THE ULTIMATE BOOK FOR UNDERSTANDING AND CONTROLLING THE MANY RISKS TO YOUR WEALTH

The complete chickens guide to financial security

HOW TO AVOID MAJOR MONEY LOSING RISKS THAT WILL MAKE YOU POOR

John Yamamoto
B.Comm. MBA, CIM, FCSI, PFP

 Copyright, 2005 John Saburo Yamamoto

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means including recording, photocopying, or any information storage and retrieval system, without written permission from the publisher. Although the author has exhaustively researched all sources to ensure the accuracy and completeness of the information contained in this book, we assume no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. Any slights of people or organizations are not intended. Readers must use their own judgment and should consult a financial expert for specific applications to their individual situations. All characters are fictitious. Any resemblance to actual people, living or dead, is purely coincidental. The views are of the author and do not reflect the views of any company associated with the author. Although the Author strives to keep the information in this book current and accurate, changes in the world economic conditions can make even recent information outdated. Charts, tables and examples are accurate only to the dates indicated. They are given to illustrate general concepts and need not be completely up-to- date for this purpose.

DESIGNED & DIGITALLY PRINTED BY

ISBN 0-9687886-4-5 Printed in Canada

Special Thanks goes out to my wife Yvonne Yamamoto and my daughter Jillian for patiently waiting for me to write and research this book, Adrienne Duffy, my Strategic Coach, for giving me the inspiration to never quit my dreams, and Gary Coskey C.A., my friend.

Contents
Part I: Introduction to investment risks
Introduction: ................................................................................4 Why this book is unique? Chapter 1 .....................................................................................9 Why should you care about managing investment risk? Chapter 2 ...................................................................................11 What is investment risk? Chapter 3 ...................................................................................15 The first method for managing risks to avoid severe financial losses to your wealth Chapter 4 ...................................................................................18 The second method for managing risk to avoid severe financial losses to your wealth Chapter 5 ...................................................................................22 The third method for managing risk to avoid severe financial losses to your wealth Chapter 6 ...................................................................................25 The fourth method for managing risk to avoid severe financial losses to your wealth Chapter 7 ...................................................................................27 Where do the risks to my wealth come from?

Part II: Environmental or external risks Part III: Emotional risks

Chapter 8 ...................................................................................33 External risks to your wealth 101 Chapter 9 ...................................................................................61 Not being able to control our feelings of fear and greed can cost us our wealth

Part IV: Financial planning risks

Chapter 10 .................................................................................89 Wealth building financial planning tips

Tips .........................................................................................113
Appendix .................................................................................117

PART I:
INTRODUCTION TO INVESTMENT RISKS
How to Nurture and Protect Your Golden Goose

THE COMPLETE CHICKENS GUIDE TO FINANCIAL SECURITY

The Tale of the Financial Golden Goose

One day a farmer noticed something glittering underneath his favorite goose. Upon lifting the goose he noticed a small, pure gold egg. He took the egg to his local bank and found that the egg was indeed pure gold. He took the cash from the egg and paid off some bills that were over due. Since he was a struggling farmer the cash from the sale of the golden egg was well appreciated. The next day the farmer woke up early to check on his golden goose. To his pleasure and surprise he found another golden egg underneath his favorite goose. He again took the egg to his local bank and took the cash and paid off some more bills. Each day the farmer would find another golden egg. This continued for months and soon the farmer found himself in a solid financial position. He had started to invest most of the proceeds and had paid off many of his bills. He also made some major improvements to his home. Over time the farmer started to become dissatisfied with his slow financial progress. Although

PART I: INTRODUCTION TO INVESTMENT RISKS

the egg-a-day find was consistent, the farmer felt it would take too long for one small golden egg to make him rich. Rather than waiting for a single egg each day he decided to kill the golden goose and get all the eggs at once. Upon killing the golden goose the farmer found no eggs were in the goose. Within a few years the farmer was again on hard financial times and had to work just to survive for the rest of his life. He had to live with the fact that his own greed and impatience had led him to kill his golden goose. He gave up steady financial progress for a quick dollar and had in fact destroyed his main asset (or principal).

MOTTO: Protect your golden goose.

This book is designed to provide you with concrete strategies for protecting your golden goose or wealth from harm.

INTRODUCTION: Why this book is unique?

There are three types of investors: There are people that make things happen. Then there are people that watch things happen. And there are people who wondered what happened Anonymous

Investment risks are anything that permanently take away your principal. People plan for the more obvious and imminent risks to their lives and, as a result, will fail to plug the holes where wealth drains away. Most people fail to plan financially and lack the financial knowledge to avoid financial risk resulting in a loss of their money and a poor investment strategy. This book is invaluable as it covers the largest number of risks possible. By identifying and plugging the holes where money drains away, this book is an invaluable guide to your lifetime investment planning.

