Worried About a Market Downturn? These 3 Yoga Principals Can Help

By: Manisha Thakor, CFP®, CFA

The late economist Hyman Minsky observed that cycles of risk-taking follow a consistent pattern. He found that stability and absence of crises encourage risk-taking, complacency, and lowered awareness to the possibility of problems ahead. Then a crisis occurs, resulting in people being shell-shocked and unprepared.

Indeed, we have seen this cycle play out in the way many investors behaved before and after the 2001 technology bust and 2008 global financial crisis. In tracking cash flows for fixed income and equity mutual funds over several decades, we observe that investors pile into risky assets following years of strong market performance and retrench into fixed income after suffering stinging losses—in effect, buying high and selling low.

As the current economic expansion enters its tenth year this June (now the second longest in modern history), and U.S. equity investors have enjoyed annualized investment returns of nearly 18 percent per year since March 2009 (the long-term average is 10 percent, dating back to 1926), it is timely that we call attention to George Santayana’s famous warning: those who cannot remember the past are condemned to repeat it. 

So there you have it. Like a game of musical chairs, the party is going to end with many losers. How can you increase your odds of being a “winner” in the next market downturn?

Surprisingly, the answer may be found in some ancient yoga principles.

Huh?

Let me explain. I recently came back from a yoga retreat in Nicaragua where I was introduced to the concepts of Dharma, Sankalpa, and Vikalpa. To keep things simple, I will define Dharma as “the way that you do everything”—in other words, your overarching approach to life. Your Sankalpa are the specific steps you will take over the next 12-18 months to bring you into closer alignment with your Dharma. Your Vikalpas are the behaviors that keep you from acting on your Sankalpa and ultimately embodying your Dharma.

What struck me as I was thinking about how to apply these three concepts to my own life was the beautiful overlap they have with the ideal way to manage one’s own money. In fact, these three ancient principals can be used to help you navigate through the next market downturn.

Your financial Dharma is akin to the overarching investment philosophy you choose. (I recommend following an evidenced-based approach, but to each their own). Your Sankalpa is similar to your asset allocation—have you set aside a portion of your portfolio to immunize your standard of living long enough to weather a bear market? Your financial Vikalpas are the human tendencies that get in the way of sticking to your financial Dharma and Sankalpa.

Here’s an example. John and Jane are nearing retirement. They are believers in efficient market theory and have chosen an evidenced-based portfolio that incorporates funds such as those from Dimensional Fund Advisors and Vanguard. This choice of investment philosophy is their financial Dharma; it’s the way they “do money.”

John and Jane have a detailed conversation with their wealth advisor and identify what money they’ll need from their portfolio over the next 10 years to maintain their minimum desired standard of living. As a rough baseline, 15 percent is a solid benchmark for this allocation to ensure a base level of a safety net. Next, you add in any expected annual withdrawals, either for recurring or one-time expenses. Then you take the net present value of those 10 years of cash flow and discount them back.

Your financial Sankalpa is to set up your finances such that, no matter what happens in the market over the next 10 years, you will not have to sell securities outside of your capital preservation bucket in a down market. This figure is a rolling one, which is why you want to revisit your Sankalpa regularly—every 6 to 12 months is ideal.

The third and final step is to acknowledge your financial Vikalpas, those pesky behavioral traits that can trip you up along your way to Dharma. Examples include a tendency to panic and sell in market downturns, to follow hot tips you hear at cocktail parties, or to keep too much (or too little) in cash out of greed (or fear).

Whenever I hear someone tell me 2007-2009 market “ruined my retirement,” I know that one of two scenarios happened. Either they didn’t have a Sankalpa or asset allocation that included an appropriate capital preservation bucket and were forced to sell securities at fire-sale prices. Alternatively, they had the right asset allocation but did not have an overarching financial Dharma—their investment philosophy—on which to fall back. They sold in a panic, acting on their Vikalpas.

As you work to maintain a sense of financial well-being during the next market downturn, spend some time making sure you are comfortable with your investment philosophy (financial Dharma) and asset allocation (financial Sankalpa) to ensure that natural human emotions like fear, panic, and terror (financial Vikalpas) don’t drive your decision-making.

Blending these mental well-being principals of yoga into your overarching life can enhance your financial well-being.

This article was originally published by Brighton Jones, nationally-recognized wealth management firm based in Seattle. You can follow Manisha on Twitter @ManishaThakor.  


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MANISHA THAKOR  is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The Bam Alliance. Manisha is the co-author of On My Own Two Feet and Get Financially Naked. Manisha has been featured on CNN, PBS,NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Glamour, Essence, and more. Manisha is also the founder of moneyzen.com.

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Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

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A "Hair"-oing Tale: What Does It Mean For Your Career?

Women & money expert Manisha Thakor explores the impact on long term women's economic empowerment of pieces that deride professional women for the very bodies they were born with. In this case, she examines the backlash facing former News Corp International CEO Rebekah Brooks' choice to appear in Parliament with... gasp... her real hair down.

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Turn Your Kids Into Personal Finance Champs

by Manisha Thakor

Do your children think you are a walking ATM?

If you are tired of "must-have-that-toy-right-now" tantrums as you walk down the aisles of Target or Toys “R” Us, go straight to your nearest bookstore and buy Alisa T. Weinstein's new book, EARN IT, LEARN IT.  Alisa tosses the old allowance-based system of teaching your kids about money and replaces it with: J.O.B.S.  But not in the way you might think...

