Monthly Archives: October 2019

Financial Independence, Investing, Saving, Self-Made Millionaires, Wealth

Beware Of Financial Vampires

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Nosferatu, Dracula, Moon, Moonlight

Well hello there boys and ghouls.

Happy Greenbacksween.

Hey if Geoico can have Geicoween, then surely so can we.

On today’s spooktacular blog post, we are talking about why you should avoid the black cat of investing: fees.

They come in all shapes and sizes. From front-load, back-load and even fees you pay to trade stocks.

However, one of the most overlooked of all fees come from commission based salesmen disguised as your friendly neighborhood financial advisors.

They wear the greatest costumes 365/24/7: a suit.

And we are not just talking any suits my friends, but the kind you drop a month’s wages on; think more John Wick and less death of a salesman, as to portray a sense of wealth that make you feel like you be anyone or can do anything and believing you want to run up and kick that football that Lucy is holding.

You are unstoppable.

Then it happens.

You get that investor statement in the mail. You are so excited that you rip the envelope open to see how well you are doing. The market is firing off dividends and capital gains the likes of which you have never seen before. You just know you are making a killing in Mr. Market, right?

Then you see that 2% of your portfolio goes to the fund managers and realize that you just got punked!

You look to your left, you look to your right, but Ashton is nowhere to be found.

Why you must be your own financial advisor

I hate to be the bearer of bad news, but I must confess that being a DYI investor is best.

While reading a plethora of books on the subject of personal finance, I have learned the following:

  • Don’t invest in anything you don’t understand. It is not enough to buy the product. You must research the company behind the brand.
  • Know if a company has a competitive edge. For example, once digital cameras came on the market Kodak fell off the face of the earth. The last time I had a Kodak moment was right before Apple unveiled the iphone.
  • Don’t time the market. If you have money to invest, then do it!
  • Don’t invest in anything you can’t draw with a crayon.
  • Invest in index funds instead of individual stocks.
  • Only invest in funds with an expense ratio of less than 1%.
  • You can do exchanges between index funds you already own without paying any fees. This is pretty sweet!
  • Most millionaires are worth between $1 million and $5 million dollars.
  • 90% of millionaires over the last 200 years achieved wealth by investing in real estate.
  • Forget buying the product and own the stock. Millionaires collect assets – stocks, bonds, real estate, and intellectual property – like monopoly pieces. The poor collect consumer liabilities like big houses, boats, and cars. An asset pays you. Collect assets.

No one cares about your money more than you do

Although self-explanatory let us dig deeper children.

Would you hand over all the passwords to your bank, credit card, and investment accounts over to strangers?

Of course not.

However, in an essence that is what we do when people hand over the financial reins to business partners, financial advisors, and handlers.

Instead of working through the struggles of figuring out how money works, many just give up the responsibility to someone else. Nothing screams “just take some” more than giving people free range access to your money. Nothing attracts grifters more.

Just pick up a few free library books on investing and get started right there.

Heck you can even search online for podcasts or website that talk about money! That is how I got started.

Why you want to have $100,000 in investments

It is simple. If Mr. Market does what he has over the last 90 years, then you can turn $100k into $1M in 30 years. Not bad for a kid that gets picked last to play dodge ball.

Once you hit this number, then the money starts finding you.

Depending on your rate of return you could double your money to $200k in less than 8 years. It took me about 2 to 3 additional years to get that next $50k after the first $100k.

Do you want chocolate Halloween candy or a rock?

If any of you out there have seen The Great Pumpkin Charlie Brown, then you know what I’m taking about.

The reason many of us invest is the same reason kids trick-or-treat because we want the treat, that is something that gives us great pleasure.

You go from house to house looking for a reward for putting together that perfect costume.

Investors buy investment after investment looking for the same thing.

Nobody wants a rock!

I remember a time in school that I sold so much for a fundraiser that I got a chance to go in the money machine (where you stuff money into your pockets for like 60 seconds). I wanted that reward!

But guess what? The night before the big event I stayed up late and overslept the next morning! I missed the whole thing. That could have been my seed money to start this blog! That could have helped me start a Roth IRA at 17! The funny thing about rewards is that you may earn them, but you still have to go and pick them up.

Now I write down everything in a journal so that I do not miss a thing!

I wanted to one day be able to have ‘F everyone’ money like Mark Cuban said: “‘F everyone’ money means you can have your favorite band in your backyard, not care how much it costs, and lend them your jet to get there.” You should invest for your future self to have that option.

If you take nothing else from this post, at least remember this: we like the kind of money that jingles, but we invest so that we can have the kind that folds.

Coins are wonderful but paper folds so nicely.

