Warren Ward Associates

Poor Man Wanna be Rich, Rich Man Wanna be King

I am not an expert on TV programming but according to Wikipedia, winning money has been a theme since the advent of “Cash and Carry”, hosted by Dennis James on the DuMont network in 1946. The great popularity of “Who Wants to be a Millionaire?”, first in the UK and then the US, suggests that becoming rich remains of interest to many. However, defining rich may not be as simple as it seems.

Money is obviously important. We all understand that not having enough to meet basic needs is unpleasant. On the other hand, we might suspect that the wealthy already have all the money they need and getting even more wouldn’t make much difference. Interestingly, that’s rarely the case. Hard as it might be to imagine, even those featured in magazines and tabloids are often living paycheck-to-paycheck or nearly so. Just as things have a way of expanding to fill all available space, spending has a way of expanding to consume available income – and often a bit more.

Even though the rich and famous appear to enjoy lifestyles quite different from the rest of us, their lives touch ours in ways that may not be obvious. By regularly enjoying gourmet meals and attending the theater, they help ensure the availability of that fancy restaurant or play we might sample during a visit to the big city. Their flying first class reduces the cost of coach seats. And, don’t forget that the top 5% of US earners pay over 60% of all income taxes.

Warren Ward Associates’ clients are quite diverse, encompassing a wide range of financial situations. Naturally, they have varied attitudes about money and risk-taking. Some feel confident regarding their current and longer-term finances while others feel less secure. Regardless of their circumstances, our process allows them to step back and put their entire financial picture into perspective. Using the wide range of tools at our disposal, we help all of our clients find a balance between their hopes & dreams and income & assets.

While markets tend to dominate the headlines, we have learned that we can’t discuss people’s investments intelligently without an answer to the underlying question of what it’s going to take for them to feel comfortable. In other words, how rich do they need to be? Once we understand their goals, we suggest strategies to move them in the right direction. In fact, the longer we know each of our clients, the more we learn about them. Over time, their responses guide us toward the most appropriate strategy for each stage in their lives. Sometimes, people are further from their goals than they hoped which might lead us to suggest a different investment strategy. Other times, we are able to begin conserving assets even before retirement. Regardless of what we discover, we always structure investment accounts to reduce market volatility.

Bruce Springsteen probably believed that he was describing all of us when he wrote the line I borrowed as the title of this article. In real life, Jalene and I have learned that people can adjust to almost any situation, once they understand the facts and we understand their resources and goals. Financial planning is not the process of making poor clients rich or rich clients royalty but of helping all clients find peace of mind with what they have or can reasonably hope to amass.

What Goes Up Must Come Down

In the early 1970’s, my wife and I took a vacation which included some international travel – driving across the border into Canada for dinner. Back then, the two of us could eat for less than $10. As I paid with a ten-dollar bill, I was surprised to see the cashier ring up $9.75. When I asked why, she explained to a very young and globally inexperienced tourist that the US dollar was worth less than the Canadian dollar. The restaurant’s owner didn’t care if someone used US change to buy after-dinner mints but the difference was noticeable in a larger transaction, so she was required to take the discount into consideration.

Since 1974, the US dollar has generally been the stronger of the two, as you can see by looking at the cover of a paperback book. In most cases, you will find two different prices, one for US currency and a second, higher one, for Canadian. As recent headlines have pointed out, the two country’s dollars are nearing parity for the first time in many years.

I have written before about the constant fluctuation in the relative value of national currencies. In a recent note, I linked to a chart from Wired magazine showing the retail price of gasoline in several countries – at least partially a reflection of currency valuations. Last year, I commented on the weakness of the Chinese yuan. This low value has made Chinese exports more competitive in the world market, helping the Chinese find customers for their goods, thus providing needed employment for their citizens. I also noted that currency fluctuations tend to even out over time, as a weaker US dollar makes our own exports comparatively cheaper to buyers in other countries. These days, many of the containers which arrive in the US full of finished goods are returned to China full of scrap. The weak dollar has made it cheaper for China to import paper, fabric and metal than to obtain needed raw materials from the earth.

Most of us who lived through the inflationary period of the late 70’s would prefer not to do so again. While a weaker dollar tends to bring jobs back into the US, it also makes those items we choose to import more expensive. Governments, like individuals, must earn more than they spend or they will find themselves going deeper into debt as time passes. If the United States continues to spend more than it collects in taxes, it must go on borrowing ever greater sums, continuing the trend to ever lower currency valuation. We have encouraged our clients to invest internationally in hopes of profiting from these fluctuations and our model portfolios now contain investments in both developed and emerging international markets.

Unfortunately, economics is as much an art as it is a science. You can easily find two well-qualified economists who believe the same set of circumstances will lead to two entirely different results. Because of that, both private citizens and politicians are almost always able to quote a famous economist whose view reinforces their own. Regardless of what economic strategy a politician espouses, it has been my experience that most are more interested in being reelected than facing and solving problems. They know that spending taxpayer dollars in their home districts is the quickest route to reelection, with more spending yielding more votes.

It will be pretty easy to keep an eye on the relative values of the US and Canadian dollars but our dollar’s value in relation to the rest of the currencies in the world is not quite so obvious. At this point, the trend I see is not a positive one. Perhaps our future will hold a balanced national budget, leading us toward a stronger currency and away from the risk of inflation. However, I suspect that achieving such an end will require a re-evaluation of the way we judge our politicians, perhaps leading to a less political way of making national spending decisions.