Its all about your attitude

Happy grimmace sad

As I think more and more about the road to financial independence, I become more and more convinced that your attitude is the primary factor for success. Unlike the graphic above, whether or not you are happy or sad won’t decide if you will make a million dollars but your attitude towards getting to that goal will be everything.

At my work I’m surrounded by colleagues who make six figure salaries and barely can put together ten thousand dollars for a house down payment. There is NO reason why they can’t be financially successful (savings I mean, not earnings) except for their attitude. They treat money like air, something to be breathed in and out without a thought to saving, investing or planning for the next step in their lives. Opportunities about; the average person probably has about a half dozen opportunities in their life to stake a claim on their fortune. Whether or not you are prepared will mean everything.

I have one old buddy from high school who started real estate investing in the last 6 or 7 years. I even went in on one of his deals and it is paying off nicely. He first bought a 3 room house and then rented it followed by a one bedroom apartment. He paid enough down so that his monthly cash flow was positive on both properties. Later he bought (also with positive cash flows) a 3 unit condo complex and later a 4 unit apartment building (the unit I helped to finance). He has just informed me that he closed on an 18 unit apartment building. Each property has a positive cash flow and I estimate that he is earning somewhere between $6,000-8,000 per month in EXTRA income.

I say extra because he still has his job and his wife still has hers. Because the cost of financing is cheap (rates in the 4% range), he uses the extra $6k each month to finance new properties. After a year, you have an extra $80k – this can be used for a down payment on a new property. I guess that he will hit his million in a decade.

Realize now that he started with NOTHING. He and his wife worked, skimped and saved until they had enough to buy their first rental property. After that, they skimped and saved more. And over time, it is paying off handsomely. I suppose that in a few years he will be so busy managing his properties that he won’t have time to go to work. What a glorious day that will be when he can quit his job and be self employed.

The American Dream.

And so, what set him apart from his friends and colleagues who aren’t growing their net worth like him? It was all his attitude. He made a goal to own 20 properties and started with just one. When his first was bought, he set his sights on the next.

It was all ATTITUDE.

If your attitude isn’t such that your mindset is that you’re ALWAYS looking for your chance to stake a claim to one of your life’s jackpot opportunities then you’ll probably never succeed. Have an attitude check on yourself and ask if you’re motivated and focused on becoming a millionaire. If you are, you can find a way. If you aren’t, someone else will take that opportunity that you pass. They’ll be the “lucky” one who was “at the right place at the right time.”

Luck is when preparation meets with opportunity.

Good luck!

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:

You are what you eat

I’m sure you’ve heard the saying “You are what you eat.” In many ways it is true; you need only look at the diet of an athlete and a couch potato to see that each looks much like what they eat. An athlete who eats chicken in rice is thin whereas a couch potato looks a bit like a soft & fatty cheeseburger.

Much in the same way, with finances you are what you eat. More exactly, you are what you think. This idea came to my mind as I was on break at work. I shuffled through some investments, made some options trades and netted about $250. As I sat back, happy with my financial gain, I looked around the room. Three of the other guys were playing fantasy football and comparing how many “points” they earned on Sunday’s games and one guy was gun shopping. Specifically, he was shopping for a Kalashnikov and he was calling out the prices that he found on each website. It seems that the going rate for an AK-47 is about $750 in America.

The next day, most of the guys were playing “fantasy football,” and my other colleague finally pulled the trigger on his AK purchase and gave his credit card number over to the tune of $750. I made another option trade, this time netting $500. He called over to me and told me that he bought the AK. I smiled and told him that I just made two options trades in the last two days for $750. In essence, he spent $750 and I made $750. The rest of the guys, they just spun their time along in football fantasy land.

As I talk to most of my colleagues, friends and relatives at parties and others that I meet here and there, I find that most people don’t focus or concentrate their efforts on finance. They are busy with fantasy football, golf, fixing up their pet car project or whatever else it is that people do when they aren’t working. I have my own hobbies: travel, writing, going to the movies, gym, etc. But, a good portion of my day (at least one hour) is spent studying finance. And it shows: I am financially successful. Now, if you don’t study finance, how can you expect to be financially successful? Just like the couch potato who eats and never exercises, as he is what he eats, your finances are what you think.

I might look at the markets for 6 or 7 days and never see a trade, but when one jumps out, I play it and make a few hundred bucks, its only because I’m studying the markets that I see the opportunities as they come up. My colleagues, well, they see good fantasy football and gun deals – but this won’t make them a million dollars.

If you want to grow your own million dollars, you need to be studying finance every day. You need to focus on it, think about it, you pretty much need to sleep with finance in your mind. If you invest in real estate, you should study real estate. If you are growing a car business, you should be thinking cars all day and night.

My point is, if you want to make a million dollars, you should be focusing on it every day, not on fantasy football or some other distraction. Remember, you are what you eat!

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:

Don’t buy that Business!

