PRN: Pent-Up Demand

Physician's Money Digest, April30 2003, Volume 10, Issue 8

For those who like their financial information pithy, short, and to the point, your wait is over. From time to time, as a public service, the research team for this column puts together a list of compelling truths. Read on, brave hearts.

• "People who have worked for their money are less protective of it than those who have inherited money. The workers know they can earn it again."—Raoul Felder, divorce lawyer. Think about it, do you consider money a renewable or a finite resource, and how does that insight change your plans?

• "Most of the trouble with business is not evil intentions, but the enormous difficulty of carrying out good intentions."— Henry Ford, Jr

• CEOs currently average 500 times the income of their average worker. Twenty years ago, it was 42 times that average. Are companies being run that much better? What's wrong with this picture?

• "There are no safe investments. There are only safer, diversified portfolios. The meek may not inherit the earth, but at least they may get to retire."—Jonathan Clements

• Peter Lynch said that in his best investment year, he only picked 6 of 10 stocks that went up.

• A given year's top-rated mutual funds are most likely to become the following year's laggards.

• The average house in the United States is priced at 3.65 times the annual household income. The average mortgage payment is 22% of household income, if you have a 20% down, 30-year, fixed-rate mortgage.

• 60% of new car shoppers use the Web in some way. The number for used car shoppers is 47%. The average savings is $400.—JD Powers and Assoc

• Wealth is blind.

• There's a difference between bad decisions and bad outcomes.

• Status is expensive, both gaining it and maintaining it, so planning and controlling consumption are key factors in wealth accumulation. The corollary is that spending and shopping take a lot of time that could be put into either planning or earning, if increasing your net worth is a higher priority at any given time.

• Annuities and long-term care insurance may be useful ideas, but they're complicated and require a lot of homework from multiple sources. Don't get snookered. The same goes for commodity trading and puts and calls, especially.

• Investment costs such as managerial fees, transactions, taxes, errors, and inattention to your plan may make a much bigger difference in your net gain than even the advertised percentage return. The difference is that these costs are predictable and controllable, if more mundane and less sexy than focusing on pie-in-the-sky investment returns.

• "Investing when you have little or no intellectual basis for your decisions usually leads to big losses."

—Stanley/Danko

Outer Limits

To paraphrase the sign-off on the old black-and-white, science fiction television show , we will now return control of your head to the reader.

Jeff Brown, a partner on the Stanford Graduate School of Business Alumni Consulting Team, teaches in the Stanford School of Medicine Family Practice Program. He welcomes questions or comments at jeffebrownmd@aol.com.