Innovative learning lessons can transform a child's life. When I was growing up one of my pivotal memories was sitting down with my dad who showed me how to calculate how much money I'd have in my IRA down the road if I contributed my babysitting and lawn mowing money to it and it grew at 6%, 8%, 10%, etc.  Yeesh. Once I saw that if I saved $2,000 a year (the annual max contribution back then) for 50 years and earned 8% average annual returns I'd have over $1,000,000 - I was hooked. It changed my attitude about money forever. Learning to be responsible with money became fun. Now most kids aren't as wonky as I was so punching the keys of an HP12C financial calculator might not do it for them, but I have a strong hunch Alisa's unique approach will.

How did you come up with this concept of using jobs to teach kids about money?

I credit my daughter completely. She wanted “one more lip balm Mommy!” and I thought 13 lip balms were plenty for a four-year-old (a four-year-old!). In my exasperation I told her to “get a job.” As soon as I said it, I just knew that was how she was going to earn her allowance: by test-driving real jobs.

How does EARN IT, LEARN IT work?

For the book, I interviewed 49 people with 49 different careers. I then translated their day-to-day responsibilities into kid-friendly tasks, many of which take 15 minutes. So when Mia was a Toy Designer, she cut out a paper version of her favorite stuffed toy and we talked about things like hard costs (which she apparently doesn’t have because “Mom, I don’t pay for [that stuff]. You do!”)

What is the most surprising reaction you've had so far from a child?

I say this with a big smile: the most surprising reactions don’t come from kids. The real surprise reactions are from parents, who didn’t realize it could be so easy, and take so little time, to get their kids engaged in something totally worthwhile.

What is the most common challenge parents have today when teaching their children about money?

It has to be just getting started. Talking about money makes people uncomfortable. On top of this, the traditional methods (paying for chores, odd jobs, or no strings attached) aren’t much fun. Since we’re all so busy, it would seem easier to avoid the subject altogether. But then you end up with a kid who thinks the world exists to provide her with another lip balm.

What have you personally learned about money while writing this book?

I was lucky. My parents taught me early on that what we do to earn money can be even more valuable than the money itself. Which means being more open to finding a career that simply makes us feel good. And this not only makes life richer, it makes living with (and learning about) money a lot more fun. [You can follow Alisa on Twitter at @EarnMyKeep]

What experiences have you had teaching your kids about money?


[Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor or on Facebook at /MThakor.]

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

Generation Earn: A Chat With Kimberly Palmer

by Manisha Thakor

US News & World Report senior editor and personal finance columnist, Kim Palmer, has written an excellent new book for young professionals: GENERATION EARN.  Kim was kind enough to share her thoughts both on the writing of the book and to highlight "5 Money Tips for Today's Young Professionals."

What motivated you to write GENERATION EARN? I felt frustrated with the constant focus on how bad our generation is with money. We’re told that we have too much debt and are clueless about finances, but the fact is, we’ve learned a lot from the recession. We were forced to learn how dangerous debt can be and how important it is to save and understand where your money is. As a result, we probably know more about money than any previous generation did at our age. I wanted to help people with their new goals-- financial security, supporting growing families, and giving back in meaningful way.

What has surprised you the most as you've talked to people about GENERATION EARN? That there has been a huge shift in how young people think about money. We care more about having money in the bank than impressing people with big houses or fancy cars. Financial security is the new measure of success. But that doesn’t mean we’re greedy – in fact, the focus on giving back is a hallmark of our generation. We also want to make sure we’re spending our money in ways that support the bigger causes, from environmentalism to social justice, that we believe in.

What do you know today that you wish you had known 5 years ago about personal finance? That the only way to get ahead financially is to save at least one-third of your income. It sounds impossible, and sometimes it is. But if you don’t start saving that much for your emergency fund, goals, and retirement in your twenties and thirties, it’s just going to get harder later, when you have even more responsibilities. Sometimes that means living in a tiny apartment for a lot longer than you ever thought you would.

5 Money Tips for Today’s Young Professionals... from Kimberly Palmer

  1. Save one-third of your income. Yes, saving such a big chunk of money each month means sacrificing some comforts and indulgences for the short-term, but it’s the only way to get closer to that ultimate goal of financial security.

  2. Don’t scrimp on career-related investments. There’s one area where it’s okay to be a spendaholic, and that’s when it comes to investing in your future earning power. The category includes not only education expenses, but also voice lessons for an aspiring podcaster, how-to books for those with potentially lucrative hobbies, and even a new wardrobe for office workers who need to impress the higher-ups.

  3. Pay off all but your cheapest student loans early. Student loans that carry a 5 or 6 percent interest rate (or higher) are costing you much more than your savings can earn in our current low-interest rate environment. That means paying off a chunk of your loans will immediately start saving you more money than you could if you continue to make those slow and steady monthly payments.

  4. Don’t wait to invest until you have “extra money."Waiting to start a retirement account until you feel like you can afford it might mean you can never retire. Don’t wait to open up a 401(k) account if your workplace offers it, even if you start by contributing just 2 percent of your salary.

  5. Give back – on your own terms. Use Charity Navigator to check up on the background of your chosen organization before donating any money to make sure they’re going to use the money the way you want them to.

What about you - what advice do you have for today's young professionals?

[For more MoneyZen in your life, follow Manisha on Twitter at @ManishaThakor, on Facebook at /MThakor, or visit MoneyZen.com.]

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.