Frown face

Sorry for the long absence from this blog; got married over the summer and I’ve been a little busy :-)

My job requires a LOT of travel, and with a new wife, I have been looking around. As I contemplate walking away from my job I have been diligently searching for other opportunities. The idea of opening my own business is very appealing: no boss to answer to, set my own hours and know that as hard as I work, I will reap the benefits.

One colleague at work (he is also considering starting his own business) told me that he was going to buy a Subway sandwich store and yet another colleague has(d) plans to buy  a UPS store. I listened to what they had to say and I was intrigued. I got online and did a little research.

What I read about the UPS stores didn’t impress me.

It seems that more than 1 our of 4 stores goes out of business and the majority of the remaining stores barely break even. I contacted the UPS Store and a nice lady called with the sales pitch. I asked her about all of the bad things that I had read on the internet and she didn’t have any reply. She thanked me for my time.

It seems that UPS is squeezing the stores and the owners are making less and less money. Some stores are bought and resold several times – it seems that new investors come in and then get wiped out. I read horror stories of people who sank in their entire 401(k) funds, worked night jobs at WalMart & they still lost their stores.

What is most amazing to me is that in a single afternoon I read all I needed to know that buying a UPS Store is a losing proposition. Yet there are stores sold every week. Don’t these buyers do their due diligence & check out the viability of a business before they buy?

I think not.

There is one truth I have seen again and again in business and in finance. Easy money comes, easy money goes.

The problem is that, to most people, a 401(k) is “easy money” because it was accumulated slowly, painlessly and out of site. When someone is given access to an account with six figures $, it is easy to spend that money quickly.

Whenever you look at your savings account, you need to look at the time requirement to build that account. If you make $50,000 a year and you have a $100,000 401(k) account, it is easy to think of your retirement savings as two years pay.

But it isn’t.

Maybe you only save $300 per month towards your 401(k). After company match, you might only put away $5,000 per year. In actuality, your $100,000 401(k) is 20 YEARS worth of savings. If you blow up that account (buying something silly), it may take 20 years to replace it.

Anytime you spend money, think to yourself, “How many months (or years) will it take me to replace this money?” When you do this, money seems more valuable and you’ll be more likely to save it.

Back to the UPS Store. Whenever you buy a business or any other financial investment (stocks, rental property, etc) you should do a simple financial calculation. Divide the investment amount by the total profit (net, not gross) that will take from the investment and determine how long it will take you to get your money back. If you buy a $150,000 rental property, assume a monthly mortgage payment after a down payment of $50,000, taxes and insurance of $700 per month and a rental price of $1,100 per month, you will net (assuming a 100% rental rate) $400 per month. Almost $5,000 per year. It will take you 10 years to get your initial investment back.

That’s not bad. Microsoft stock is paying about a 3.4% dividend right now. Assuming the stock price never changes, it will take you 21 years to get your initial investment back through dividends.

And so, if you make a comparison of different investments, you can see the amount of time it will take the investment to pay for itself. If two investments that have equal risk have payoff times of 10 years and 20 years, clearly the 10 year payoff is the way to go.

It seems that to purchase a UPS Store is an investment of anywhere between $100,000 – $300,000. Most of the stores are making about $20,000 per year after expenses. But here is the rub: most of the owner/franchisees reported working 70-80 hours per week or more.

Unlike owning Microsoft stock where the board of directors and management run the company, if you buy a franchise, you have to run it. If you dropped $300,000 into Microsoft stock, you could collect about close to $10,000 a year in dividends. This is only about $850 per month less than running the UPS Store. How many jobs can you find that pay at least $850 a month? In reality, you would be much better off buying the Microsoft stock and taking a job at Home Depot than starting your own UPS Store.

I’ve known a lot of people who started their own businesses. Back in 2004, one lady started a coffee shop. Her initial investment was $35,000 and she did very little homework about the business. She had a bad location, not enough $ in reserves and the store went bust in 3 months. Had she bought $35,000 worth of Starbucks stock, she would have collected a monthly dividend check every 4 months and would have been able to participate in any stock appreciation. Starbucks was $10 a share back then (today its over $79) and pays over a 1% dividend. If we assume she reinvested her dividends, her $35,000 investment would have grown to $298,231!

I bet that she wishes she had invested that money differently.

Back then, it was a loan. Free money. The money wasn’t respected. The business plan was poor.

Before you jump feet first into buying a new business, or starting your own, study & ask around to find how much profit you will net (after expenses) each month and compare that figure to the amount you’re investing. If it isn’t a good return on your money, you may consider something else.

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:

Don’t buy junk


On average, women outperform men in stock market investments.  The reason for this is quite simple: women tend to buy and hold whereas men trade stocks more often.  The average investor (probably 90% or more of small investors) sell when the market is down and buy when the market is up.  I remember in 2008 as most of my colleagues freaked out and bailed out of the market.  Most women held their stocks through the market sell-off and continued to dollar cost average through 401(k) investments and had positive returns by 2010.  Many of the men who tried to “market time” the market sold at the bottom and then returned to buy at the top.

