A | A | A

label1 label2

Lauren's Blog

Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Do you speak the language of money?

b2ap3_thumbnail_Klein_Advisors_blog_20151029-181202_1.jpg

Now and then, a particular theme seems to hit me from all sides at once.

Two weeks ago, I was fortunate to catch a performance of a stunning new play called Vietgone at South Coast Repertory in nearby Costa Mesa. (The local run just ended, but if you ever get the chance to see it elsewhere, GO!) The story revolves around a Vietnamese couple who met in an Arkansas refugee camp after the evacuation of Saigon. Throughout the play, as the Vietnamese and English languages are shared, mistranslated, and misheard (all in English for the audience’s sake) some of the richest comedy of the play spills out. I’m still laughing thinking about it!

The next week, I got on a plane and headed to Austin, Texas for a conference for financial advisors hosted by the investment firm DFA. One of the wonderful speakers discussed the importance of “talking in language your clients understand.” Her point? Here’s just one example: While most investors (perhaps yourself included) think of their investments in “stocks and bonds,” financial advisors (perhaps myself included!) often speak about “equities and fixed income.” I always make it a point not to speak in financial jargon, but I began to wonder if my clients hear something equivalent to a foreign language spilling out of my mouth.

The theme continued over the weekend when I extended my stay in Austin to visit my sister Susan. Over a glass of wine, I started to share what I was thinking about. As soon as I mentioned “stocks and bonds,” my sister blurted out: “But you don’t buy stocks for your clients—you buy mutual funds.” I felt like I was back in the audience at Vietgone watching people try to communicate but just missing the mark.

In homage to Halloween, I’ll say my sister’s comment put the last nail in the coffin. I hadn’t seen it before, but clearly there is a significant language barrier when it comes to money and investing. While we may all think we're clear, in reality what we’re saying to each other may be about as clear as…mud. And it’s not just the difference in our understanding of technical terms. Much of it has to do with our emotional reaction to what I’ll call “the language of money.” And everyone’s reactions are different. For instance, when you think of being poor, is that bad to you? Is being rich good? Or vice versa? Does the word saving bring up feelings of accomplishment… or deprivation? There’s no right or wrong, but how those words feel to you may have more to do with your past experiences, your personal motivations, and your financial goals than they do with the actual meaning of the words themselves.

For instance, think about the word invest. It means to “commit money in order to earn a financial return.”That sounds like a great idea, right? For many people, when they hear the word invest, they think gamble. Sure, there is always a risk of loss associated with any investment. But in capitalism, investors are paid to take calculated, prudent risks. But long-term investing in a diversified portfolio provides the potential for that significant financial return in the dictionary definition.

Volatility is always one of my favorites. It inevitably brings up negative connotations. Volatile people. Volatile situations. Volatile governments. And yet, when it comes to the market, volatility simply means “sudden change.” Even when market volatility is referring to a decline in market prices, it’s just as rational to look at that as an opportunity to buy as it is to see a reason to worry. (For more on how I see volatility, read my blog Volatility, escalators, and yo-yos.)

Which is more appealing to you: saving or paying off debt? There are certainly different motivations for each. You may be saving for a dream vacation or for retirement, which can be positive because you’re working toward a positive goal, or negative because you feel deprived while you’re putting the money away. Paying off debt can feel negative because it’s something you owe. Yet saving and paying off debt have an equal impact on your net worth. That knowledge alone can empower you to make better decisions based on your financial reality rather than your emotions.

Coming back full circle to my sister’s comment, it’s important to note that investing in a mutual fund is the same as owning stock in companies. This type of pooled investment vehicle gives investors the opportunity to diversify into many great companies. DFA portfolios include stocks in 12,000 companies in 40 countries—a strategy that allows investors to place 12,000 bets, of which many are sure to pay off. It’s rare that my clients invest in a single company. Even historically big names like IBM, Exxon Mobil, Macy’s, and Apple have seen major downturns. But as part of a diversified portfolio, these swings are hedged by upturns in other stocks. (Hedged. There’s another one!)

When it comes to the language of money, there are so many terms that are filled with innuendo. Passive versus active investing. Fixed income. Equities. Conventional investing and evidence-based investing. The list is long. But until I have the time on my hands to create a thesaurus, let’s all do our best to communicate as clearly as possible. If I’m not clear, ask me to decode. And I’ll do the same. I’d prefer to keep the mistranslations and misunderstandings to a comedy on the stage.

What other money terms make your head spin? Send me your thoughts. I’m happy to offer my own perspective and, hopefully, some clarity. 

 
Lessons from the green
In Your Best Interest: Our Q3 2015 Quarterly Newsl...

Related Posts

Index

Contact Us

4299 MacArthur Boulevard
Suite 100
Newport Beach, CA 92660
Phone: 949-477-4990
Fax: 714-464-4481
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Directions

Disclosure

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >