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This Week In Your Wallet – February 8, 2011

Hi, and Happy Early Valentine’s Day –

I hope you’ll be spending the 14th with people you love (rather than at a school board meeting, which is where I’ll be, grrrr!)   Like Halloween, Valentine’s Day has been creeping up there in the hierarchy of pricey Hallmark Holidays.  But this year, the National Retail Federation expects consumers to fork out a little less for the ones they love.   On average couples say they’ll spend $102, which is down about 16 percent from last year.  We spend the most on our sweeties, then our kids, their classmates (I was sad when my kids stopped sending out those boxed Valentine cards) and teachers.    The good news: a Consumer Reports survey says that while 50 percent of people will cut their financial outlay, 78 percent say it hasn’t effected the time they have for sex (or the amount of sex they’re having.)  Whew.

Here’s what’s going on in your wallet this week:

Listen To Your Heart – Or Not?

A study published in the November edition of Psychological Science showed that people who were more aware of their own heartbeat turned out to be more intuitive decision makers than those who weren’t as aware.  The problem – as the study from UK-based lead researcher Barnaby Dunn showed – was that sometimes these gut instincts let the decision maker down the right path.  And sometimes, they didn’t.

I wondered: What role should your intuition play in your financial (and other) decisions? So this week I hopped on the phone with Jason Apollo Voss, former Wall Street Money manager and author of The Intuitive Investor.   He explained that your intuition is a good starting point for decision making, but in and of itself, it’s not enough.  First you have that aha flash, that moment when your intuition tells you: This is the right job to take.  This is the right stock to buy.  This is the right guy to marry.  Next you have to back up your intuitive brainstorm with an imaginary scenario of what might follow, and then actual information.  This is data that proves you are actually on the right track.    Eventually you decide – and say out loud – that this is something you’re going to act on.   And lastly, you follow through.

I remembered flashing on Money 911 – which became a weekly segment on Today – nearly two years ago during a run.  I thought it had potential to be a regular part of the show, and also to be a book (which it is).  But before I pitched it to anyone, I fleshed it out in my head, then on paper, coming up with 30 different segments so that I could prove it had legs.  Only then did I tell my producer what I was thinking, and only then did we pitch it to her decision-making boss.

But intuition can also tell you when not to do something.  It told Voss not to buy Enron.  “I was in New Orleans for the Howard Weil energy conference,” he remembers, speaking of one of the premier investor conferences in the energy industry.  “I went because I couldn’t figure out Enron.  Everyone was saying I missed the boat in not understanding why Enron was great. My former father-in-law had worked there for a number of years and he said (Chairman) Ken Lay was crazy smart.  But I couldn’t understand the financial statements.”  So Voss went to the conference to learn, figuring that this was likely the new world and that he had some ground to cover.  Instead, what he saw was CEO Jeffrey Skilling come in with an entourage. “In that moment, I got it.  CEOs don’t usually have an entourage.  I got queasy and I thought – the reason I can’t understand their financial statements is that they don’t want me to understand them.”   He steered clear.   Less than a year later, the company imploded.

I Love Saving $$

Last week I was honored to testify at a hearing for the US Senate Committee on Health, Education, Labor and Pensions (HELP) called Simplifying Security: Encouraging Better Retirement Decisions.  Testifying before Congress is nerve-wracking.  If you don’t believe me, take a look at the first few minutes of the video.  You’ve never heard me sound this nervous.  In part, that’s because you’re on the clock.  First, the Chairman of the Committee Tom Harkin (D-IA) and ranking minority member Mike Enzi (R-WY) gave their prepared remarks.  Then it was my turn and I was told to keep my remarks to 5 minutes.  The other three panelists did likewise. Then each Senator had five minutes to ask questions.

Anyway, the main point I had come to make was that Americans need to save more money. Social Security will be there.  But in order to live comfortably we need to save for ourselves.  Here’s part of what I said:

“The financial community – and the media – has led workers astray when it comes to successfully achieving retirement savings goals.  First, Americans were told that investment selection, picking the right stocks and mutual funds, was the key to success.  Next, they were told it was all about asset allocation, deciding how much of your pie to put in stocks and bonds and cash.  Neither of these things is true in and of itself.  The only thing that will get most Americans a comfortable retirement nestegg is saving more money.”

An example: A worker earning a starting salary of $40,000 in 1994– and receiving a 3% increase each year – invested in a conservative portfolio through the end of 2009 (a 15-year time period) would have:
$35,295 if he deferred 2 percent of his salary
$70,590 if he deferred 4 percent
$105,884 if he deferred 6 percent
and $141,179 if he deferred 8 percent

Moreover, swapping out of the conservative mix and into a portfolio of investments consistenly ranked in the top 25% of their classes by Morningstar over the three years before would have resulted in an end total roughly $1000 smaller.  And having the amazing foresight to put your money in investments ranked in the top 25% of their asset classes by Morningstar at the time would only add around $4000 to the end result.  (Thanks to Principal Financial for this analysis.)

Good For Your Heart (And Your Wallet)

Finally, how are you feeling about kale? Blueberries?  Oatmeal? Dried black beans?  They’re not just heart healthy foods endorsed by folks like my friend Joy Bauer and The Mayo Clinic, they’re good for your wallet.  According to ShopSmart magazine, they all make the list of the most nutrition for your money.    Kale is 37 cents a serving.  Frozen blueberries 66 cents.  (Although look for the fresh ones when they’re cheap.  That’s also, I’ve learned, when they taste best).  Oatmeal is 28 cents.  And black beans 24 cents.  Also on the list: Plain yogurt (70 cents), frozen turkey ($1.59) and popcorn (12 cents).   Enjoy!

Jean Chatzky
Making money make sense

blogging at www.jeanchatzky.com

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