I count myself among the “guilty” when it came to second guessing the market – and eventually missing great market gains and suffering stock market drops after buying too high.  I’ve sought knowledge, read and studied and only in the last few years have I begun to enjoy strong market gains, whether the market advances or declines.

In this article we will cover the first of the big mistakes that investors make.  If you avoid these pitfalls, you will GREATLY improve the returns on your investments.

1.  Don’t buy junk.  This sounds obvious, but the vast majority of stock investors own “junk” investments.  I’m not talking about junk bonds, those can have a place in a well diversified investment portfolio, I’m talking about bad investments.  Before you know what a “bad” investment is, you need to know first what a good investment is.

To understand what a good stock investment is, you need to stop thinking about investments as buying stocks.  Instead, you need to focus on buying businesses.  Imagine for a moment that you just won the lottery for $8 million dollars.  After taxes you take home $5 million.  You decide that you want to buy some businesses in town.  Let’s say that the “average” business in your town sells for a million dollars.  Let’s say that you decide to buy 1 bar, 1 retail store, 1 restaurant, 1 auto repair garage, and an apartment building.

We will start with the restaurant: you have a choice of a “popular” bar that has a flamboyant owner who is often in the news.  He regularly drives around in his convertible and has several girlfriends.  This guy is well known in town and very popular.  His bar is “the place to be” on Friday nights and often has a line formed up outside on weekend evenings.  Everyone wants to get into this bar on the weekends, it is popular and there is a lot of “buzz” about this place.  Most investors would love to be a part of this business; it is exciting, it is sexy.

And so, you begin to look at the books of this business.  You see that it has a strong cash flow on the weekends but during the week, it draws significantly less in revenue.  You see that the rent on the building is VERY high, the wages paid to the staff are quite expensive and the liability insurance for this “popular” watering hole eat up most of the profits.  Despite the “colorful” lifestyle of the owner, you see that he barely turns a profit.  Moreover, because of several fights at the bar in past weekends, some lawsuits are pending.  This business “looks good” from the outside, but in reality, it does not return much money to the owner.

Take a look at many stocks that are “popular.”  Many pay low dividends, have weak earnings and are priced very high.  I am regularly astounded that stocks with no earnings and high P/E (price to earnings ratios) sell at such high premiums.  And why?  Because  idiots like “Kramer” on CNBC and silly online companies like Motley Fool recommend them.  As I talk to more and more small investors I find that most people are buying stocks based on what’s in trend, what’s en vogue and what is “popular” on CNBC.  Over time, these investments return very little to the owner.

We look at another bar.  The local Irish pub.  It has a steady and loyal customer base, it is “busy” 7 days a week, has low overhead and expenses and returns a cash flow to the owner.  The current owner (who is now retiring) draws $8,000 per month in owners’ equity (salary) and leaves several thousand in the bar for improvements and to grow equity.  You realize that if you draw $8,000 per month, each year you will “take out” $96,000 per year.  In about 11 years you will return your initial $1,000,000 investment.  Starting in year 12, you have a “free bar” and the income that comes in is all profit.  Imagine now that the intrinsic value of the bar has grown in these last 12 years so that now you can sell it for $1.5 million.  Now, not only have you taken all of your money back, but you’ve made a 50% return on your basic capital.  Meanwhile, the “popular” bar had its business slow and after a year or two, it went out of business.

I ask people, “Why did you buy that stock.”  What I hear astounds me.  They ALWAYS have a “story.”  Something someone told them, something their broker told them, something they saw on CNBC or read in Fortune Magazine.  I ask them about the stock’s earnings or its dividend and they have a blank stare on their face.  These people – and I might be talking about you – aren’t investing, they’re gambling.

When you buy a stock you should look for a company with strong earnings, little competition, a strong return of capital (strong dividend) and good future business prospects.  I’ve had this conversation at work a dozen times and every time, I’m asked the question, “Well then, what stocks fit this description?”  And when I answer, I see eyes roll over, sighs of sarcasm and chuckles as though I don’t know what I’m talking about.  To most investors, these investments are “boring” and they don’t have the patience for them.  But good stocks are considered by most to be boring.

Let’s take a look at some “good stocks.”  These are stocks that pay ever increasing dividends, have little competition and increase owner equity through the practice of paying a strong dividend and share buy-backs:


Coca Cola





Procter & Gamble

I’m sure you get the idea – fat companies with thick profit margins.  If you buy the stock of one of these companies and reinvest the dividends into more shares, you’ll average about 15% return.  And considering that much of the gains will be long-term capital gains, you’ll never pay tax on the growth of the price of the shares until you sell.  Warren Buffet bought 5 or 6% of Coke back in the 80’s and has reinvested his dividends ever since.  His dividends now pay back the entire cost of his investment EVERY SIX MONTHS!  Think about that for a minute, lets say he invested $10 million, he’s getting back $20 million every year just in dividends!  That initial Coke purchase paid for itself and now pays dividends year after year while the base value of the stock continues to grow.

