Why You Should Keep Most of Your Assets in Your Lockbox


Like the one that Al Gore wanted to create for the Social Security surplus, a lockbox is a place where investment returns can pile up without interference from their owner. With a lockbox you make a plan and stick to it, regardless of what is going on in the stock market.

A lockbox is a great approach for these reasons:

  • Using a lockbox prevents you from making the worst mistake that plagues most investors – letting emotions dictate investment strategy. As a whole, we have seen that individual equity investors significantly underperform the market. A major reason for this poor performance is the human tendency to look around at the crowd and buy what everyone else is buying and sell what everyone else is getting rid of. In other words, we buy assets that have recently appreciated and sell those that have recently depreciated. Thus, people rushed to get their money into technology stocks in 2000 at the peak of the com bubble and rushed out in 2002 at the low. The same story played out with real estate stocks a few years later. By keeping a lockbox, you will be immune to this “buy high sell low” destructive tendency, and thus automatically outperform the average investor.
  • Using a lockbox keeps you from over-trading. People who trade frequently think they can outsmart the stock market. But even most professional investors and traders don’t outperform the market average. The majority of professionally managed mutual funds underperform the stock market averages every year. Without taking time to do huge amounts of research, there is little reason to think that you will be any more successful with your own trades.
  • Using a lockbox minimizes the transaction costs that eat away at the returns generated by active strategies. Every time you buy or sell a stock, you rack up trading costs. You can minimize these costs by trading infrequently.

Creating a lockbox is relatively simple. Choose your asset allocation, pick good assets, and keep your account on autopilot going forward. Ignore the talking heads on CNBC and refrain from changing your strategy or investment mix unless at designated times and for very good reasons.

Here is how to build your personal lockbox:

  1. Create a target asset allocation plan and change it infrequently (perhaps never).
  2. Implement your plan with either index funds or ETFs. Choose one fund (or absolutely no more than two) for each asset class in your plan.
  3. Rebalance your portfolio to return it to your target asset allocation at a set schedule of once or twice every year. No changes should be made outside of that schedule. Rebalancing is important because some asset classes will grow faster than others over time, and thus come to dominate a larger portion of your portfolio’s assets.

Top Ten Personal Budgeting Tips


Maintaining your Wealth

As a former financial advisor, I incorporated personal budgeting for applicable clients as part of their comprehensive financial plan, a key aspect to building and maintaining wealth. The four keys to wealth management are:

Developing a personal budget

2  Managing you expenditures

3  Saving and investing

4  Being responsible with credit

Personal budgeting strategies can help tighten outflows and preserve inflows. Here are some tips on budgeting:

Top Ten Personal Budgeting Tips

Review your Monthly Outflow Expenses

Keep a list of your regular monthly expenses that includes all expenditures, even maintenance items, dining, entertainment, and hobbies. Also, reflected in the list must be payments towards your debts.

I recommended using a free budget worksheet, easily available for free on the web, if not; just use paper/pencil to document your expenses.

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Ascertain your Budget

Subtract your expenses from earnings and see what the answer is. The result reflects how much you will have left at the end of the month. The accuracy of your results depends on the accuracy of your data.

Readjust your Budget as Needed

Re-evaluate your expenses if your end figure is not your liking, see if there are any opportunities to cut back.

Budget Must Include Any Debt Reduction Avenues

The budget worksheet should include your regular monthly debt payments. If you have extra funds available at the end of the month, you can use part or all of it towards paying off your debt.

Assess your Financial Goals

What are your goals? Is it retirement by age 55 or pre-funding your children’s college education? Whatever, your goals and dreams are, survey your budget to discover the best avenues to reach your goals.

Implement Proactive Personal Budgeting Strategies

Once the mechanics of a budget are covered and financial goals set, become proactive and start “living” your new budget.

Appraise your Personal Budget

After a three to six months, evaluate the personal budgeting process to see if the end results meet your initial expectations; If not, self-reflect , remedy discrepancies and seize opportunities for improvements.

Re-appraise your Budget

After the initial appraisal, if you are on track, well and good. However, if you are not meeting your targets, don’t give up. Re-assess, re-adjust, and reinforce.

One Path towards Financial Success

Your budget is not static, it is an evolving component of your overall financial picture. If you are to become financially successful, you have to be financially disciplined.