Friday, November 28, 2008


Just a few personal reflections this week in the spirit of the holiday:

I'm thankful to be healthy, happy, and doing what I love for a living.

I'm thankful for the excellent mentors and role models who have helped point the way for me.

I'm thankful that progress doesn't come easily, because that means there is always potential to improve, and every accomplishment brings greater satisfaction when you know you have really worked for it.

I'm thankful for the good will, fun times and huge inspiration I get from so many amazing music business friends.

I'm thankful to realize that I don't really need very much, and the world is providing more than I need.

I'm thankful for the freedom to be my own boss and choose my own course in life.

I'm thankful that economic necessity has forced me to be less prideful and take gigs that made me learn and grow.

I'm thankful for all of the lessons yet to be learned, and for all of the creative works yet to be unveiled.

Best wishes to all of you this season!

Friday, November 21, 2008

Investment Diversification

In a recent blog entry, I emphasized the advantages of pursuing multiple musical income sources: higher total income, greater income stability, and increased networking opportunities.

The same principle applies to investing your hard-earned money. Maintaining a diversified investment portfolio basically means not putting all of your eggs into one basket. Remember when you told your parents that you wanted to be a musician, and their first reaction was to tell you to make sure you have another skill "to fall back on"? Well, I didn't like to hear it either, but looking back, I have to admit it was probably good advice.

In a similar way, betting most or all of your precious money on a single investment can be risky. If, for example, you choose to invest in stocks, most experts recommend holding stock of at least five to ten different companies to achieve reasonable diversification.

If you had invested all of your money in Lehman Brothers Holdings one year ago, you'd be broke right now because they went bankrupt in September. Few could have predicted that such a large firm, with a long and reputable history, would have been brought down so quickly. Even many highly trained and experienced professional investors regrettably invested in Lehman recently, so none of us are immune from making these kinds of mistakes.

If, on the other hand, you had invested half of your money in Lehman Brothers, and the other half in Star Scientific, Inc. (which has had a great year), you'd be roughly breaking even at this point. You would still be under-diversified, in my opinion, but this example illustrates the fact that even a little diversification is much safer than none at all.

As a small, individual investor with limited information, it can be hard to compete with the pros at picking good individual stocks or other investments. Perhaps even more importantly, brilliant artists like myself are too busy honing our creative genius (joke) to be bothered with monitoring the day-to-day performance of every stock and constantly worrying about timing our trades just right.

For people like us, there are mutual funds and ETFs. A detailed discussion of these investment vehicles is a subject for a future entry, but suffice it to say that they offer diversification in a simple package to the small time investor. Mutual funds and ETFs of the low cost index variety offer the ultimate in diversification.

If diversification is so great, why aren't all investors super diversified? The short answer is that they think they are smarter than the rest of us. If you are smart enough to only pick the winners and time every transaction ideally, then you can do better with an undiversified portfolio. Unfortunately, VERY FEW investors can pull this off with any consistency. Like, virtually nobody. Lots of people found this out the hard way recently when they tried sinking all of their money into real estate at the wrong time. They weren't diversified, and they bet on the wrong horse.

I'll be honest. Most types of assets have been losing value lately, so even diversified investors are getting burned. But just as a musician with multiple steady gigs can afford to lose one of those gigs, a well-diversified investor can avoid losing the whole enchilada when a few stocks go south.

Friday, November 14, 2008

Saving Is the Green Thing to Do

In this blog, I spend a lot of time talking about the merits of cutting expenses. Judging from the latest retail sales figures, it seems like a lot of folks are getting on this bandwagon, albeit reluctantly. A slumping economy and tightening credit have finally checked our great appetite for consumption.

But reducing consumption isn't all about deprivation or stinginess. It's really about clearing the clutter from our lives in order to focus on what's really important. At the risk of sounding overly philosophical or New Age-y, I would like to suggest that consuming less might actually be good for you, and good for the world. Here are just a few ways in which you can be kind to the environment while improving your own bottom line:

Drive a smaller car (or NO car). The vehicle will cost you less to buy and insure, and you'll spend less money on gasoline while producing less CO2 . It will still get you to the gig on time, and will also be easier to park when you arrive there.

Buy in bulk via the Internet. A little comparison shopping online almost always yields the best price available, and you will save gasoline and time wasted on trips to retail stores. Fewer people driving to stores means less traffic and less pollution.

Use it Up! I know sax players who will buy a box of reeds, use the best one and throw the rest away because they are "too green". Couldn't they use those for practicing, or put them on a shelf until they age nicely? By the same token, every time I put fresh strings on my gigging bass, I transfer the old strings to my practice/teaching bass to milk a little more life out of them. That's less junk for the landfill, and lower equipment expense for me.

Live in a smaller house or share space with roommates. Rent will be lower, and you will use less electricity and gas. Cleaning a small house requires less time and less use of environmentally unfriendly detergents and cleansers. You'll also have less space tempting you to fill it up with unneeded stuff.

Recycle and buy used items. I use ice cream container lids as drainage trays for my houseplants, and worn out clothes as rags for washing my car. Musical equipment can often be found at half price by buying used. The more stuff we can keep out of the landfill now, the better off we will all be in the future.

In contrast to the above advice, many politicians and economists are now praying for an increase in consumer spending to restart the stalled economy, but the fact is that over consumption is what got us into the current crisis in the first place. We must start living more efficiently, for the sake of the environment as well as for our own long-term financial health.

Friday, November 7, 2008

Market Timing and Opportunity

I hope that some of you who have been reading this blog for a while may be feeling persuaded to seriously start investing for your future. The questions that naturally follow are what should I invest in, and when? This first step is especially scary to take at a time of such great economic crisis as we see today. All but the boldest investors have been scared away from the stock market.

I am always reluctant to tell people specifically what to buy, or when to buy. Variances in the risk tolerance and the current and future financial needs of individual investors make it unwise to offer blanket investment suggestions. But I will go out on a bit of a limb here and point out that, historically, the darkest of times have usually offered the best investment opportunities. In other words, when everybody else is panicking and selling, investment prices get driven down, creating opportunities to invest at bargain prices.

This scenario certainly describes what is going on currently in world stock markets. The S&P 500, an index tracking the share prices of the 500 largest U.S. corporations, is down 40% from one year ago. Of course, there are real, legitimate reasons for stock prices to be declining (such as sagging corporate profits), and there is also the possibility that significant continued losses may still lay ahead.

I certainly wouldn't encourage anyone with a very low tolerance for risk to jump onboard this roller coaster right now, but please bear in mind that most of us have precisely the wrong instincts for buying and selling at the "right time". It is enticing to get onboard when we see that an investment has recently performed well, and it's scary to buy or hold on to an asset that has been losing money.

In general, I suggest resisting such instincts and simply investing what you can on a regular basis, then holding those investments for the long term, regardless of current market conditions. Don't try to gamble your way into the market all at once, but don't allow yourself to be frightened into inaction, either. There will never be an obvious "safe time" to buy, and if you wait for such a time to arrive, you will probably have already missed out on substantial market gains.

One more word of caution: please don't invest more money in stocks than you can afford to lose. Musicians especially need to establish and maintain a financial safety net before speculating on riskier investments, and the current recession may bring unexpected gig losses. Good luck navigating your way through this storm, and remember that every upheaval also brings opportunities.