And yet, I hear of other “investors” buying this or that stock because of some crazy idea they heard on TV.  Example, one of my clients bought Remington (the firearms manufacturer) because Obama’s plans for more gun controls = increased sales.  Maybe.  But does Remington have the fat profit margins and increasing dividends each year like McDonalds has?  No.  Not even close.  When I suggested that he sell his Remington and buy Coke or Walmart or McDonalds, he looked at me as if I had a bullet hole in my forehead.  Again and again, I share the “logic” of buying good companies and people nod in agreement and then tell me how they’re buying Ford or GM because, once upon a time, it traded for 3x what it trades for today.  How silly.  You want a company that pays you to own it, not the company that is popular or has a good story.

The BULK of your portfolio should be boring Blue Chip stocks that are fat with profits, insurance companies, oil & energy transport and some real estate investments that pay you regular rents.  The way to win in the market is slow and steady gains without taking massive losses.  If you can earn 12% year in and year out, you’ll beat all of your co-workers who are chasing Apple to $600 a share.

More on this idea later – but if you own a bunch of junk – stocks that don’t earn (and pay) rich profits, you should consider shifting the bulk of your portfolio to some boring stocks that pay you and pay you year after year.

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:

The Morality of Wealth

Religious symbols

In talking with others about wealth and investing I find that there is a HUGE pressure on American Christians to be, act and remain poor.  I did a Google search for Bible verses on wealth, money and materialism and I found quite a few results that included many admonitions to be poor and to give up all of your wealth and possessions.

Now, I’m not going to get into a religious or philosophical discussion here – that’s a whole other website and I’ll leave it to someone to tackle those issues.  But I can say that almost my entire family comes from (very) religious stock & they are all quite poor.  I’m guessing that if you’ve come here, you are probably interested in getting rich.  If you are a Christian, you will have to balance your Biblical beliefs with your desire for wealth and how to merge the different philosophies.  Aside from Americans, this website is most visited by Chinese.  So, to my Chinese readers, whether you are Atheist, Buddhist, Christian or some other religion or philosophy, having a positive subconscious view that money and morality can coexist will be easier for you.

If you are a Christian person and you struggle with the idea that Jesus told the disciples to be poor and give up their possessions, you may consider some other logic.  Personally, I believe that any religious texts, if they were divinely inspired, have quite a bit of “influence” added by the writer.  And when I say influence, I mean distortion.  Now, if God’s hand came materialized and came down from the sky and wrote the book, it would be one thing.  But when a man puts it to paper, after first hearing it from someone else, there is a bit of distortion.

And, you have to look through a lens of context: when was the text written?  The Bible used to command people to stone those who worked on the Sabbath, but that has been done away with.  When Jesus told the disciples to “go poor,” did he mean EVERYONE or just those who personally followed him?

Is it possible to be rich and at the same time be religious?  Of course.  Provided that you’re smart with your money.  Giving it all away to your church isn’t smart.  Actually, I think over-donating (to your church or ANY other cause) is irresponsible.  If God gave you children and you give all your money away and your child becomes ill or you can’t afford to clothe them or pay for a good education, then you’re really a bad parent.  Good church-goer, but bad parent.  Bur really, this is what the New Testament says.  It says for the disciples to give up EVERYTHING for Jesus.  Does that mean that God expects ALL Christians WORLDWIDE to abandon their spouses and children?  Of course not.

When you look at what was written in context, you can see that there is no prohibition to wealth.  When looked at, in its totality, the Christian scripture warns against love of money more than God.  In other words, if you are so hungry for money that you will lie, cheat and steal, then, that is a bad thing.  And I can honestly say that I haven’t lied, cheated or stolen to save my first million dollars.

The good book does warn against indebtedness yet I see most Christians in debt.  Funny, so many Christians will chastise affluent people for violating God’s rules but a page later, when it says not to be in debt, they do the same thing.

And so, in our American culture, we have an inset bias against wealth and affluence.  it is no wonder that the immigrants to this country regularly beat Americans in the wealth competition game.  The average American seeks a “job” and the average immigrant seeks “opportunity” (often to start their own business.

I suggest that it is morally right to be affluent.  Have a look at God’s “chosen people,” the Jews.  They are, by capita, the richest people on Earth.  They don’t have any guilt trip when it comes to being wealthy.  This is an interesting paradigm because if they are God’s chosen (as believed by most Christians), how can they also be so wealthy?

Remember, all things in moderation.  God wants you to be happy and prosperous.  Saving enough money so that you can set up your children and grandchildren in their life is a good thing.  It is a moral thing.  Don’t let anyone tell you that having money goes against God’s will.  That is just silly.  If you look closely at your own religious beliefs and take them into the context of your whole religion, you will probably find that become affluent is good and it is moral.