Investing, Saving

Running With The Bull Market

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Bull, Buffalo, Animal, Mammal, Horns

Everyday is a bank account, and time is our currency. No one is rich, no one is poor, we’ve got 24 hours each. -Christopher Rice

It feels like it was just yesterday when the Great Recession hit. The stock market was crashing more than a 10-year-old computer’s hard drive. Folks were in a panic. I even overheard someone saying to a friend that she lost 50 percent of their portfolio! Yikes! I was aghast. In the illustrious words of Velma from Scooby Doo, “Jinkies!”

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In speaking with a financial aid officer, they stated while working at a university in DC that parents and students were flooding his office stating they had just lost their job and it was one after the other. It was a revolving door of people just coming to his door and saying they had been give the pink slip. Layoffs were everywhere you turned.

During 2008-2009, you could not turn on the news without hearing that unemployment levels were on the rise the likes of which they had never seen. Food banks, free pantries, churches, and non-profits were flooded with requests for help. The need was so great that some soup kitchens and church pantries were running of of food within days.

After the dust settled, things started to look up. We had hit rock bottom. Now it was time for things to go back up. The bear market went into hibernation and the bull market came out in full force. The market was seeing the red cape and came barreling after it. Stock prices were on the rise. No one could have foresaw what was on the horizon, but for those with cash it was a golden opportunity to invest.

Some experts seem as if they have a crystal ball. People like Warren Buffet, the world’s greatest investor, sits on tons of cash. As of this writing, Buffet’s Berkshire Hathaway is sitting on a record $100 billion in cash, as he feels stocks are just too high to buy. Buffet’s partner, Charlie Munger, believes in being patient and getting a bargain price on stocks. How could he possibly know this will happen? According to Munger, if you are patient, you will see that 2-3 times every 90 to 100 years the market crashes and if you are prepared, you can capitalize on that.

According to Investopdia contributor James Chen:

“The longest-running bull market in history celebrated its 10-year anniversary on Sat., March 9, 2019. It all started from the post-crisis low of March 9, 2009. The S&P 500’s (SPX) closing price on that fateful day in early 2009 was precisely 676.53. As of the market close on Wed., Oct. 9, 2019, the S&P 500 settled at 2,919.40. That represents around a 330% rise in a 10-year period. Not bad for a large-cap stock index.”

If you read my post Stock Splits and Misfits, then you know how right Mr. Munger is indeed. I have actually purchased B class shares (NYSE:BRK.B) of Berkshire. I decided to buy some shares to celebrate my birthday years back. After the stock split, not only did the price drop, but I also owned more shares. I went from owning 5 shares to 35 overnight! No matter what the market cycle, I invest. I do so for the long term. I am not a fair-weather investor. And neither should you be.

Everything I have ever witnessed anyone ever have came for years of dedication, sacrifice, and hard work. If you want to know something about anything, then merely pick a book on the subject. Want a woman’s perspective on life in the 1800’s, then read Jane Austen’s Sense and Sensibility. If you want to be more knowledgeable about the world around you, might I suggest the reading list I published in my post Money Advice From Gossip Girl. But if you want to know more about investing, I say read the Berkshire Hathaway letter to shareholders that is published annually on their website.

Whatever it is, if you want something, then go after it with zeal. If you want something, make a plan and then put action behind your words. I knew that I wanted $100,000 in the stock market. I worked toward investing a minimum of 15 percent into my stock portfolio. Those things took time to do. At one point, I decided to move $26,000 from other index funds into just one: Vanguard’s 500 index fund. I wanted to have $100,000 working for me in just one fund as opposed to several different ones. Once I did that, then it was time to make sure my asset allocation was spread in different sectors that way if one sector tanked, the others ones would keep me afloat. So far, so good.

Financial Freedom, Financial Independence, Investing, Saving, Television Shows and Money

You Can’t Do That On Television Or With Your Finances

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Never spend your money before you’ve earned it. – Thomas Jefferson

If I could rub on Aladdin’s lamp, I would wish for world financial literacy. Oh…And world peace.

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However, what I really want is for more people to get involved with the family finances and build generational wealth for their future.

Within the last 72 hours, I have read that college students are unable to afford housing in Sacramento, Forever 21 went bankrupt, WeWork will be letting go of 2,000 employees, Sports Illustrated (SI) sacked half the staff.

In addition, that there is also an aging population and a doctor shortage due to issues with stress, debt loads in the $200,000-$500,000 range, not to mention under funding of residency programs; and that most of the growth in the job market is concentrated in only two areas: health services and education.

What your job is, should you choose to accept it, is to keep as many dollars in your bank account as possible. Unlike Tom Cruise’s message in Mission Impossible, this message will not self-destruct in five seconds.

