Miscellaneous Essays

Wealth Building for Beginners (Even if You Are Not Young Anymore)*

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3.-Your Invitation to the “$150,000 Club”

In the last installment https://www.markford.net/wealth-building-for-beginners-even-if-you-are-not-young-anymore-2 of this series, I told you how I got started on my own wealth-building journey. I hope it amused you. Looking back at it now, I can see that the ratio I kept between foolish and sound habits was about 2 to 1. But that was enough. I hope it comforts you to know that you can do most things wrong (as perhaps your parents and teachers always reminded you was your habit) and still become as wealthy as you need to be!

The second thing I did was to introduce you to a very simple and crazily powerful wealth secret that most high earners never follow: As your income increases (and it will!), you must resist the urge to ratchet up your spending accordingly.

And thirdly, I shared with you one of the most important insights about wealth that I ever learned. Luckily for me, I learned it when I was still relatively young. (In my early thirties.)

That insight was this: You need a lot less than you probably think to live a rich life: A lot less wealth. And also a lot less yearly income to acquire that wealth.

As for income… If you can get your income above $150,000 a year and simultaneously curb your enthusiasm for expensive toys, your chances of one day retiring wealthy are about 99.9 percent.

As for how much “money” you’ll need to sock away… A very rough number would be about 12 to 15 times the amount of money you’d need right now to lead a rich life.

If you can get your income up to $150,000 or beyond (and as I will show you that is quite easy to do if you are willing to put in the right sort of time) and if you can save 20 percent to 30 percent of that (which is very possible if you manage your finances as I’ll suggest), you will arrive one day at a net worth of between $3 million and $30 million.

And that – if you know how to spend your money – will be enough to provide a great, rich life for you and your family.

Before we move forward on that, you have to answer one question…

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From My Work-in-Progress Basket

One Thing & Another

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Word for the Wise

 Retrodict (ret-roh-DIKT) – to use present information to explain or reinterpret or revise knowledge of the past. Example from Jamie Whyte in The Wall Street Journal: “Many are impressed by the fact that climate models can ‘retrodict’ climatic change – that is, use past climatic data (say, from the 1860s) to predict climatic data from the less-distant past (say, from the 1920s). They should not be.”

Did You Know… ?

Top speed skaters can reach 37 miles per hour.

 

From My “Work-in-Progress” Basket

Principles of Wealth: #7 of 61

Every virtue has its opposite vice. The opposite of common sense is foolishness. The opposite of commitment is equivocation. The opposite of persistence is inconsistency.

In understanding what it takes to build wealth, it’s helpful to consider human habits in these terms.

You can make most business and investment decisions, for example, by applying a bit of common sense. Don’t act on facts you cannot verify. Don’t put all your trust in brokers and salespeople, even if they are trustworthy. Avoid investments you don’t completely understand – and if you ignore that rule, don’t invest more money than you are willing to lose. If you put all your money into buying a bridge in the desert and lose it all… well, that’s just foolish.

When it comes to investment strategies (in stocks or bonds or whatever), countless studies have shown that being consistent – sticking to a sensible strategy over a long period of time – is much more likely to make you rich than jumping from one strategy to another depending on what’s going on with the market or what’s going on in your head.

And when it comes to building wealth through a business enterprise or by developing a profession, getting to work early each morning and working steadily till the work is done – even in the face of challenges and disappointments – is not just important but essential.

From my book How to Speak Intelligently About Everything That Matters https://smile.amazon.com/Speak-Intelligently-About-Everything-Matters

In ancient Greece, plays were performed in huge, open-air theaters, and most people sat far away from the action. To help the audience keep track of what was going on onstage, actors wore masks with exaggerated facial expressions. That made it easier to distinguish the good guys from the bad guys, the masters from the slaves, and the male characters from the female characters. (Keep in mind that all the parts were played by men.) And when something about a character’s appearance or emotions changed (e.g., when Oedipus blinded himself), it could be quickly portrayed – even to the folks in the back row – by the actor donning a new mask.

This theatrical convention is represented today by two iconic images: the laughing mask of comedy and the weeping mask of tragedy.

Look at This…

 https://biggeekdad.com/2018/01/hiking-continental-divide-trail/

 

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Miscellaneous Briefs

Speculation vs. Investing

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One sensible way to acquire wealth is to buy shares of stable, cash-rich companies and hold them for long periods of long time. Most people do something else. They buy a stock at a price they hope will increase, and they plan to sell it at a profit if and when it does.

Although both strategies are generally considered to be forms of investing, I prefer to reserve the term investing for the former and call the latter speculation.

Any dictionary will tell you that speculation is distinguished by the fact that it is based on incomplete information. And that is certainly true of most of what most people – professionals included – do. They have some partial knowledge that suggests a particular company’s stock price will move up. Based on that partial knowledge they put their (or their clients’) money at risk.

I am not saying that you should never speculate. But I do think that if you are going to speculate, you should not delude yourself by thinking you are making a sound investment.

There is a third way people buy stocks that deserves another name. I’m talking about investing in companies about which almost nobody knows anything and whose history of appreciation, in general, is very low.

The market calls this speculation but I think that, too, is a misnomer. When you invest in something that has a less than 50% chance of success, you are not investing nor are you speculating. What you are doing is gambling.

Again, I’m not opposed to gambling. Although it’s certainly a vice (like drinking and smoking opium), it is a vice that I have no objections to so long as the person doing the gambling knows his odds.

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Miscellaneous Essays

How a $10 Bill Made Me Richer Than All My Friends

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Of the hundreds of wealth-building strategies I have tried over the years, the very best one was also the simplest. It is this: make sure you get a little bit richer every day.This thought occurred to me almost thirty years ago. I had recently decided to become rich, and that decision had me reading and thinking about wealth building day and night.

I was bathing my brain in the elixir of clever ideas. It was very stimulating. I had daily fantasies of getting rich in all sorts of fancy ways. But deep down inside, I knew that these complicated strategies were not for me. When it came to making money, I was extremely risk averse. In the race to a multimillion-dollar retirement, I was a tortoise not a hare.

At the time, I had a net worth of zero and an annual salary of $35,000 a year. With three small children and my wife in college, our expenses were gobbling up every nickel of my after-tax income. And so my first wealth-building goal was small: I would get richer by just $10 a day.

I knew that I would eventually raise the ante, but I wondered, “How much money would I acquire in, say, forty years by just putting an extra $10 aside every day in a bank account earning 5% a year?”

I did the numbers and was happy with the answer: almost half-a-million dollars.

My total capital invested would be $149,650. The simple interest would total $156,950, and the compounded interest would amount to $182,061, for a total of $488,661.

Then I wondered, “What would happen if I put away $15 a day?” That came to $719,604.

And then I asked, “What would my retirement fund grow to at 8%?” That came to $1,620,592!

You can imagine my excitement. And so I made this wealth-building commandment number one: get a little bit richer every day.

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Miscellaneous Essays

How the “Big White Lie” of Investing Almost Cost Me My Retirement

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Originally published in the October 2011 issue of “The Palm Beach Letter“

I consider myself to be an expert of sorts on retirement. Not because I’ve studied the subject, but because I’ve retired three times.

Yes, I’m a three-time failure at retiring. But I’ve learned from my mistakes. Today, I’d like to tell you about the worst mistake retirees make.

It’s a very common mistake. Yet, I’ve never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books. The biggest mistake retired people make is giving up all their active income.

When I say active income, I mean the money you make through your labor or through a business you own. Passive income refers to the income you get from social security, a pension, or from a retirement account. You can increase your active income by working more. But the only way you can increase your passive income is by getting higher rates of return on your investment (ROI).

When you give up your active income, two bad things happen:

First, your connection to your active income is cut off. With every month that passes, it becomes more difficult to get it back.

Second, your ability to make smart investment decisions drops because of your dependence on passive income.

Retirement is a wonderful idea: put a portion of your income into an investment account for forty years, and then withdraw from it for the rest of your life. Once you retire, you won’t have to work anymore. Instead, you will fill your days with fun activities: traveling, golfing, going to the movies, and visiting the kids and grandkids.

It’s a great idea. But it never actually worked.

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Miscellaneous Briefs

Investing, Speculating and Gambling: Let’s Get the Terms Straight

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One sensible way to acquire wealth is to buy shares of large, stable, cash-rich companies that pay dividends and hold them for a long time. (I am talking about investing in companies like Hershey’s and Coca Cola.)

This is called investing.

Most people do something else. They buy stocks of large, solid companies whose share prices they hope will increase for some reason. They buy them with the intention of selling them at a profit when they do.

This is called speculating.

Most people would not agree with that last statement. Most people – including most of the professional investment community – prefer to call this second type of financial activity investing too. They don’t like the negative connotation of speculating because it implies undue risk.

Ninety five percent of the investment activity in the world falls into this second category. Even the major media, on which the public relies for common sense, calls this type of transaction investing.

So what is the difference?

Any paperback dictionary will tell you that speculation is characterized by the fact that it is based on incomplete information. And when you buy a stock on the assumption that its share price will rise due to some anticipated short-term event, you are definitely relying on incomplete information.

For one thing, unless you have true inside information, you really have no idea that the event you are counting on will materialize. For another thing – and this is actually more important – you have no certain knowledge that the marketplace of investors will respond to that event by buying up the stock.

So this is one thing that every investor must understand: the difference between true investing, which is largely independent of specific future outcomes, and speculation, which is dependent on them.

If your broker or financial advisor is giving you this second kind of recommendation you must learn to recognize it as a speculation. Then, if you want to speculate, you can.

I am not saying that one should never speculate. (Although I should say this.) But I do think that if you are going to speculate you should not delude yourself by thinking you are making a sound investment.

There is a third way people buy stocks that deserves another name. I’m talking about investing in companies that are neither large nor well known but have the potential to enjoy large increases in their stock prices (which are generally cheap) due to some foreseen event.

The market calls such activities speculation but we should, to be honest, call this by another name. We should call it gambling. Gambling is defined as the purchase of an unlikely chance to profit. Any stock you buy whose chances of having its share prices go up over the long term (and virtually every cheap stock fits into this category) is a form of gambling.

Again, I am not saying that you should never gamble (though I should). I am just saying that you should know you are gambling when you do. Gambling – whether it is playing the slots or Keno, may be a fun way to spend your money. But only a fool would think that it is a way to increase one’s wealth.

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Miscellaneous Essays

Investing and Wealth Building: Don’t Confuse Them! The Five Key Financial Strategies You Need to Create Wealth

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This essay first appeared in The Palm Beach Letter

In my ongoing effort to shock and awe you with contrarian (and sometimes counterintuitive) truths about building wealth, I give you this little nugget to chew on today:

You cannot become wealthy by investing.

Please don’t tell anyone I told you this. If any of my fellow investment newsletter publishers knew I was saying such things they would have me tarred and feathered.

The investment advisory business – and in that I include brokerages, private bankers, and insurance agents, as well as investment newspapers, magazines, newsletters, and Internet publications – is a huge, multibillion-dollar industry based on lots of hard work, clever thinking, sophisticated algorithms, and one teensy-weensy lie.

The lie is that you can grow wealthy through investing.

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