By John S. Grande
Grande Financial Services Inc.

From the time we are born, we are subjected to experiences and information that form our system of personal beliefs. Likewise, in the financial world we are constantly fed information that helps form our beliefs on how we should relate to money. Sometimes we neglect to look at where the information comes from or why we are given it.

Most investment advertisements and magazine and newspaper articles are unconsciously shaping our financial strategies based on what tactics serve their best interest. Since these establishments are not manufacturers, they rely on our money to make their money. Most of these institutions have four basic desires when it comes to our money: (1) to get as much of our money as possible; (2) to have us continue giving them additional money on a regular, systematic basis; (3) to hold onto our money for as long as possible; and (4) to give us back our money as slowly as possible.

When you consider that most of our financial education comes to us from financial institutions, it might be safe to assume that in some ways we are brainwashed into action in accordance to the agenda of those same institutions. Our most cherished strategies such as dollar cost averaging, compounding interest, needs and goals planning, tax deferral, irrevocable transfers of wealth, and so on fit very well within the four objectives that they have in mind for our money.

It is not that we are unable to benefit from using these institutions, but it is the way in which we use them that needs examination. We can glean valuable insights from observing how the institutions use our money to create wealth for themselves. Instead of using the traditional accumulation method--that is, where money is left in an investment, compounding over time--the institutions put their money in motion using an economic principle called the Velocity of Money Multiplier.

This principle has been used by institutions and our own federal government for decades. It is the main functioning money theory in our capitalistic society. The theory behind the principle is that a dollar that acts as two, three, or four will generate a substantially greater amount of wealth than a dollar left to accumulate. For example, when you deposit money into your local bank, the bank does not leave your money motionless, compounding interest over time. Instead, the bank will take your deposit and lend it to another customer. As that loan is repaid with principal and interest, the repayments are again loaned out to another customer at a stated interest rate. This process of turning over dollars continues, generating a multiplier effect of wealth creation.

The good news is that there are avenues available in which individual investors can benefit from the Velocity of Money principle. The difficulty is in the ability to abandon our traditional financial beliefs and open ourselves to the possibility of a new paradigm of investing. This is not easily accomplished and requires the ability to step out of familiar ways of thinking and into a new ideology of wealth maximization.

Since the use of the Velocity of Money is new to individual investors, the first step in uncovering its potential benefits is to take a macroeconomic look at your current financial position--in other words, focusing on how individual investments work together in achieving your full financial potential. Traditional financial planning concentrates on the microeconomic picture or the performance of individual products.

The most effective way to utilize the Velocity of Money is to plot your investments on a model that will allow you to weigh and measure alternative financial strategies. The emphasis is on the flow of money in and out of various investments, not the individual investments themselves. Once all investments are plotted on the model, different strategies will be unveiled, demonstrating the true power of the Velocity of Money. You will see the potential for a substantial increase in wealth, minimization of taxes, protection against creditors, greater flexibility, cost recovery of fixed expenses, and minimized risk. In most cases these benefits can be experienced with no additional out-of-pocket cost.

There now exists a strategic financial process, Personal Financial Engineering, which helps individuals recognize alternative approaches to traditional financial planning. This process uses the Velocity of Money to help individuals reach their full financial potential and is available through the APA Member Retirement Program. To learn more about it, as well as APA's Member Retirement Program, call (800) 262-9110.

(Psychiatric News, December 6, 1996)