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If this were a financial hospital, I would want you to form a triage and determine which parts of your finances need most immediate care. Your bank account is the heart of your finances so let us perform a little CPR. Greenbacks Magnet style of course. This post is all about letting you know what you cannot do with your finances in order to grow your nest egg to a fortune. This reminds me of a sketch comedy show called You Can’t Do That on Television. Let me explain.

You Can’t Do That on Television is a Canadian sketch comedy television series that first aired locally in 1979 before airing in the United States in 1981. It featured preteen and teenage actors in a sketch comedy format similar to that of American sketch comedies Rowan & Martin’s Laugh-In and Saturday Night Live.

What I loved most about this show was that they would always say what you could not do followed by some hilarious punishments such as being covered in green slime. And nobody wants that! Who wants to have to wash all that slime out of your hair?

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Let’s pretend that everywhere you go there is a bucket of green slime waiting to be poured on your head for any financial missteps that you make. You may think twice about maxing out that credit card or renting that posh pad in the SoHo district for $4,000 a month. I’m just saying.

Here is a list of things that you cannot do with your finances:

  • Upgrading to First Class on credit
  • Maxing out credit cards
  • Using Payday Loans
  • Overloading on Student Loan Debt such as paying $100,000 for a Sociology degree
  • Buying a car that costs more than your annual income
  • Paying for a family member’s vacation to Disneyland on your credit card because theirs is maxed out
  • Taking out Personal Loans for more than you can afford to repay
  • Buying a home for more than four times your salary
  • Spending on fancy jewelry
  • Going on shopping sprees at the mall just because its Tuesday

Now that we have gotten that out of the way, let’s talk about what you can do with your finances. The list is short and quite simple:

  • Save until it hurts aiming for 50% of your after-tax income
  • Invest in index funds such as the VTSAX at Vanguard
  • Open up a Roth IRA
  • Max out your Roth IRA

And that’s about it.

I know what you’re thinking. That’s it?! The list for what not to do was more than twice as long.

That is because there are endless ways to spend money, but the road to wealth is quite simple. Spend less than you make and invest the difference. Therefore, if your take-home pay is $75,000 a year and you spend $50,000 on living expenses, then you should invest $25,000 a year. No matter what the numbers are, the goal is the same. The way to get to your destination may change, as life happens, but keep the goal.

I must now bid you farewell. Do not worry. I will not be far away. I am only a tweet away.

This is not goodbye. As they said in the 1987 He-Man film, Masters of the Universe, we Don’t Say Goodbye, we say Good Journey.

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I will be your Yoda on this money journey.

And may the odds be ever in your favor.

I salute you.

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Bankruptcy

Retail Apocalypse Coming To A Storefront Near You

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It was a regular Monday.

Or so I thought.

The birds were chirping, car horns were blaring and then the news hit **BAM!! POW!** kind of like in those Batman Comics.

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Spread all over the news was that Retailer Forever 21 had filed for chapter 11 bankruptcy.

The US is now on pace to having a record 12,000 store closures by the end of 2019.

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The reason Forever 21 bankruptcy filing stings so much is that the retail sector has lost nearly 200,000 jobs since the start of 2017.

It seems as if the retail sector is having its own market correction. So many businesses were in a constant state of new store openings, ribbon cutting, and champagne toasts that they failed to stockpile any cash for a rainy day.

With many consumers maxed out after all that easy credit flowed like champagne, it is now time for companies to pay the piper.

However, it not just that companies are bleeding cash due to heavy rents and debt obligations. There also is this little thing called a trade war going on. The trade war between the United States and China isn’t helping any. But if we really think back, most retailers put themselves in this vulnerable position by spreading themselves too thin.

Chasing after never ending profits in the quest for the retail equivalent of the holy grail: increased annual revenues.

Think Subway’s $5 footlong. The world’s largest fast-food chain closed more than 1,000 stores last year (Subway closed 1,100). Subway started its restaurant purge in full force in 2016, when it had more US closures than openings for the first time in its history. It said it plans to keep closing restaurants as it tries to become more profitable.

There is also a restaurant apocalypse going on as many as closing including Pizza Hut, as they are getting out of the sit-down restaurant business. It’s becoming a strictly carryout and delivery pizza chain, like Domino’s and Papa John’s.

However, these companies boxed themselves into a corner. What happens when easy credit dries up and customers are no longer willing and able to shop? It’s kind of like that scene in Indiana Jones. You know the one I’m talking about.

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As most companies have no leverage with creditors after a bankruptcy filing, in many cases they lose equity or control over their companies.

