You probably remember the children’s rhyme “Find a penny, pick it up, all day long you’ll have good luck.” Ever wonder where that originated? There’s a surprising amount of information on that rhyme available with a simple Google search. It turns out that it may have originated from the belief in ancient times that metals would protect from evil spirits. Once we started using coins as currency, those who had more coins were considered wealthy, which translated into good fortune, or luck.
I’m not a very superstitious person, but when I was walking across a field the other day and saw a penny lying on the ground, I bent over and picked it up. Then I started thinking about why I did. It should be noted that the penny was heads-up. There are those who believe that a tails-up penny shouldn’t be picked up but instead should be turned over so that the next person who finds it will have good luck. But I digress …
When I picked up the penny, I didn’t do so because I believed that it would somehow bring me good luck for the rest of the day (although I did win two items at the silent auction I attended later that day). I picked it up because doing so fit into my financial philosophy. It wasn’t the value of the penny that was important; it was the idea that if you pick up the figurative pennies in your financial life, you’ll increase the odds of being a financial success.
What are these “figurative” pennies that I refer to? I will illustrate with several examples, but the principle basically comes down to doing a lot of little things correctly. Our firm is not going to be able to identify the next Amazon or Apple stock that could make a huge difference in your financial future. Instead, what we try to do is to help you do a lot of little things right. If you do a lot of (seemingly) little things right, you’ll be on the right track financially. So, what are these little things?
I have always used the example of a convenience store. If I stop in to get a drink that costs me 95 cents, I’ll give the clerk a dollar and wait for my change. The nickel that I get back certainly isn’t much, but in my mind, it’s a return of 5%. Once again, 5% isn’t a huge return, but it’s a guaranteed 5%—and there are no investments that will offer us a guarantee of that amount.
What about the interest rate you are earning on your savings? If you have an account with the traditional brick-and-mortar bank, you’re probably earning less than 0.30%. A quick search of the interest rate being paid by an online bank shows that it’s pretty easy to get 1.5–2%, and the account is still FDIC insured. That’s a difference of a little more than 1% to move the account to an online bank. Again, that’s not a lot, but over time, those 1% differences add up.
How about the expenses you are paying for your investment accounts? Unfortunately, a majority of people don’t know what they are paying in fees. I have reviewed many portfolios that are being charged fees that range from 1.5% to over 3%. Investment fees are like a headwind for your portfolio, and the larger your portfolio, the more high fees are slowing you down. Costs are one of the main factors that we consider when making investment decisions because they are relatively easy to control. And they save our clients a lot of money. If you can reduce your investment expenses by 1% or more, you’ll save a lot of money over the years.
There are several other “little” things that can add up to make a big difference in your financial situation. Make sure that you have the proper insurance coverages in place to protect you, your family, and your assets. You should have the proper estate documents in place to for the same reason. Make sure your portfolio is well diversified. Don’t leave free money on the table by not participating in your company’s retirement plan.
Like the penny I picked up in the field, it doesn’t seem like any of these changes would make a big difference in the grand scheme of things. But when you put them all together, they can make a very positive impact on your financial situation. So maybe we can change the rhyme to “Find a (figurative) penny, pick it up, and all life long you’ll have good luck!