7 percent

7 percent

I recently read an article explaining the benefits of long-term compound interest.  In the article, a situation similar to the one that I used in my post Compound Interest was used, but in the example in the article, an interest rate of 7% was quoted.  As I often do, I read some of the comments at the bottom of the screen and I saw over and over again that people were “complaining” that it was impossible to earn 7% interest today.  I am sure that most of these people only know of two places to invest their money, one is under their mattress at home and the other is at an FDIC insured bank.  After taxes and inflation, both offer negative rates of return.

I thought to myself, “It isn’t so hard to earn 7%” interest.  And so, here are a few places where I’ve invested in the last year and the interest rates that I have experienced:

Symbol / Name / Interest Rate / Description

TWO / Two Harbors Investment Corp. / currently pays 18.10% dividend / This is an Interest Rate REIT (Real Estate Investment Trust) that borrows short term money (low interest rate) and then buys long-term treasury backed securities.  As long as Bernacke keeps rates low, this stock will continue to pay fat dividends.

LendingClub.com / The Lending Club / I am currently earning about 16% return on my investment / Allows investors to lend directly to borrowers – most loans are used to consolidate credit cards.

NLY / Annaly Capital Management / currently yields 12.2% / same as TWO.

ETP / Energy Transfer Partners / 7.8% dividend yield / Natural Gas and Oil pipeline company – this company charges big oil to move their product and collects a steady and dependable income.

(no symbol) / Selling uncovered puts and covered calls / I have earned an annualized yield of 19% writing options contracts on stocks, gold, silver and the Australian Dollar / More about this strategy later – but it is one of the safest and highest yielding investments I know of.

EXC / Excelon Corporation / 7.2% dividend yield / United States electricity utility, is a large nuclear power producer.

DPM / Midstream Partners / 6.6% dividend yield / Same as ETP.

TGP / Teekay LNG Parnters / 6.7% dividend yield / Owner-operators of large ships that transport liquified natural gas.  With cheap natural gas prices, the demand to move it around the world is booming; TGP has good prospects for future work & stock appreciation.  I also write covered calls on this stock boosting my yield into the 10%+ range.

These are just some ideas for you to check out.  Remember to always do your own homework; I don’t know your financial situation and you shouldn’t take my recommendation as your only source of income.  I do not guarantee any return nor do I take any risk for your investments, it is up to you to do your own due diligence.  Having said that, there is always risk and return and the two (sometimes) correspond, sometimes they do not.  Most think of an FDIC insured bank as a “safe bet,” but considering a 4% inflation rate, taxes and the .25% interest the bank pays, you’re losing about 4% each year in purchasing power.  Doesn’t sound like much?  Consider that if you put $100,000 in the bank today, in ten years, that $100k will be worth $60,000.  4% isn’t much this year, but over time it will eat up your investments.

Also consider some of the “safe” Blue Chip Stocks like Walmart, Coca Cola, McDonalds and Microsoft.  If you reinvest your dividends into additional shares of stock, most of these stocks have returned upwards of 10% each year in combined dividends and capital gains.

If you want to be a millionaire, you can’t look at life through a set of FDIC insured glasses – you have to look outside the “normal” arena for investments that will provide a  return that will propel you to the next level.

Good luck and good investing!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Debt

If you are in debt, you will never get rich.

This is perhaps the most important reason that most Americans (and others around the world) have such difficulty attaining financial independence.  Your goal is to save money and have it work for you.  Think of the little green dollars as slaves, if you have a hundred of them and you put them to work, they will produce some returns for you.  You add to them and over time they add up.  But with debt, it is the opposite.  Whatever money you have in the bank and your earnings get swallowed up in interest charges.

The average credit card charges almost 20% interest.  If you put something on finance and don’t pay it off for 5 years, you will end up paying 200% the value of the item (5 years x 20% interest = 100% in interest).  If your “normal” monthly expenses are $2,000 and you put a portion of your living expenses on credit, your monthly costs may be $2,500 or more.  That $500 a month could be going into your savings account.

If anything, you want to be loaning money, not borrowing it.

I have one brother who has a great job (he is a co-owner of a fair sized corporation) and makes a fat salary.  But, he loves his credit cards and constantly carries a balance.  This “easy spend” lifestyle eats away at his savings potential and the interest charged on the rolling balance keeps him in perpetual debt.  If he would just cut his spending for 6 months and pay off the cards, he would be able to return to a “similar” spending lifestyle and be able to keep the savings (what he’s not paying in interest) and begin to build his savings.

Debt is just stupid, don’t do it!

In 20 years, I have paid my credit card off each month in full.  And the only reason I use a credit card is for the frequent flyer miles.  The ONLY debt I have carried in 20 years is my mortgage.  Even my car was paid for with cash.

If you can’t afford to pay cash for your next car, ask yourself, “do you really need it?”  I’d rather drive an old car and have people “think” I’m poor than to be poor and have people think I’m rich.

Live will bring you dozens of opportunities to get rich.  If you are in debt, you will miss them all.  A lot of people blame others for their lack of financial success – and most of these people are in debt.  Don’t make this mistake.  If you are in debt now, get out of debt.  Cut your spending, take some overtime or do whatever you must to get out of debt.  If you are considering taking on debt (credit card use or buying a new car), don’t do it!  It isn’t worth it.

I’m growing richer each month loaning money to others and rolling the interest back into new loans and investments.  My investment portfolio is monthly returning about 1/2 of what I receive in paychecks each month.  This money just compounds and some day, my investments will yield more than my salary.  At this point, I will be free to quit my job if I want, and I’m only in my early 40′s.  This journey to becoming a millionaire would NOT have been possible if I was carrying a debt load.

Good luck & good investing!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net