Illumination Wealth June 2014: If You Don’t Have It, You Need A Habit

June 2, 2014
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We hope you had a tremendous month of May.

It was an eventful and somewhat frightening month for us here in San Diego as the county suffered from terrible wild fires.

We had family, clients, friends and colleagues whom had to evacuate their homes due to the conditions. Fortunately, everyone is safe, no major damage was done and the firefighters and support crew was incredible in preventing widespread harm.

On a brighter note, the team at Illumination Wealth along with some 5,000 friends and our dogs took part in the San Diego Humane Society’s Walk for Animals which helped raise over $400,000 for the local Humane Society and SPCA.

They say you can’t teach old dogs new tricks, but I have news for you-you can. Any of you ever quit smoking or stopped eating unhealthy foods? I bet you have. It’s all in the power of habit.

Here’s what we cover in June to help instill the positive habit of growing your financial life intelligence:

  • The Market Scoreboard for May 2014
  •  Illuminating Insights:  If You Don’t Have It, You Need A Habit
  •  Articles of Illumination: Curated Articles for Your Financial Enlightenment


Market Scoreboard

Here is the market scoreboard for May 2014:

Data as of May 2014PriceMay  %
Standard & Poor’s 500 (Domestic Stocks)1923.572.10%
MSCI World Index ex US (Foreign Stocks)1964.24.95%
10-year Treasury Note (Yield Only)2.46%
Gold (per ounce)$1,250.50-3.14%
Reuters/Jefferies Commodity Index (CRB)305.48-1.30%
Dow Jones REIT Index301.092.55%

Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

The month of May ended with the large cap S&P 500 up 2% while their small cap counterparts rose slightly less than 1%. International stocks fared well, rising in excess of 1% with a strong showing from emerging markets. Treasuries once again outperformed, with yields falling as signs of an uneven global economic recovery broaden.

The lack of breadth (aka as the number of stocks participating in the rally) has been a widely cited concern. New all-time highs have been met with only about 10% of the S&P 500 counterparts 52-week highs concurrently with the market. In another respect, however, breadth is healthy. In May, every sector except utilities was higher, many by nearly an equal amount to the S&P 500. 

Next week, The S&P 500 will surpass the 1995-96 record for number of consecutive days in which the index has traded above its 200 day moving average. These streaks normally last less than 300 days; the current one is already much longer, at 385 days. 

Despite the short-term strength in the market (which puts a damper on long-term future returns), long-term investors should be aware that, relative to meaningful historical precedents, markets are currently expensive and overbought by many measures, indicating a strong likelihood of low inflation-adjusted returns going forward over longer-term horizons of 7-10 years. Concurrently, the favorable population dynamics that began in the 70’s as the baby boomer generation came of age is reversing. And furthermore, the three-decade tailwind in bond returns is at a turning point. Despite the difficulties of the past 10 years, the prior 30 year period provided significant returns to both stocks and bonds…as a colleague has said to me “the future ain’t what it used to be.”


Illumination’s Insights: If You Don’t Have It, You Need A Habit

“We are what we repeatedly do. Excellence then, is not an act, but a habit.” -Aristotle

I’ll be the first one to tell you, I am trying to break a lifelong bad habit.

What is it you ask? We’ll it’s a nail biting habit. As I have thought about this habit of mine, it made me realize that it isn’t just my own nail biting but so many of our daily behaviors are not decided deliberately. They are just the default setting for the way we do things.

It’s become even more apparent that our habits can set us up for success (or lack thereof) in all aspects of our life – from our happiness to our health to our wealth.

If building wealth is a goal, then you need to determine the habits and behaviors necessary to achieve that goal. That means one needs to create a structure and a system for your habits that will allow you to implement them and reinforce those habits for a lifetime of returns.

The principal behind wealth building is pretty simple – spend less than you make and invest the difference wisely. The problem with that is most people do not spend less than they make. People spend just about as much as they make as evidenced by the 3.8% personal savings rate. With such a low savings rate, one cannot let the formula for success work and compound for you.

This makes it imperative for one to develop the habit of saving first and spending second.

Jim Rohn, the personal development leader, has a story to teach kids called – Ten, Ten, Ten, Seventy. He says that you not only need to teach your children how to make a dollar, but what to do with the money once they get it. Jim says that from the first dollar a kid makes, they need to learn how to divide it up – 10% for Reinvesting, 10% For Investing, 10% for Charity and 70% for Spending. “If you let a kid, when he gets his first dollar spend it all, you’ve already started him on the wrong habit pattern. Now, what if they do that the rest of their life? They will be in serious trouble. So you have to teach them what to do with the first dollar. Or as quickly as possible correct what might be wrong.”

So if we are starting the wealth building process from scratch today the first core habit to develop is saving, also known as paying yourself first. How does one go about doing that? You set aside a predetermined amount of money for saving every time you are paid, before you can spend another dollar. This is treated as a fixed expense, just like paying your mortgage or rent.

They key to this is to take the thought out of it, just like my bad nail biting habit. Make savings automatic by setting up an automatic contribution from your checking account to your savings account. Furthermore, it may be best to start small. Saving only a modest amount first and working your way up once your prove yourself the ability to do so.

The reality is that it may not be easy at first – breaking the old habit of spending first and saving what’s left (which usually isn’t much). However, by forcing yourself to take these behaviors that cause you to save money and repeating them over and over until at some point you change your belief about it and realize that you are truly capable of doing so. You will now be rewarded by the new behavior as your bank account is growing which provides the positive feedback. This context, of doing what’s best for your long-term financial future and daily habit of saving is no longer an inconvenience but a way of life. It’s no longer painful to save but a desire that no longer requires the discipline because you are merely doing what you want automatically.

When it comes to wealth, your daily habits either make or break your success. You must begin the right habits today because it takes a great amount of discipline to overcome the bad habit of procrastination. Getting rich quick is built on the foundation of years and years of smart, daily habits.

For those looking to learn more about the power of habit, I suggest you read the book The Power of Habit by Charles Duhigg.


Articles of Illumination

Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.

Personal Finances

Physician’s Money Digest: Habits of Financially Successful People.

The New York Times: Playing Catch-Up While Retirement Remains Far Off

Success: Mapping Your Financial Future

Economy & Business

Los Angeles Times: Cash-out refinancing back in vogue as home equity surges.


You Tube: Good Life Project: Charles Duhigg-Power of Habit

Great TED Talks & Videos

Elizabeth Gilbert: Success, failure and the drive to keep creating


“We first make our habits, then our habits make us.” – John Dryden

It’s about that time when school is out and summer is in. We hope that your summertime is always the best of what might be.  Please let us know if you need support instilling the right wealth building habits. Our wealth planning can help…automate and simplify your life, stabilize your monthly cash flow, determine when to schedule a major purchase and allow you to do all the things in life that are meaningful to you.

All the Best,

Matt & The Illumination Wealth Team

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The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.