicine.

Example #2:

A druggie says, “Drugs are no big deal.”
A person who has never so much as taken more aspirin than directed says, “Drugs are no big deal.”
A physician says, “Drugs are no big deal.”

In whom is the pudding proof? The druggie has experience, and knows the road well. One might tend to give his message more credibility because of that. However, does that — or should that — be a factor in exploring the idea? What of the sober person, who could also be considered more credible since that person is more objective, not being under the influence of drugs? What of the physician? This person has studied medicine thoroughly and is an expert on the subject.

If one attempts to judge the validity of an idea not by the idea, but by the messenger, these kinds of dilemmas appear. That can make discerning the truth of the matter difficult.

It’s also a very human tendency to put more faith and credit in a person’s words than are due. Logical fallacies are easy to fall into because we’re all human.

Here’s a common one: the “appeal to authority”, which says this:

1. Person A is an authority on the subject.
2. Person A say X is true.
3. Therefore X is true.

We humans do it all the time, don’t we? When it’s pointed out plainly, we also can get defensive and shout, “Well, I don’t do that!” Rest assured, we all do that more than we care to admit to ourselves.

this is an arena where the proof is in the pudding

This is a slippery fish.

Unfortunately it appears that there is a challenge. If I cannot “prove” I am by some (undefined) measure “better” than Dave Ramsey (or at least his equal), then I should remain silent, or people should at least ignore me as a hubristic loudmouth.

If we’re going to get into a pissing match over who has a bigger ___________ (bank account, paper portfolio, fill in the blank), then I can only chuckle. “My” information is not mine, it’s freely available to everybody, older than man, and well substantiated. I’d gladly pit the ___________ (fill in the blank) of financial giants against Dave Ramsey. He’s quite successful in his own right — don’t misunderstand me here — but as far as I have been able to tell, he’s hardly the big fish in the pond.

But what would be the point? If I haven’t made abundantly clear by now that Ramsey’s information is largely useful, what more can I say? I only invite people to consider the notion that he’s not the fount of all truth financial. Some people do. This is why I jokingly referred to him as “the Great Prophet Ramsey”, which points to some people’s notions, not Ramsey himself.

As I mentioned before, I can start pointing people to other information if they can’t find it, or it’s so unfamiliar.

Personal paradigm — the way we look at the world — is a powerful information filtering mechanism. We tend to see that which matches our paradigm. We tend to reject ideas that are not consistent with our paradigm. If an idea matches our internal measuring stick, we tend to label it “true”. If an idea does not match our internal measuring stick, we tend to label it “false”.