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:

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. / 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:


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:

Compound Interest

Reading my weekly Stansberry investment newsletter I came across an article that I thought I would share.  This article is about compound interest and its importance.  Most people don’t realize how important compound interest can be; over time, money grows and as it grows and grows, eventually the growth becomes quite explosive.  Eventually, the money works for itself and grows exponentially.  Below, you’ll see a chart that gives an example of how compounding works.  But to give you another idea, lets talk about sheep:

Pretend that you are a shepard from the days of the bible.  You live in a tent with your wife and son and daughter and you have a flock of 8 sheep, 4 male and 4 female.  In the spring, your 4 female goats give birth and after the first year you now have 12 sheep.  The following year, your 6 female sheep give birth and you now have 18 sheep.  In the third year, the 9 female sheep have a baby sheep each and now you have 27 sheep.  4th year you have 13 more sheep and in year 5 20 baby sheep are born.  After 5 years, your 8 sheep have turned into 60.  Interest compounds a little slower than this but over time, as the money grows, you are compounding a larger and larger amount so that the amount of interest you receive each month becomes a substantial amount.

Imagine, some 20 or 30 years later, you have 1,000 sheep and in the spring, you have 500 new baby sheep.  Compound interest works like this.  Eventually, your “nest egg” is big enough so that the interest generated is more than your regular salary.  I am just totaling my dividends, interest and options premiums for December and my million dollar portfolio generated over $10,000 this month (combined interest, dividends and options premiums).  In the 3 months previous, my account has paid me  $6,456, $9,435 & $3,479.  I can remember back when my account had thirty or forty thousand dollars and my monthly dividends and interest might only be ten or twenty bucks.  One sheep born… years later, 500 sheep born.

From Stansberry:

In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions – he’s finished.

A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he’s 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A’s 33 additional contributions.

This is a study that I suggest you show to your kids. It’s a study I’ve lived by, and I can tell you, “It works.”

So you can see that the investor who stared earlier ended nearly the same even though he invested much less money.  Over time, compounding can have a dramatic effect on your investments.  Previously we talked about the Rule of 72.  If you can get a high rate of return on your investments and let that interest compound over time you can save a million dollars.

Eventually, the interest earned on your investments is more than your regular monthly contributions.  When that happens, it is a great feeling!

Save, invest and grow your wealth until you are a millionaire.

Good luck!

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:

Lending Club

Once in a while I come across an idea that is so brilliant that I lament that I wasn’t the one who had thought it up.  When I first heard about “peer to peer lending,” I was a bit intrigued and I did some research.  It seems that the two largest companies are the Lending Club and Prosper.  After looking at both, I found the Lending Club’s website to be easier to use and their “deal” seemed better.  I studied, read their literature and decided to give peer to peer lending a try.  After some months enrolled in the program, I have found that the results match the advertisements and I bring the idea to you here so that you might be able to benefit from it.  I wish I had found it 5 years ago, I might have retired earlier!

First, let me explain peer to peer lending.

The typical Lending Club borrower is someone with credit card debt who is looking for lower payments.  Some credit cards charge 25% and if you have ten or twenty thousand dollars at very high rates, the payments can be crippling.  Even if you can make the payments, it is often difficult to pay down the balances.  Trying to obtain a second source loan, maybe from your local bank, will likely incur equally high interest rates.

The Lending Club offers loans to qualified borrowers and sets an appropriate interest rate and the borrower applies for a Lending Club loan just like they would for any credit card, revolving charge line or car loan.  The Lending Club credit department verifies basic information like credit scores, employment verification and (sometimes) income levels.  If the loan is “approved” by the Lending Club credit department, the loan is placed for funding on the company’s website.  The website lists loans, not unlike you find products on eBay, and investors (you and I) can purchase these loans.

The Lending Club collects a fee, typically about 1% of the loan and payments to do the credit check and verifications and to process the payments.  Having done personal and business loans, I know how much work it can be.  They definitely earn their fee and I am happy to pay it!

The biggest problem with investing in loans is that you must often need a LOT of capital.  AND, you have a HUGE risk if the loan defaults.  If some person is paying 25% on a $20,000 loan, you could loan them $20,000 at 16% and give them a chance to pay their bill down much quicker and save a lot of money in finance charges.  But, what if they default?  You just lost $20,000.  For a large corporation like Visa or Master Card, this is not a problem as they have hundreds of thousands of loans.  If their default rate is 10% and they are collecting (on average), 20% in interest, they still clear 10% in finance charges.

And here is the brilliance of the Lending Club.  You don’t have to buy the whole $20,000 loan, you can buy a fractional share!  The minimum investment in any loan is only $25.  With an investment as small as $2500, you can purchase 100 loans.  If you average 14% notes that have a expected default rate of 4%, you will (all things considered) average about 9-10% return on your money.

