Musings: Savings and Investments – A Plan for Growth in the Future

I do NOT typically in my monthly letters write about money and finance. My newsletters are typically spiritual and philosophical in style. However, many times in speaking engagements, I am often asked about finances and investments as I have over 35 years experience in successful international investment banking. So I decided this month to share what wisdom I have gathered about savings and investments. You may be shocked to read that various independent studies show that over 90% of wealth managers – even those working for big financial institutions, under-perform the market indices. These large financial institutions with massive overhead also, in many cases, charge exorbitant fees. Most people do not pay attention to the results of their 401(k)s and pension plan investments, and those who do probably know about this under-performance and the expensive fees. Over the years I have worked with several managers who underperformed though charged high fees.

It is interesting that in the United States we are not savers. People saved very little prior to 2008; after the crash in the same year Americans started to save more but still at a paltry rate of around 3 percent. In India on the other hand, where wages are substantially lower than in the US, the saving rate is an impressive 30 percent. So really it is not about wealth; it is more about culture and financial literacy.

There is a great short but potent book called “The Investment Answer” written by Daniel Goldie and Gordon Murray. One of the authors speaks from 25+ years of Wall Street experience at Goldman Sachs, Lehman Brothers, and Credit Suisse First Boston.

The two investment professionals point out what I have shared in the above paragraphs and much more. I was made aware of this book by my long-standing banker and friend Salim (“Sal”) Janmohamed who left the large banks to start an investment consulting and wealth management firm called CSJ Capital with two partners, Gary Shields and Brian Caine, whom I have also come to know well, and who practice this approach. I serve on their Client Advisory Board. While 75 percent of my time is spent on philanthropic activities, I still have stayed in selective financial services spending about 25 percent of my time to create income to pay for my expenses and savings.

I believe that it is also a wise steward who maintains balance in their lives and who also takes time to manage their finances and investments. It is also a good balance for me to spend time on meditation and exercise, with a focus on my retirement planning … as the nonprofit work is often emotional and draining, as is much of my work in the area of dealing with youth violence. I am not complaining, as the work I have done in the last 20 years in schools, prisons and community has been very fulfilling and meaningful. For this I am eternally grateful.

Through Salim I learned about Dimensional Fund Advisors (“DFA” or “Dimensional”) which was founded by Eugene Fama who won the Nobel Prize in 2013 in Economic Science. The Dimensional approach is methodical and research based, a world away from the financial news circus. Unfortunately, most people invest by trying to predict the future, acting on impulse or emotion, or betting on tips, hunches, or being swayed by the media. Dimensional gains insights about markets and returns from rigorous academic research, structuring portfolios along the dimensions of expected returns, which is evidenced based. I am now personally using Dimensional Funds, and the investment philosophy described. It is by far the most efficient platform for long-term investing that I have found in my 35 years of experience in investing.

I was surprised that I had not heard of DFA until Salim shared this with me. Since learning about DFA I have learned that most all of my clients and friends have also not heard about these funds. In fact another good friend of mine who is a capable wealth manager that I respect told me, “Azim – if you are in Dimensional Funds you are smarter that 95 percent of investors out there.”

For those of you who are saving for retirement or college education or for other reasons and have not discovered this platform I strongly recommend “The Investment Answer” book as a resource. Feel free to send your questions and comments.

Remember to also donate generously to the many causes that make this world a better place. I trained my children in their early years about money when I sent a monthly pocket money allowance. I told them they had to comply to these three rules which I continue to practice in my own life:

• (a) Give 10 percent away to a deserving cause
• (b) Put 20 percent in savings and
• (c) Send me a budget of how you spent the other 70 percent prior to receiving the following month’s allowance.

Not that i was nosy where they spent their money, but I wanted them to know where their money was going. Sometimes we are surprised how much money we all spend on frivolous activities. As you know I lost Tariq, but I still have a file of his and my daughter’s budgets for every month while they were in grade school and college. I think this is a good formula for all of us, and if you have children feel free to use this formula. It is a great one to teach financial literacy and also promote good citizenry.

Meanwhile, wishing all a prosperous, healthy and a happy future. Peace and many blessings. And thank you all for continuing to support my work!