Updated: Oct 7, 2022
By Bill Taber
What is the secret to successful money management? There is no secret. But some people feel like, no matter how much knowledge they have or what new techniques they use or trends they follow, they still aren’t quite doing it right. They think there is always a better way to save or invest and continue trying new things. The real secret is that the time-tested, proven methods used by successful financial advisors and investors are the key to their success.
As a financial professional with more than four decades of experience in the industry, I can tell you that the way I manage my own money is similar to how I manage our clients’ money. The first step is to start with the basics.
Basic Money Management & Investment Tips
Before developing and implementing an investment plan, it is crucial to make sure all your other financial bases have been covered. Here are three general money management and investment tips to consider before we jump into my personal investment philosophy.
1. Emergency Fund
I’m sure you’ve heard this before, but it bears repeating: Make sure you have an adequate emergency fund before investing. An emergency fund should consist of cash as well as access to capital and lines of credit. It is used to cover unexpected expenses or disruptions in cash flow so that you won’t have to steal from your investment portfolio in the event of an emergency.
You may be eager to start seeing returns on your money and therefore want to put all of your extra cash in potentially high-return investments, but this is both counterintuitive and counterproductive if you don’t have enough cash on hand to cover both expected and unexpected basic expenses. Generally, when growing an investment portfolio, your aim is to avoid drawing from the investments at potentially inopportune times in the market.
If you haven’t already, start saving a portion of your income in highly liquid investments (savings accounts, money market accounts, certificates of deposit, etc). Ideally, you should have at least 6-8 months' worth of expenses saved before focusing on your investment goals.
2. Net Cash Flow
After you’ve built an adequate emergency fund, it’s time to look at your net cash flow (earning $1 of income and spending only 85 cents creates 15 cents of net cash flow) Since investments are just one component of a larger financial plan, this step is very important. It is your net cash flow that will act as the funding mechanism for your investment plan. For instance, if you are consistently spending more than you earn (deficit), there will be no extra funds to contribute to your portfolio. Consistent negative cash flows indicate a larger issue that will need to be addressed (e.g.- establishing a realistic budget). The process of building wealth begins with spending less than you earn.
Similarly, a net cash flow of zero (spending as much as you earn) doesn’t allow for any leftover funds to be contributed to investments. This may indicate that spending will need to be adjusted downward and/or more income will need to be earned to provide the savings needed to build your investment portfolio and increase your financial net worth.
A positive cash flow (surplus) is a necessary element for funding an investment plan. Again, to generate a surplus cash flow, you must spend less money than you earn. This can be accomplished through developing the habit of budgeting and tracking your expenses.
3. Diversification & Margin of Safety
After generating a positive net cash flow and creating an emergency fund, it’s time to start building the actual investment plan.
Diversification has been defined as “not having all of your eggs in one basket.” Diversification by itself can’t assure a minimum level of return, but it will at least act as a buffer against the inherent volatility of the financial markets. One way that diversification can be achieved is through an asset allocation strategy that considers which asset classes of your plan move together in price and which can act as a hedge against falling market prices.
Applying a margin of safety means analyzing investment opportunities with an eye towards paying a price for each of your investments that is significantly less than their underlying or intrinsic value. It is the process of searching for attractive bargains.
When applied together, diversification and margin of safety can offer a higher probability of achieving positive investment returns that lead to increases in your financial net worth.
How I Invest My Own Money
You might be surprised to learn that the investment approach I use for my family is the same one that I use for my clients. I believe this is the hallmark of a successful investor and financial planner. As a duty-bound fiduciary to my clients, I strive to handle their money as if it were my own, which is why the steps I take in my personal management and investment process mirror those I take with my clients.
That being said, here is a brief overview of how I manage my family’s investment plan:
We eat our own cooking. At TABER, our associates have the option to invest their personal funds into the same holdings that our company identifies in our research process as attractive individual securities for our clients’ accounts. Simply put, we invest where we advise our clients to invest.
My personal investment philosophy can be summarized with the acronym GARP. This stands for buying “growth companies at a reasonable price”.
I don’t make decisions based on emotion. Over the past four decades of experience in the investment profession, I have learned to deal with the emotions of investing cycles and not allow them to influence my choices. I recorded a podcast on this topic in May 2022: Regulating Emotions—have a listen!
Cash flow is the driver of the investment process. Your future need for cash withdrawals will determine how your investment portfolio should be structured. I typically reinvest the gains from my investments in order to take advantage of the powerful long-term compounding effect of money.
How We Can Help
Managing money successfully can be a challenge sometimes, but it doesn’t have to be. The right team of advisors supporting and guiding you along the way can make all the difference. At TABER Asset Management, we’re always working for you. Our goal is to manage our clients’ wealth well, and we have decades of experience proving we can do that. Our clients are not merely a number, we get to know them and build long-term relationships so we can provide the best service possible that is tailored to their unique needs and goals. If you have any questions about our approach, our services, or simply want to set up a time to meet and learn if we’re a good fit for you, contact us by scheduling a 15-minute intro phone call online or reaching out to us at 515-557-1860 or email@example.com.
Bill Taber is President and Founder of TABER Asset Management, an independent, fiduciary wealth management firm that strives to do one thing well: manage their clients’ money by creating wealth, building wealth, growing income, and preserving capital so they can experience financial freedom. With more than four decades of experience, Bill is dedicated to building relationships with his clients and their families and walking alongside them as they navigate financial decisions. His favorite days are the ones when he gets to witness the joy and relief on his client's faces when they realize they can pursue their dreams and live their ideal lifestyles. Bill is known for going the extra mile, getting things done with integrity, and working with a stewardship mentality.
Bill graduated from the University of Iowa with a bachelor’s degree in business administration and fell in love with the profession when he got to help one of his first clients—his father—turn his lifetime of hard work into a dream retirement. He got his start in the industry as a corporate services representative for Bankers Trust Company and spent decades working as Assistant Vice President of E.F. Hutton & Co. and First Vice President of Principal Financial Securities. He is also a graduate of the E-Myth Worldwide Mastery Business Development Program and is Series 65 registered.
In his spare time, Bill enjoys giving back to his community and served 11 years as a member of the Board of Trustees of Broadlawns Medical Center and 14 years as a Community Representative to their Board Finance Committee. He is also one of the founding members of the Greater Des Moines Connections Mentoring Program. When he’s not working, you can often find Bill spending time with his family and participating in one of his many hobbies, which include traveling to national parks, presidential libraries, and foreign countries; gardening; reading non-fiction; and practicing yoga, Pilates, and meditation. He also loves the simple joys of listening to music, going for walks or bike rides, and watching James Bond 007 films and any movie starring his favorite actress, Meryl Streep. To learn more about Bill, connect with him on LinkedIn.