PART I: INTRODUCTION TO INVESTMENT RISKS

This will be a life-changing book for you. You are first provided with a clear summary of the entire universe of risks. I have broken them into three clear categories: behavioral, environmental, and planning risks. You also receive a scientific model for building risk-efficient investment portfolios to reduce risks while increasing returns. I am excited to provide you with a comprehensive and scientific way to invest. I have replaced the emotional-based, often gut-wrenching, trendy, or hot stock investment strategy with a scientific and unemotional one. I find that most investment books are written on how to become rich from the stock market, mutual fund market, bond market, real estate with no money down, and the commodities market. Few books had any focus on managing investment risks. Other than the occasional University textbook with pages of math proving the authors PH.D. thesis, few books covered the universe of investment risks like this book does. Gathering all the investment risks into a single book turn out to be a painfully slow process, because I had to research so many books to put together a comprehensive risk management book. I have been an investment advisor since 1988 and wrote this book to help dispel many of the myths that people believe about investment risk. Ever since Internet trading arrived, I have become concerned with the recklessness of trading that is happening in the stock markets. People have lost track of the reality of the dangers of speculation. Short-term greed will lead people to long-term ruin. People often discuss their investment portfolio using incorrect risk management theory. Many investment advisors view risk from a one-dimensional perspective, and various books that I have bought or read to research this book had very limited views on investment risks. Some investment books did not even have one page on risk management. Other risk management books were too academic and theoretical. These books were useful in the classroom but were impractical for any benefit in real life stock and bond trading. Some risk books were written by a Ph.D. in mathematics for other PH.D.s in mathematics. These were of little use as well.

THE COMPLETE CHICKENS GUIDE TO FINANCIAL SECURITY

Im a practical person, since I have to manage millions of dollars of clients hard-earned cash on a daily basis. This book was written to give you useful antidotes to the potential risks and dangers to your hard-earned wealth. We need smart ways to deal with the chaos of the microchip-based world. Only the investors with the best knowledge of risk management will prosper and survive in the future. Because an event in Asia, Europe, the Middle East, or the U.S. can instantly send shock waves throughout the stock markets of the world globalization risk management solutions have to be included in our investment designs,. Like a well-trained doctor or pilot, you need an investment professional who can build a scientific risk strategy to deal with uncertain times or emergency situations, such as 9/11 or the 1987 stock market crash. To rely solely on intuition, emotions or outdated investment risk theory is dangerous to both advisors and clients. This book is different because it combines the investment theories of many books. It is much more comprehensive as it combines the risks from the economy, human psychology, and financial planning. This book has integrated the best risk techniques of the academic world with the practical needs of real money management. To properly manage risk today, you need to be part economist, part accountant, and part psychologist.

The chicken indicates an investment solution or tip.

The piggybank represents an investment risk to be concerned about.

PART I: INTRODUCTION TO INVESTMENT RISKS

I have searched the entire world of investment risks to compile this book as one of the most comprehensive and practical guides to investment risk management in the 21st century. I wrote this book in a simple readable format so that anyone can read and benefit from it. Everyone can benefit from avoiding unnecessary loss of his or her money. The majority of this book will be devoted to providing you with some key solutions to minimizing the impact of both internal and external threats to your wealth. You can benefit from the systematic plan for dealing with risks provided in this book. I wish to start by identifying the risks to your wealth. Most investors and even many investment advisors have not taken the time to identify the major risks to their wealth. This list of investment risks to your wealth is perhaps the most comprehensive in any book I have read. The complete listing and identification of the risks in this book is a combination of over $30,000 in investment courses and books, and over 11 years of research. I wish the world of investing were simple. You cant have one group of investments called risky and another group called riskfree. This is the common mistake of untrained investors. Instead, we need to re-label investments as those resistant to certain types of risks while being vulnerable to other types of risks. Just as Superman is vulnerable to Kryptonite, certain investments that seem solid are vulnerable to certain types of risks.

THE COMPLETE CHICKENS GUIDE TO FINANCIAL SECURITY

CHAPTER SUMMARY:
I sincerely want to help you gain financial success and retire with security. I have witnessed so many people lose or waste their money using poor risk management., If this book can help one person realize their mistakes and have a prosperous retirement, then the efforts I took to write and publish this book have been worth it. I also hope to permanently replace the poor or incomplete books and theories on investment risk with a more comprehensive and holistic risk approach. Good reading ahead. John Yamamoto, MBA, CIM, FSCI, PFP

CHAPTER

WHY SHOULD YOU CARE ABOUT MANAGING INVESTMENT RISK?

If you fail to manage the risks to your wealth, you will be working much longer and much harder than is necessary. By stopping the places where your wealth is leaking away, you can achieve your wealth targets with less stress and worry. Also, the more money you have the more important risk management becomes to maintaining your wealth.

10

THE COMPLETE CHICKENS GUIDE TO FINANCIAL SECURITY

Here is a list of some of the consequences you may suffer by not managing the risks to your wealth:
The possibility of facing a bankruptcy. These are exploding in number and frequency. In 2003, people had a greater chance of going bankrupt than having a divorce. (Source: US data on bankruptcies in America, Elizabeth Warren and Amelia Warren Tyagi, The Two-Income Trap) Losing your home Divorce or marital problems due to arguments about money Feeling like you will never be able to retire Stress from job loss Not being able to educate your children or grandchildren Having to be dependent on your children Having to worry constantly about money Not being able to travel Not being able to pursue your hobbies Having to work all of the time Working at a job you no longer enjoy Driving an old, dangerous or unreliable car Not being able to help out your children Not ever being able to consider retiring Feeling that you always have to count your pennies Worrying constantly about your future Not being sure you are doing the right things Feeling frustrated by your current portfolio Feeling vulnerable to wars, recessions, terrorism etc. Feeling like you are paying too much in taxes than are necessary And so on, and so on. John Yamamoto

If you answered yes to at least one of the statements above, this is the right book for you. For financial security, you need to learn and implement the investment strategies outlined herein.

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