Quick disclaimer:  I made my purchase with the Lending Club based on my financials.  I am merely explaining how the company works.  I cannot say if this type of investment is appropriate for you.  Be sure to check with your accountant and/or financial planner and ALWAYS: don’t invest more than you can risk.  Also, Lending Club loans are 3 to 5 years.  Do not invest money that you will need in less than 3-5 years.  This kind of investment is appropriate only for long term investment capital (in my opinion, your IRA or Roth IRA account is a good place to start).

The Lending Club reports that they only “approve” about 10% of the loan applications that they receive.  I have attempted to “purchase” loans that were in funding that later failed one or more of the credit verifications (the applicant exaggerated their income or they failed to send in key documents as required to process their loan).  It was actually a good feeling when, sometimes, half of the loans that I attempted to purchase were disqualified during underwriting: my money was returned to my account to use to select another loan.

“Dipping my toe in the water,” I decided to fund a Lending Club account with $5,000 from one of my IRA accounts.  I opened my account in September and the results have been as advertised.  In the top photo, I have made a screen capture of the main page of my account.  In it, you can see the annualized rate of return on my portfolio of loans (not including default rate), how much interest I’ve received (in a little over two months), the value of my account (up to $5,150.53 from $5,000 ), the amount of capital that is applied to loans that are being approved, how much accrued interest I have made (but not yet paid), a listing of my loans and if they are current or late, and a summary of the payments I have received to date.

I am sure I will receive some feedback that lending money to unsecured borrowers is dangerous.  Really?  Visa and Master Card do it every day and make millions.  The way to limit risk is diversification: spread your money out and if any one, two, three or four loans go bad, you make up the difference on your loans that pay on time.  Think about how much your bank savings account pays you now.  .25%?  .50%?  Maybe if you are lucky, .80%  In about 2 1/2 months with Lending Club, I have returned 3% on my money.  OVER TIME, the additional 10%, 12% or 16% you earn on an account like this will most likely exceed your loss rates through defaults.

Loans are packaged in A, B, C, D, E, F and G categories.  The A paper has the less risk and typically pays about 6%.  The Lending Club provides some statistics and I have copied that page below.  In the bottom left you can see the expected returns for each of the credit grades, the expected default rate and the overall expected yield.  I have primarily purchased B-F paper.  Looking at the return after default, I think that the A and G provide the lowest yield to risk ratio.  Really, the biggest risk to a portfolio of Lending Club loans is another recession like we had in 2008.  I figure, that in a situation like ’08, someone with good credit (A paper) is just as likely to get laid off as someone with mediocre credit (D or E paper).  If I can earn a greater yield before the next economic hard times, why not make my money work for me while the economy is doing alright?

After I successfully invested my $5,000, I began receiving payments a little after 30 days.  My monthly payments are approximately $150.  Of that, $100 is a return of capital (the borrow is paying down the principle of the loan) and $50 in interest.  With the $150 I receive in payments each month, I am able to buy bits of 6 more loans at $25 each.  In the screen capture below, I segregated my loans into the initial investment and then the monthly accrued interest that is used to purchase additional notes.  The monthly payment amount for the initial purchase increases each month as I receive payments on the loans purchased with interest.  In this way, my money compounds and continues to work for me.  I plan to add an additional $5,000 at the end of the year and perhaps make a larger investment next Spring.

The amount of money you receive in interest can have an ENORMOUS difference on your net worth over time. If you do not already know the “Rule of 72,” you should understand how it works. Take the number 72 and divide by the interest rate and you will know how long until your money will double.If you are getting a 1% return in a savings account, your money will double in 72 years. Most get less, perhaps .5% – so, your money will double every 140 years. Subtract taxes and inflation and you are actually losing money. THE ONLY WAY TO GROW YOUR MONEY is to beat inflation after taxes are taken out.If you pay 30% in taxes, you must earn a MINIMUM of about 6.5% return to beat inflation.If you earn 7%, your money will double every 10 years. At 10%, your money will double every 7 years.Most people make the mistake thinking that 10% is only 3% more than 7%. Over time, this can be a costly mistake.

Lets say you invest $10,000 at 7% and $10,000 at 10% for periods of 20 years.

The 7% money is going to to double twice:
$10,000 initial
$20,000 year 10
$40,000 year 20

The 10% money is going to do much better:
$10,000 initial
$20,000 year 7
$40,000 year 14
$80,000 year 21

In almost the same amount of time, gaining only 3% more in interest DOUBLES the amount of money you earn. At 15%, your money will double every 5 years and the results are staggering.

$10,000 intial
$20,000 year 5
$40,000 year 10
$80,000 year 15
$160,000 year 20

And you wonder why Visa and Master Card make so much money? My point is this: don’t be afraid of investing in (what you may consider) “risky” investments that pay more than your local FDIC bank. Earning .25% return on your money with an inflation rate of 4% means that after taxes, you are losing 4% a year.

