CNN -- 'The Money Coach' -- September 3,1998

(CNN) -- With the stock market fluctuating madly, it becomes even more critical for investors to use strategies and approaches to investments that work. Riley Moynes first published "The Money Coach" in Canada in 1992, and was uncertain how it would be received. Five years later, after hundreds and thousands of copies of the small book have led many Canadians to be more interested in investing, Moynes has revised and expanded the book with an American edition to make it applicable to American readers and investors. These excerpts are from the 1998 U.S. edition.

INTRODUCTION

Are you winning the money "game"?

Like it or not, we are all forced to play this game from the time we begin to earn money through the rest of our lives. Taxes must be paid, bills must be paid, and loans must be paid. Money must be allocated for food, rent or mortgage, telephone, car payments, credit cards, insurance, new clothes for the kids, and so on. Savings are necessary for that trip, for schooling, for retirement. The list seems endless.

How do you learn to play the money game successfully? The sad truth is that some people never do. Those who succeed often do so in a hit -- or -- miss fashion, more through good luck than good management. Some of us learn from parents or others, although most of what they learned was through sometimes bitter experience.

Unfortunately, very little formal attention is given to the topic in our schools. The attitude seems to be either that it's something that comes naturally (like walking and talking), or that it's not all that important. Both assumptions are very, very wrong!

Sometimes we turn to "professionals" for help, and they can be helpful in certain ways. Accountants have detailed knowledge of Internal Revenue Codes, and, while that is important to the rules of the financial game, it's by no means the only part. Lawyers who specialize in tax law can be helpful in certain areas, but beyond that may have no particular financial expertise. A bank manager may be helpful when it comes to providing a needed mortgage or loan, or in telling you what the current CD or passbook savings account rates are, but there is a lot more to the game than that.

Then there's the IRS. Again, someone there may be able to help you, although you may be given four different answers to the same tax -- related question by four different IRS employees!

And again, their expertise is limited to aspects and interpretations of the Internal Revenue code. Even so, Tax Court is the ultimate referee in the money game.

So to whom do you turn to help you play the game effectively and unsuccessfully? You need a money coach. That's why this book was written: to help you understand the financial "big picture," and to help you develop the skills and knowledge necessary to compete successfully in the financial game. You're forced to play the game, so you might as well get all the help you can to play it well!

But good coaching does not come exclusively from a book. After you read this one, I urge you to find your own money coach who will continue to work with you. An effective coach will keep you up to date on the continual changes to the rules of the game. Your money coach will help you to further develop the financial skills you'll learn from this book by practicing them with you and giving feedback on how well you're using them.

Some people call them financial advisors or planners, investment consultants, insurance agents, or stockbrokers. I call them "money coaches." I urge you to find one with whom you're comfortable, in whom you have confidence, and who provides you with outstanding service. It can be a very satisfying, productive, and successful relationship, as well as a positive learning experience.

And good luck as you play the financial game. I am confident that The Money Coach will help you play it successfully. You may even turn out to be a star in the game!

COACH'S PLAYBOOK

How to build a financial plan

A financial plan should contain three simple parts:

Part 1: A snapshot of where you are financially, i.e., a statement of assets, obligations, and income.

Part 2: A statement or at least a sense of where you want to be in the short term (one year) and the longer term (three to five years), i.e., a goal or goals.

Part 3: A list of actions to be taken to get you from where you are to where you want to be.

Most people have no difficulty with Part 1 or 2 of their financial plan; Part 3 can be more difficult unless you know some of the strategies. That's what this book will help you learn. But you should also have some help from someone you trust in putting together a series of actions to be taken or decisions to be made; in other words, find yourself a money coach.

Ideally you won't depend too much on others to help you develop and implement your plan. Ultimately, we must all take responsibility for our own financial future. Fortunately, the basic principles to help you do that are really very simple. Not only can you learn them but you can also learn to apply them. That's where the fun and the results come in!

WHAT IS THE RIGHT BALANCE FOR ME?

There is no "perfect" asset mix that's right for every investor. It will vary from person to person, depending on factors such as time horizon, investment objectives, and risk tolerance.

Here are some guidelines that will help you identify the mix that is right for you:

Start with your age:

The total percentage of your portfolio held in fixed -- income investments (i.e., cash and cash equivalents, as well as government and corporate bonds) should approximately match your age. So if you have a $100,000 portfolio and you are 40 years old, about $40,000 should be in fixed income.

Assess your risk tolerance:

Imagine a scale ranging from 1 to 10, where a 1 represents the most pathologically cautious, nervous type of investor -- the sort of person who keeps their money under the mattress because they are certain the banks will collapse. A 10 is (or would like to be) a professional gambler.

Which number are you? Our experience is that everyone has an intuitive sense of where they fall on the scale.

Adjust your fixed -- income percentage:

Here we combine the previous two factors: age and risk tolerance.

If your risk tolerance is in the middle of the scale at 5, then make no adjustment to the fixed -- income component of your portfolio based on your age.

For every number higher than 5, reduce the fixed -- income component by 5 percent. For example, if you are 40 years old and rate yourself a 7 on the risk tolerance scale, reduce your fixed -- income component by 10 percent -- in this case, from 40 percent to 30 percent.

For every number lower than 5, add 5 percent to the fixed -- income component. For example, if you are 40 years old and rate yourself a 2 on the risk tolerance scale, increase your fixed -- income component by 15 percent -- in this case, from 40 percent to 55 percent.

Notice that the effect of these guidelines is to increase the conservative component of our portfolio as we age and become less aggressive.