11 Financial Tips from Steven Rattner
I love hearing Mr. Rattner’s thoughts on most anything financially related. I appreciate his political perspective in regards to economics, but we rarely, if ever get to hear him talk about personal finances. And as Mr. Rattner has had a very large amount of success on Wall Street (let’s just say that he is worth more than Mitt Romney), I assume he knows a thing or two. Enjoy!
StevenRattner.com: 11 Financial Tips from Steven Rattner
11 Financial Tips from Steven Rattner
Posted: 23 Jul 2013 02:34 PM PDT
Originally published in Esquire Magazine, August 2013 issue
The famed financier — President Obama’s car czar and the manager of Michael Bloomberg’s billions — answers your everyday money questions
Do I need a financial advisor?
Financial advisors are generally brokers — they get paid commissions based on whatever investment activity you generate. The more you buy or sell stocks or other investments, the more the financial advisor usually makes. It may not be in your interest to be buying and selling as often as it’s in his or her interest. So it’s not a perfect situation. The regulatory oversight has improved over the years, but still the people at the bottom of the financial totem pole often end up with financial advisors who are also, frankly, near the bottom of the totem pole. If you can find somebody you have confidence in, who comes well recommended and appears to be qualified, then sure. But if not, you’re better off on your own than with somebody who either is incompetent or isn’t taking your interests to heart.
Should I be doing my own taxes?
If you can, then yes. Many people can use the short form, and there’s TurboTax and other ways to do them. There’s no reason not to do your own taxes if they’re simple enough. My kids do theirs. But you reach a point, as I did, where — even though I like to think of myself as a financially literate person — when you sit down and try to do them, you realize there are accountants for a reason. It’s often a function of how complicated your situation is.
Do regular people really invest in gold?
My first rule of investing is not to invest in things I don’t understand. And I don’t understand gold.
How much debt is too much debt? Which is good and which is bad? Where do i start chipping away?
Very simple: Start getting rid of your most expensive debt first. That’s the closest thing to a formula I can give you.
Apple. Should I be in there?
It’s a terrific company, and their stock has come way down. But what Apple really amounts to is whether you believe it can continue to introduce groundbreaking products. If you do, then the stock is a pretty good buy at the moment. If you think that because Steve Jobs isn’t around or they’ve lost their mojo for one reason or another, they’re not going to have the next great idea, then you should stay away. That said, the average American should not be buying individual stocks. It’s crazy for anybody. I don’t even feel as though I understand what’s going on with Apple, and I pay a lot of attention to it.
Is socially responsible investing still a thing?
I think some people do it. My view of this is you should keep your investing and philanthropy separate. Invest to maximize your returns and to achieve your material needs. Once you’ve done that, feel free to give money away. There’s no evidence that socially responsible investing helps returns, and intuitively you have to believe that it hurts them, because you’re trying to achieve two objectives, and that’s a hard thing to do.
Is my house as worthless an investment as everyone now says it is?
No, you have to put your house in perspective. If you look back at houses over a long period, you’ll see they typically appreciate at the rate of inflation, maybe a little more. The early 2000s were completely anomalous. They ran way up, then came crashing down. You should really look at your house as a low-returning investment that will appreciate over time. It isn’t going to match the rate of appreciation of stocks, and it isn’t going to be huge. But you’re going to get something, and there are tax advantages, too. Look at it as a store of value, but not as a huge investment opportunity.
What’s the best way to ask my parents if they have enough money to retire comfortably?
That’s not financial advice, that’s psychology. I don’t know your parents, so I don’t know the best way to ask them, but here’s something to consider: I’ve seen a bunch of research recently that says that as you look across the older generations — particularly the people who came of age in the Depression and have a certain mentality because of it — they’re much better prepared financially than younger generations seem to be if you look at assets relative to where they are in life. It’s important to try, depending on how old your parents are, to have them see clearly what some financial issues might be. But more importantly, think about them for yourself.
Do I need to worry about the euro crisis?
In a general sort of way. First it depends on how active an investor you’re going to be. If you’re going to start picking parts of the world to invest in, you’re going to have to worry about it a little more. If you’re not, then probably worry about it less. It has already had and will continue to have an effect on the U.S. because we export a lot to Europe, and those exports have been negatively affected by the economic situation there. Part of why our economic recovery has been slower than we’d like is that the rest of the world’s economic situation has been more challenged. So yes, you should worry about it just as a part of being generally well informed, and you should worry about it because it does have consequences for us. But unless you’re picking stocks every day, that’s as far as you need to go.
Is tracking every penny I spend worth the time and effort?
I think to be conscious of where your money is going is a good idea. When I was younger, I kept a close watch, and even now I look at what I spend money on, although certainly not to the penny anymore. I think doing it at least for a while to get a feeling of where your money is going is a good way to get a better sense for how to allocate what you have. There’s no other way that I know to budget thoughtfully. Plus, it’s easier these days, with online banking — it’s all right there. When I was younger, we wrote checks out, kept track of our account balances, and didn’t have automatic overdrafts — any of that.
My fifth grader is being taught about the Great Depression, and she asked me, when the stock market crashed and people lost all their money on Wall Street, where did it go? How would you answer that?
It didn’t go anywhere because those people never had the money. What they had were shares of stock in companies. The problem in 1929 — and again in 1999 — was that people paid more for the shares than what the assets that were represented by the shares were worth. So eventually people stopped buying shares and the prices collapsed.