After the partners have determined the scope of the partnership, they must communicate quickly and often to make sure both sides understand the limits of the partnership. My friend Larry works for an airline that recently offered its employees stock in the airline in exchange for pay cuts. The company broadcast its offer through the media—emphasizing the opportunity for employees to own the airline, just as management does with its stock ownership program. But Larry discovered he did not have the same benefits and privileges the managers had; while managers fly for free, the union employees pay a nominal fee for their passes. Larry resents the fact that while he takes stock instead of dollars, just like management, he doesn’t enjoy the same treatment. The managers’ free seats undermine the credibility of the public relations campaign aimed at building employee morale.

Long-term mutual fund holders often drift into indifference. After a few years, they have no sense of connection with their money. All fund statements and mailings are glanced at and filed or thrown out. In the back of their minds, they know there is something they ought to be doing but having put it off for many years, they simply leave it be. Mutual funds in IRAs and 401(k)s are often abandoned for decades. On retirement, the holders are shocked at how little money has accumulated.

Active investors become resentful of fund managers. Fund managers’ salaries are insulated from fund results. Salaries rise in bad years as well as good. With no stake in the outcome of their investment decisions, fund managers’ interest and yours are opposed. Fund managers make more Money than doctors, lawyers, and all but the CEOs of the largest corporations. Yet their results are no better than random picks from the stock tables.

As index funds increase in popularity, many non-index funds also imitate  the indexes. Increasingly, more and more funds buy the same stocks, have  exorbitant marketing expenses, and have the same goal: increasing funds  under management. Stock selection is motivated by this goal. A fund full of  unknown stocks will not be recommended by financial planners or understood  by the public. Unusual funds are quickly labeled “too risky” and disappear.

Mutual fund families comb through the stock picks of each fund and  assure that a minimum number of the popular index stocks are present.  Managers who vary too far are reprimanded and eventually fired if they do  not conform.

Investing produces a wide range of emotion. The highs can be as disorienting as the lows. The most common emotional traps are described here. For each, consider if you would be comfortable owning investments that produce these feelings.

Just like with retirement, there are things you should be doing today, even in the midst of getting out debt, to help prepare for future college costs:

Move to a different state. Just kidding. But there are some states that offer their residents a matching contribution for putting money into a Section 529 plan. For example, the Arkansas Aspiring Scholars program will match a $250 contribution to their state savings plan with up to $500 (depending on income).

Check with your state treasurer’s office to see if such a plan exists. Contribute toward college for holiday and birthday gifts. Consider opening college accounts for your kids at your local brokerage house and asking the grandparents to divert some of their holiday spending there. Trust me, your kids will appreciate it way more than a pair of socks.

Use UPromise and BabyMint. Both of these services are free to sign up for, and set aside money into a college account for your child every time you shop. It doesn’t actually increase the cost of your purchases, but instead is a way for stores to reward you for your loyalty. You can also have your friends and family register their cards to contribute to your child as well.

Failure to plan for college expenses has two major effects in my experience. First, many people who have not planned and saved adequately usually stop saving for their other goals while scraping to pay for tuition. Even a small delay in getting started on saving can have a huge impact on what you’ll have to save later to play catch-up. Second, the failure to plan for college usually results in the accumulation of more debt in the form of student loans. While these are often a necessary evil, they can be one more financial weight around your already exhausted neck. (See Chapter 15 for more on student loans.)

From the viewpoint of the real options solution, strategic alliances only create value when they enable plans. It is possible they will be formed because of personal relationships and a vague sense that working together can help both parties, as when two top executives meet on the golf course. But value will not be created until an option is framed. In time, when that option is exercised, the strategic capital represented by the alliance is translated into economic capital.

Cisco, which produces networking devices (the king of routers) and software, owns only two of the 38 plants that assemble its products. It connects component manufacturers, assemblers, logistics providers, systems integrators, and its own employees and customers in what is known as a b-web (business web). The arrangement leverages the strategic capital of the participants and appears to provide exceptional value. Nortel has embraced the same approach.