Like what happened to American Apparel. The owner went public and was rewarded handsomely with hundreds of millions in stock. Once the company filed bankruptcy in 2011, share prices went from as high as $15.80 in 2007 to being worth less than 80 cents. The owner had over 800,000 shares of his stock and pretty much 100 percent of his net worth locked up in the company. I’m guessing he never heard of a company called Enron. If so, I doubt he would have so much of his fortune in just one stock. Anyway, what happened next is just heinous. The owner went from $500 million to $0 in net worth once the company went bust.

Some people have no idea how invested an owner is in a company until the tide goes out and see who is swimming naked, which basically means in heavy debt.

In recent retail headlines, stores such as Gap, Charlotte Russe, WetSeal, DEB, Rue 21, Gymboree, Charming Charlie, and Toys’R’Us have all thrown in the towel. What makes Forever 21 stand out in this sea of closures is that the retailer is still owned by the founders. However, they too are having profits squeezed by online shopping and e-commerce giants Amazon and Walmart.

Most retailers in these modern times in the age of Instagram are turning more to debt and becoming highly leveraged as a result. This hurts businesses in the long run. Those who manage to avoid piling on too much debt and stay lean are the ones who manage to stay open and profit.

According to Jeff Spross, avoiding the clutches of private equity can make or break a company. For example, after being bought by a trio of private equity companies in 2004, Toys ‘R’ Us’ debt burden rose from $2.3 billion to $5.2 billion in 2017, while its cash stockpile shrank from $2.2 billion to $301 million.

Simply put, private equity firms take the companies cash in the form of fees and replaces it with debt. Once retailers are unable to sustain the high interest payments on this new debt that was supposedly needed in order to expand operations, then the business goes under.

This wave of bankruptcies is therefore not a coincidence as many retailers were highly leveraged but didn’t file for bankruptcy until the interest kicked in and the bills came due starting in 2019, which will continue through 2025.

The retail chopping block is brutal as store closures can hurt stock prices, brand loyalty, consumer confidence, and retailers bottom lines. For instance, many companies are notifying employees in some cases only days before store closures.

That was the case with Dean & DeLuca in Georgetown as they were riddled with debt and couldn’t pay their vendors. The company was so backed up on rent that it racked up $96,000 in back rent and started get hit by lawsuits from angry suppliers. One funny line in this NY Post article read “Can’t afford that $45 box of cookies at Dean & DeLuca? Neither can Dean & DeLuca.” The domino effect and trickle-down economics also lies in the fact that vendors may go out of business due to Dean & DeLuca’s failure to pay them thus putting more employees out of work and out of a job. The company knew it was bleeding money for years, but only informed employees of its closure less than 72 hours before closing up shop for good. Some of these employees had been with the store since it opened in 1993. After 25 years, these employees got no severance. To add insult to injury, they also defaulted on some employee salaries, which is a double-whammy; no paycheck and no job.

This let’s you know that the employee is the sacrificial lamb that gets slaughtered when a retailer takes all the money out of a company. This feels reminiscent of the rumblings I heard about WeWork before their failed IPO.

According to Scott Galloway, WeWork had numerous red flags:

My goddaughter informed me she’s dating a club promoter, a red flag. Occasionally, red flags marry each other, the Biebs and Hailey Baldwin — what could go wrong? So now, imagine red flags the dimensions of Kansas. Buckle up:

— Adam Neumann has sold $700 million in stock. As a founder, I’ve sold shares into a secondary offering to get some liquidity and diversify holdings. Ok, I get it. But 3/4 of a billion dollars? This is 700 million red flags that spell words on the field of a football field at halftime: “Get me the hell out of this stock, but YOU should buy some.”

— Gross margins are a pretty decent proxy for how good or bad a business is. And this is a sh**ty business.

When the CEO (Neumann) wants to sale so many shares, it gives me pause to wonder why? If you don’t believe in your business (they never turned a profit), then why should I?

One retailer that managed to avoid debt, store closures, and heavy job losses due to avoiding debt and private equity is Best Buy.

Therefore, it is a simple recipe, kind of like KFC’s Kentucky Fried Chicken 11 herbs and spices with a secret ingredient (white pepper in case you were wondering), that will keep retailers or yourself out of the evil clutches of debt. I will share it with you. No debt + tons of cash = solvency.

You cannot go bankrupt if you owe no one.

You can put that last sentence on my tombstone. Like Drake and 2 Chainz, when I die bury me inside the casket that paid for with cash, put my money in the grave because in the next life I’m trying to stay paid. But seriously, I’d rather you expand your business or wealth portfolio slowly with cash than quickly with debt.

Always remember that patience is not only a virtue, but it is how you can avoid debt through delayed instead of instant gratification, which is how you get and stay rich.

My goal here is to help you along your wealth journey. I hope this post helps you do just that. You are not alone. Have a question? Drop me a line.

And as always, if the retail apocalypse comes…

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