Not bad, you think? After 10 years, you’ve lost 40% of your purchasing power. The possibility of a 20%, 30% or even 40% default rate on consumer credit lending doesn’t sound so bad when compared to a guaranteed loss of 40% in a bank savings account? If every 5 or 10 years, you have a small or even moderate loss lending money in an account like this, the years you earned 15% will more than make up for it. You don’t think that Visa and Master Card put their money in FDIC insured banks do you? They are making millions on credit card loans.

What the Lending Club does, it allows you to undercut some of Visa’s business, give the borrower a good break on their interest rate and make a healthy profit for yourself. If a borrower with $10,000 in credit cards at 22% is still a “good risk” for Visa, they should be a GREAT risk for you at 16%!!!

Below is a “typical” loan sheet of a loan that I purchased. You can see the amount borrowed, the loan % rate, the length of the loan, how many payments I’ve received so far, the next scheduled payment and the payment history at the bottom. A great thing about the Lending Club is that the payments are auto-deducted from the borrower’s account. No worry about the customers forgetting to mail their payment, if the money is in the account, it automatically drafts to Lending Club. I will see that the payments due today are “in process” and about 5 days later, my account will be credited with the interest and principle.

Here is a screen capture from the long list of notes that I have purchased.  Here you can see the loan number, which “portfolio” I have saved it to, how much I invested, the note credit rating, the interest of the note, the term length of the note (36 months or 60 months), how much is outstanding in principle, the monthly payment I receive for the note, the day of the next scheduled payment and the note status.

And this last page is a typical loan listing from the borrower.  This page explains how much is to be borrowed, the amount of payment, the borrower’s income and employment information, why they want the note and all sorts of other information.  I like to see a borrower who has been on the job some time and who has a low credit line utilization.  With this borrower, they have spent about 57% of their credit card maximum.  I don’t like anything about 60%  I think that a borrower who is at 95% of their credit line might be using their credit cards for “living expenses.”  This gives me feelings of default and I avoid this.  You can set your parameters and screen for all sorts of debt, income and employment factors as well as the overall credit worthiness of the borrower (A, B, C paper etc).

I am quite impressed with the professional look and navigation of the Lending Club website.

If you have some long term capital that is inflating away in an FDIC bank, you may consider investing some of your capital towards your goal of someday becoming a millionaire.

Good luck!

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:

Thinking Outside the Box

Some decades ago, I was sitting in a business class in University and I had a rather remarkable professor.  She approached the idea of business very differently than I was expecting.  She explained that as we (the students in the class) went out to compete for jobs, we would be against other people (and students) who would also have university degrees and bright shiny personalities.  But, some would have family connections and friends at companies they applied for.

In the past, if you were white and male, you had an advantage seeking a job over a woman or minority applicant.  While this is still the case in some places, this “advantage” for while males has waned.  And in some places, being a white male can actually be a disadvantage – especially with jobs that use affirmative action rules or impose quotas based on sex or ethnicity.

What to do?  If you are a white male applying to a company that wants a black applicant, or if you are a woman applying for a job where only men work or if you are African-American and you are applying at a company where a bunch of old rednecks work, what do you do?

This professor explained that you must “think outside the box.”  She had long taught this to her children and after they graduated from college, her son Michael had a chance to do just that.  He was a new employee at a large global company – it was foreign owned.  It was announced that the president of the company would fly in on Sunday and would spend a week visiting the Los Angeles offices beginning on Monday.

Michael nosed around a bit and found out when the president would arrive and waited at the airport for his arrival.  When the president and his family came out of the gate, Michael approached, introduced himself and then assisted loading the baggage into the waiting car.  Michael followed the president and his family to the hotel and helped off load the luggage and assisted in getting the president checked into his room.  He took out his business card and a pen and wrote his personal cell phone number on the back and presented it to the president and told him that if he needed anything at all, 24/7, he could call on Michael for assistance.  He made himself available to the president each day outside of his work hours to assist in obtaining opera tickets, in organizing a tour to Disneyland the following Saturday and to help take the President’s wife and family shopping at the galleria.

The president had assumed that the company had sent Michael to assist.  Imagine his surprise when he found out that Michael had taken the initiative to help on his own.  The president was very impressed and remembered him later when he began a new project in Los Angeles.  Michael’s prospects within the company soared.  He was really no different than any of the other new employees in the company.  He just took the initiative to do something different, something special: he thought outside the box.

I subscribe to an investment letter at Stansberry Financial.  This subscription has made me a lot of money and I recommend it (nothing in it for me, check it out if you like).  This week I received an email from the president of this newsletter company and he described how he thinks outside the box and how it has helped him.  I quote his message in full, as I received it:

You’re so lucky Steve… you’ve gotten to meet and work with all these famous guys…” 

When I hear that, I usually say something like, “Yeah, it’s hard to believe… I have been pretty fortunate!” and I leave it at that.

