Shared from the 2015-03-27 The Dallas Morning News eEdition


Local lawyer aims to educate children on financial literacy


Rob Pivnick

Rob Pivnick, a University Park lawyer and father of three boys, has written a manuscript called What All Kids (and Adults, too) Should Know About Saving and Investing. He recently shared more about it with neighborsgo.

How and when did the idea for this come about?

A: I obviously didn’t think about writing anything like this when I was 12, but that’s when I started investing. My parents matched my first investment of $250 in Twentieth Century mutual funds – Select. The fund company is now called American Century (so I’m dating myself). That’s when I caught the saving/investing bug. Since then I’ve always put investing as a first line item in my budget. I wanted my kids to develop good saving and investing habits. So I’ve been taking them to the bank to deposit their allowance and birthday money for years. They each have a few ETFs they’re invested in, and once my oldest was able to understand investing, I figured it was time to teach him (and them) best practices for reaching financial independence. I don’t want the kids thinking they can pick the next great stock, so I started on an outline that turned into “What All Kids (and adults too) Should Know About . . . Saving and Investing.”

I actually never thought that anyone but my three kids would ever see it. I wrote it for them so they would develop good, longterm investing habits and not think that they were smarter than the market. Or that they could time the market. Or that they could pick the next great stock. So if I could teach the kids to start early, and be happy with the historical average of around 9-10 percent return, then by the time they were older and had a family, they would thank me. And since long term buy-and-hold investing isn’t necessarily exciting, I wanted them to learn early so they could cut out the noise and invest for the long term. They will hear all the pitches about great opportunities and when they’re older one of their buddies will tell them they killed it with some stock they should buy (it’s like Vegas, no one tells you about losing big, but you always hear about it when someone wins big).

What is your background that relates to this topic?

A: I don’t think anyone should just trust me (or blindly trust what they read, for that matter), but the statistics make the case for me. Here are just a few that should open people’s eyes (in no particular order, but each of them should do the trick):

The stock market’s historical average return is 9-10 percent. But the average equity investor’s return is just 4-5 percent. Why is there such a gap? It’s because we invest emotionally. And irrationally. We try to time the market. We react to fear. And we pay attention to what’s on the news and the “hot” stocks that investment shows feature.

Investors cannot time the market. If you thought you could time the market and miss all the bad days, you’d be in great shape. But if you get out of the market at the wrong times, you also end up missing out on big rallies. I don’t like those odds.

The overwhelming majority of active investors fail to beat the market as a whole. If the professional fund managers can’t do better than indexing, why should individual investors think they can? Buy-and-hold isn’t for everyone. You might make an argument that active investors give themselves a better chance in down or sideways markets, or in certain asset classes. Perhaps, but as an individual investor, should you be willing to bet that you can figure this out? I don’t think so.

Low expense ratios are the most dependable predictor of good performance. We all know that past performance is no indication of future returns (well, new investors may not know that, but hopefully they learn it quickly

— and that part of what the book teaches). What most investors might not know, however, is that the single most accurate predictor of future returns is low fees. Expense ratios are the only reliable predictor of future performance.

Why is this important?

A: Investors and consumers have to be able to make reasoned and informed decisions about their finances. After all, the responsibility of being able to make intelligent financial decisions falls to the consumer. Take retirement saving as an example — there are far fewer defined benefit pension plans (or pensions at all, truth be told) as companies are now using 401(k) plans. And retirees used to be able to rely on Social Security as their retirement income. Now we will be lucky if it supplements retirement income, if it can be relied on at all. Investment decisions are becoming more and more complex. There are all sorts of credit card options, types of mortgages, retirement vehicles, payday loans, auto title loans, etc. Financial education is important regardless of age - whether someone is just making their first investment, funding a college education or planning for retirement.

Rob Pivnick can be reached at whatall

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