But the truth is much different… It’s NOT luck. It’s NOT good fortune.

There’s a secret to doing what I’ve done. And I will share it with you today…

Maybe there is a bit of “luck” involved… But it didn’t happen without me putting myself in luck’s “line of fire.” Let me give you an example of what I mean…

A while back, I knew I was going to have the chance to shake hands with one of my heroes.

When I met him, I could have just said, “Uh, gee, it’s nice to meet you. I’m a big fan.” But that would have been a missed opportunity.

Instead, I spent a few days thinking before I met him… I came up with a plan to make an impact – to give him a chance to want to get to know me…

I got out a 3×5 notecard. And I wrote out what I called “12 Ways to Take Over Your Industry.” I included my name, phone number, and e-mail address. When I shook his hand, I smiled and I handed him the card. And that was that…

He could have easily thrown the card away. He could have thought, “Who is this joker?” He could have taken my suggestions… but still never bothered contacting me. For any number of reasons, he could have ignored me.

Instead, he reached out to me… In the end, he tried all of my dozen ideas, except one. Now, when he wants a second opinion on something (from outside of his corporate “yes” men), he sends me an e-mail or gives me a call. And he has included me in events around the world and in his decisions that I’ve been grateful and flattered to be a part of.

The best part to me is that I can call a hero of mine a friend as well.

That didn’t happen because I’m “lucky.” It happened because of this simple secret. There are two parts to it:

1.   Whenever there is any moment – any crack in the door to put your foot in to meet your hero – you must shove your foot in… and not let it out.


2.   You must find a way to give a big benefit to your hero without asking anything in return.

Then you’re off… At that point, you have done your best to kick off a potential legitimate friendship.

I have often had to create these moments. Usually, they don’t just happen.

For example, this year, I ended up on the phone with another hero of mine. He said: “Next time you’re in Nashville, give me a call and we can get together.” Look, I’m NEVER in Nashville… but I went to Nashville that week. (I re-routed a flight to have a long layover there.)

I made it happen when the opportunity was there. And it was a fantastic few hours. Another hero of mine is now a friend of mine, too.

Most of the time, it doesn’t work out this way. But it’s 100% worth trying… Your downside risk is a little “wasted” effort. Your upside is a legitimate friendship with one of your heroes. That’s worth it to me!

You can do it. You have to get creative to create the opportunity. You have to offer something that benefits your hero. And you have to do it without asking anything in return.

You have to create your “luck.”

It has worked for me. I have been able to get close to many of my heroes – both in business and in my hobbies. And I believe it can work for you, too…

How cool is it to have your heroes as your friends? Just follow these tips, figure out your opportunity, and go for it… you can do it…



Since I cracked the million dollar ceiling, I’ve heard from a few colleagues, “You’re so lucky.”  I scoff: it wasn’t luck at all, it was hard work.  Well, actually, there was a little luck involved, but not the kind that they were thinking of.

Edison wrote, “Luck is when preparation meets with opportunity.”

I prepared, and eventually when opportunity came, I was ready.  Every day, I see people who miss opportunity because they aren’t ready.  These people really are “unlucky.”  And I guess I am quite lucky.  Funny how that works, luck favors some more than others…

The job that I have now pays well into six figures.  This job, and maintaining a modest lifestyle has allowed me to save and invest and eventually accumulate a seven figure bank account.  But this job was no accident.  I wrote down a goal, I focused on the kind of job I wanted and then I began to network.  The job that I have now, I began applying for it 3 years before I was hired.  I went and obtained all of the training and certifications I needed and then I applied.  No call back, no interview, silence.  I applied again and again.  Every two weeks I sent my resume and I called.  Nothing.  No call backs, no emails, nothing.

One day, I was at the airport and some random guy asked me if I knew my way to a particular hotel.  I told him that I was going there and offered to share a cab.  He was quite thankful and we shook hands, exchanged names and began talking.  He asked about my work and was impressed that I was managing over 200 people.  I asked about his work and it turns out that he was a manager at the company that I was applying to.  I told him that I had submitted my resume twice a month for the past three years.  He asked me to email it to him.  I did and he walked it in to HR and I was hired right away.

Was I lucky I got that job?  Maybe I was lucky that I met this man.  But if I didn’t have the certifications for the job, if I had not applied, if I had not asked about his work (something you always do when you are networking) I would not have been so “lucky.”

Think about this.  Are you stuck in your job in your company?  Do you want a promotion but can’t find a way?  Start thinking of ways to distinguish yourself above your peers.  If you are looking to get hired at a new company, think of how you can stand out from the rest of the applicants.

We all have some advantages and disadvantages: you may be black or white, man or woman.  There is nothing you can do about your gender or your skin color.  What you can do something about is your actions, your attitude and how you distinguish yourself.  There will always be discrimination, don’t let it stop you from reaching your potential.  Think outside the box and bypass the hurdles that you encounter in life.

Good luck!

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: