Tag Archives: Fidelity

Investing, Saving, Video Games Reviews, Wealth

How To Collect Dividends Like Pac-Man Collects Power Pellets

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The air is crisp, summer is now in our rear-view.

Like Aesop’s The Ants and the Grasshopper, we must prepare our bank accounts as winter is coming.

When I woke up this morning, it was 44 degrees. Sweater weather indeed my friends. You know what also needs shelter from being left out in the cold, your money! Affluence is your duty.

Affluence Defined

I will define an affluent person as any adult that is saving and investing more than 25% of their income; with more money coming in than going out.

When you have enough income to pay your bills, save, and invest the difference, then you are rich compared to the rest of the world as most are living check to check.

Once you are able to save and invest more than 50% of your income, have more than $2 million in assets and receiving dividend income of $100,000 or more you are fairly wealthy.

When you make more in capital gains than you would from W-2 wage work, then you can kiss the working world goodbye after hitting a goal of $50,000 or more in income.

A salaried adult makes on average $40,000-$50,000 annually. Getting your investment income to this level means, you have created a passive income source large enough to replace a paycheck.

Good for you.

The bigger the gap between income and expenses is the difference between being rich and poor

Recently, I read two books; Evicted and $2.00 a Day: Living on Almost Nothing in America.

The premise is that welfare is dead and families no longer have access to cash assistance.

Those that do eke out a meager existence on modicum amounts of cash, SSI benefits and food stamps.

Within the book it also discusses how landlords were making a mint off the dregs of society, “the poor,” with one making $447,000 a year after expenses meaning he is part of the 1%.

Another landlord had an estimated net worth of $2 million.

The differences in their lifestyles versus their tenants were stark.

The difference between eating everyday or going hungry was just one of many. If this doesn’t scare and motivate you to save more money, then like Poncho’s owner in 101 Dalmations said, “no evil thing will.”

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Evictions are on the rise all across America. Why? The reason is that there is no rent cap.

Rents are going up about as fast as a four-year college degree.

Having more than 50% of your income going out in rent leads to one word: Despair.

You must have cash in the bank.

I know that the price of everything feels like it has shot up overnight.

You are in the red and bleeding out money faster than a corpse does on The Walking Dead. However, you must save. The possibilities of something requiring your immediate cash assistance are endless!

All of the sudden Aunt Edna needs a new roof, the dog needs his shots, the basement flooded (for the third time this year) or junior needs braces.

I once had a Harvard educated orthodontist quote me almost $8,000 for treatment. And that was just for my teeth!

The human body has 206 bones and not any of them are receiving service from this guy. After, watching or hearing more stories of outrageous prices from car loans to purses (a Louis Vuitton handbag could set you back $400 or more), I knew that having liquid savings was the answer.

I’m as serious about saving money as Sarah Connor is about eliminating Terminators!

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Cash. There is no substitute.

I refuse to lock up all my money in investments, but I know better than to just have all my cash sitting around earning no compound interest or dividends.

Pac-Man shows us how to get the job done

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If you have ever played Pac-Man, then you know how the game is played. The player navigates Pac-Man through a maze with no dead ends.

Pac-Man’s favorite snack pellets — the tiny dots he munches as he moves around the video game board — were originally cookies. The “power cookies” are now the larger pellets he uses to eat the ghosts. The maze is filled with Pac-Dots, and includes four roving multi-colored ghosts: Blinky, Pinky, Inky, and Clyde.

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The game was not designed with an ending.

You know what that tells me, that your money too should be looked upon as having no ending. You should save as if you are going to live forever.

I hope that last statements lights the fire you need to start saving this paper.

Using Pac-Man as an example, I want you to imagine the four ghosts are the following: debt, despair, denial and broke.

Your job is to eat as many power pellets “dividends” as you possibly can. The only way to do this is by investing your money.

You may be unsure where to start. I want you to start by opening up a brokerage account with a discount broker such as Vanguard, Fidelity, E-Trade or Charles Schwab.

Just FYI: Interactive Brokers (NASDAQ:IBKR) and Schwab (NYSE:SCHW) got rid of stock trading commissions, creating a major shake-up in the brokerage industry, and competitors TD Ameritrade (NASDAQ:AMTD) and E*Trade (NASDAQ:ETFC) quickly followed suit. Robinhood had already been offering this service, but now the big boys are getting in on the action.

Once you open up your account, you can purchase any 500 index or index fund that owns all shares in Mr. Market. If using Vanguard, that would be the VTSAX.

You put in enough money in Mr. Market and he starts to pay you for showing up in class everyday 365 days a year.

You earn money just for raising your hand and saying present.

How compound interest works

Compound interest is the difference between the cash you contribute to an investment and the actual future value of the investment.

In this case, by contributing just $8,000 per year with the annual contribution being increased by 1% per year (cumulative contributions of $278,779) you are able to accumulate $1,080,688 over 30 years. Compound interest makes up $801,908 of your future balance.

If you start saving $8,000 a year and earn 8% on those earnings, look what happens. You will notice in the beginning you earn only $680 bucks, but by year 30 you are earning $80k a year!

You must chomp away at collecting money to invest it and start collecting dividends.

YearBeginning BalanceSavings @ 1%Interest @ 8%Ending Balance
1$500$8,000$680$9,180
29,1808,0801,38118,641
318,6418,1612,14428,946
428,9468,2422,97540,163
540,1638,3253,87952,367
652,3678,4084,86265,637
765,6378,4925,93080,060
880,0608,5777,09195,728
995,7288,6638,351112,742
10112,7428,7499,719131,211
11131,2118,83711,204151,251
12151,2518,92512,814172,991
13172,9919,01514,560196,566
14196,5669,10516,454222,124
15222,1249,19618,506249,826
16249,8269,28820,729279,842
17279,8429,38123,138312,361
18312,3619,47425,747347,582
19347,5829,56928,572385,724
20385,7249,66531,631427,019
21427,0199,76234,942471,723
23520,1099,95842,405572,472
24572,47210,05746,602629,132
25629,13210,15851,143690,433
26690,43310,25956,055756,748
27756,74810,36261,369828,479
28828,47910,46667,116906,060
29906,06010,57073,330989,961
30989,96110,67680,0511,080,688

Playing for keeps and dividends

Let’s say you start a Roth IRA at 20 and save $6000 annually, thereby maxing it out.

And please if you are going to max out anything, let it be a IRA and not a credit card.

Earning 10% interest, you would have $105,187.

Then you decide to stop investing and let it ride.

After about 23.5 years, you would have over $1M.

After 24 additional years of parking your money on the financial equivalent of Park Place with a hotel, you are sitting pretty on $1,036,063.83.

Investing your money for only 10 years would allow you to stop and not have to worry about your golden years.

Just some food, I mean power pellets, for thought.

Banking, Financial Independence, Investing, Philanthropy, Retirement, Saving, Self-Made Millionaires, Television Shows and Money, Wealth

Don’t Trust The Commission-Based Advisor In Wall St Cubicle 23

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If you remember this fun, quirky, and often brutally honest show on ABC called Don’t Trust The B- in Apt 23, then you know exactly where this post gets its title.

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The show aired from April 11, 2012 to May 11, 2013. It only lasted for a short two seasons, but it packed a lot into that one year.

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For those unfamiliar with the show let me bring you up to speed.

June’s (Dreama Walker) plans of moving to Manhattan for her dream job and perfect apartment are ruined when the company that hired her goes bust. Broke and homeless, her luck turns around when she finds a job at a coffee shop and a roommate, Chloe (Krysten Ritter).  The show also starred James Van Der Beek (from Dawson’s Creek fame) as himself.

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In one of the funniest pilot episodes I have ever seen of a television show, it really gives you a sense of how quickly one life can change within less than 24 hours.

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June loses her job and apartment within a few hours once the company she was hired to work for goes down in an FBI raid due to the head of the company embezzling billions from clients in an Enron type take down, which reminds you of the glory days of yesteryear of Wall Street darlings such as the likes of Bear Stearns and Lehman Brothers; the latter of which was in business for 150 years having started operations in 1850.

Some media outlets such as CNBC did an article on what happened to former Lehman Brothers employees after the collapse and some still had not recovered from the company shutting down in 2008 some 10 years later including those not being able to find full-time employment.

This show and the acquisitions or closures of places like Merrill Lynch, Bearn Stearns, which opened in 1923, and Lehman Brothers are reasons why you should be your own financial advisor.

Unlike how JP Morgan bailed out Bear Stearns in March 2008 or Bank of America did Merrill Lynch, you are on your own like Lehman’s when they filed for bankruptcy as no one came to save them because if you fail to manage your money, then no one is coming to bail you out.

Let’s go back to 2008. Banks were failing. Many were found to be a part of the subprime mortgage crisis, but like the scandal at Wells Fargo nobody went to jail. You think your money is locked up tight like Fort Knox until you realize it isn’t. That is why Roosevelt created the FDIC insurance for banks as without the $250,000 deposit insurance after the 1929 crash many no longer believed in the banking institution.

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Just because someone is wearing a suit does not mean they know what they are doing. Many of the analysts and associates that start work for their prestigious firms such as Goldman Sachs are straight out of college and still wet behind the ears. Even though I once read that the average salary of a Goldman employee was around $622,000, that does not equate to financial smarts or riches. Many of these employees still blow money like you wouldn’t believe. Instead of saving stacks they are blowing them.

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. – Warren Buffett

I have read enough accounts of high paying professionals and tons of the employees would blow off steam in a place called Scores in New York or buying million dollar homes, private school educations for the kiddies and exotic vacations costing $5,000 a pop.

Look, to each their own. Just understand that you are your best line of defense when it comes to your money. Read every book you can on the subject. Save as much as you can.

I even overheard a 2nd year law associate say that you can make a lot of money in New York, but it costs too much for too little. You have to be a millionaire to afford an apartment or buy a home.

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Part of the reason so many people are bad with money is because they do not learn about how money works. Please do not be one of those people. You must learn how money works. Learn the rules of the money game. Here are a few things you can do to save yourself the commission fee and invest those dollars instead.

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Use a three-part investing strategy.

Part I. Automate your savings and investments. Decide on a number you can live with, set it, and forget it.

Part II. Determine where to invest. Go with anyplace that offer fees that are less than one percent such as Trowe Price, Vanguard, Schwab or Fidelity.

Part III. Invest your money. I prefer to go with several index funds so I can be diversified in case one sector goes crashing down then others are usually going up. You could do a mix of 20 percent real estate or REIT’s, 15 percent in International Funds, 10 percent cash liquid savings in a high yield savings account, 10 percent in a bond fund and the remaining 45 percent in a stock equity fund like the VTSAX at Vanguard. This is similar to the Yale’s investment manager David Swensen’s model. He has been able to get a return on investment of billions into Yale’s coffers making them one of the larhgest college endowments on earth with $29.4 billion USD. Only Harvard has a bigger endowment war chest with $38 billion USD.

Who is David Swensen?

According to the Yale Daily News, “David Swensen of the Yale University endowment is the doyen of endowment investing. Imitation, of course, is the sincerest form of flattery. Today, the Stanford, MIT and the Princeton endowments all boast former Swensen deputies at their helm. Each also has adopted the “Yale model” of investing pioneered by Swensen in the 1980s.”

So what is Yale’s “secret sauce”?

“Until 1985, Yale had invested in mainstream U.S. stocks and bonds with a smidgen of foreign stocks and real estate.”

“Swensen was the first to apply modern portfolio theory to sizeable multi-billion-dollar endowments. He understood that “asset allocation” explains over 90% of a portfolio’s investment returns.”

“The decision whether to invest in specific asset classes matters much more than picking the right stocks. Over the past 30 years, Yale has shifted the bulk of its investments into “alternative assets” like natural resources, venture capital, real estate and foreign stocks.”

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When the market goes down, buy more. That is where the bargains are. That is how Sir Templeton made his millions. Sir John Marks Templeton was an American-born British investor, banker, fund manager, and philanthropist. In 1954, he entered the mutual fund market and created the Templeton Growth Fund. In 1999, Money magazine named him “arguably the greatest global stock picker of the century.” He purchased tons of stocks during the stock market crash when everyone else was getting out.

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So do not let fear take over how you manage and invest your money.

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Fortunes are made in recessions.

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Entrepreneurship, Financial Freedom, Financial Independence, Investing, Self-Made Millionaires, Wealth

How Benjamin Franklin used 13 virtues to get rich

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“Tell me and I forget. Teach me and I remember. Involve me and I learn.” – Benjamin Franklin 

Benjamin Franklin is not only one of America’s founding fathers (known as one of the signatories the Declaration of Independence), but also its first millionaire.

He did this by investing in what he knew. That is how he built his fortune.

You can do the same to build yours.

I listen to what people have to say, but I always make my own decisions.

I research any industry I want to know and then focus on investing in what I know. I try to put my money where my values are.

I prefer consumer staples such as food, beverage, toothpaste, cleaning supplies, tissue, and other household items.

Companies like Proctor & Gamble, Colgate-Palmolive, Kimberly-Clark. Clorox, and PepsiCo.

You can find many of these companies included in many mutual funds such as any 500 index fund like the Standard & Poor’s 500 Index (S&P 500 index), the Vanguard 500 Index Fund Investor Shares (VFINX), the Fidelity Spartan 500 Index Investor Shares (FUSEX), the Schwab S&P 500 Index Fund (SWPPX) or the   T. Rowe Price Equity Index 500 Fund (PREIX).

I figured a good way to start my wealth journey was to learn about those that became wealthy.

Benjamin Franklin also created a list of 13 virtues to develop his character. This lets me know that your character is your destiny.

Here I provide you with his checklist. See which ones you can try to emulate to help you on your road to wealth accumulation.

THE 13 VIRTUES OF BENJAMIN FRANKLIN

In 1758, Benjamin Franklin published his essay The Way to Wealth.

Although, it was written 260 years ago, the advice still is holds up, even to this day.

Below is a copy of his checklist.

SPOTLIGHT ON FRUGALITY

My personal favorite is frugality because it includes all the other virtues.

Frugality is basically the will to spend money on what is important and avoiding spending on what is not.

Frugal is not being merely cheap or miserly like Ebenezer Scrooge.  See my post on Money Lessons I Learned from Scrooge McDuck. It is about saving money on things you do not really need.

Saving money allows you to put that money to work for you.

Imagine every dollar is a little soldier. What do soldiers do? They fight.

You have to fight for your money because everyone is trying to part it from you. Don’t let them.

Invest that money and each dollar (soldier) fights for you everyday 365/24/7. Even while you sleep.

FOCUS ON FRUGALITY

In this world, you’re on your own. Benjamin Franklin knew that. So, he set out to start a business in a field he knew. He was a printing apprentice and started a printing shop. He became an expert at that one thing and did it so well that people paid him for it.

He then reinvested the profits back into his business.

That is how he grew rich.

He knew to become wealthy, he had to ignore the charlatans or hype. He had to focus on himself and his spending habits.

And that is what you must do. Ignore the hype. Forget what everyone else says or thinks. Trust your gut.

FORGET THE FANCY SET OF WHEELS

You do not need a fancy car to make you happy. Ride a bike and get some exercise. Better yet, buy an inexpensive, older Chevy where the bumper looks like it will fall off any second.

Then people will be less likely to ask you for money, if they see you riding around in a clunker because they will think your broke, but it couldn’t be further from the truth.

It’s not that you do not like nice cars or can’t necessarily afford one. It’s that you choose not to spend your money on it. Sounds pretty good right?

And watch out for the hangers on. They tend to come around when your last name is followed by an M.D. or Esquire.

FORGET THE BIG HOUSE

You do not need a mansion to live in. You know what that does? It just causes you to spend more money to heat, cool, maintain, and furnish it.

You fill the home up with stuff. No one likes an empty corner. Every inch is piled high with stuff.

How is that stuff paid for? Usually with credit.

What happens if you need that money? For instance, homes need maintenance.

Do you know what the repair bill is for a roof on a mansion? Well, you don’t want to know. One thing we do know for sure is that it costs more than what you would spend on a smaller house.

What about PMI? Private mortgage insurance is what you must pay if you put down less than a 20% down payment. And folks, that money is on top of the insurance and a monthly mortgage payment. We aren’t talking chicken feed here. It can be hundreds of dollars per month!

What about property taxes? It can add hundreds or thousands to a monthly mortgage payment. That’s money that’s not working for you in the bank.

You want to be investment rich, not house poor.

Every dollar that goes toward the house, can’t be working for you in an investment account.

I know they say the value of the home will go up and your equity will increase as you are making the house payments. However, let’s not forget the 2008 housing bubble.

When that bubble burst, so did most folks equity. Foreclosure notices were going out in the mail all over the country. Many lost homes. And many have still not recovered.

FORGET THE DESIGNER CLOTHES

You know those people who say dress to impress. Well, that’s fine and dandy, if you can afford it. However, if you can’t swing it, then walk by the $400 clothing rack and head to the sales rack in the back. Forget sartorial superiority. Who wants to be the best-dressed poor person?

I now see more people walking around with designer purses today than I have seen at any other time I can remember. Who’s paying for it? Mr. credit card, that’s who.

I see people opening up store cards all the time.

They have so many different color credit cards in their wallet it looks like a skittles bag exploded.

Places are handing out applications for credit cards every, single day.

You must resist. Resist the urge to spend. Credit is seductive. The temptation is too great.

So you must decide, what is more important. Buying a designer’s clothing and paying for their summer home or funding your own future.

FORGET THE EXPENSIVE WATCHES AND JEWELRY

I read about an NBA player who had bought dozens of watches. And not just any watches, but Rolexes!

Just because. Well, hey, you know bosses got to be on time.

Do you know what those things retail for? Well, last time I checked, it could be anywhere from $2500 to $40,000 and up.

The guy could have started a college fund. He could have funded an entire small city of kids $1k college scholarships.

Who needs 30 watches? Someone who wants to know the exact moment they went bankrupt I guess.

FORGET THE EXOTIC VACATIONS

So you want to travel. That’s great. But unless you can afford it or do it on someone else’s dime (like for work).

You may just have to watch the latest episodes of House Hunter or any show on the travel channel.

I once read it is a great thing to go travel and see the world as it is a great education, it will only cost you: $25,000.

I think I’ll just read a good book on world travels instead and invest that money until it earns enough interest that I can pay for the trip with cash.

Here are some of my suggestions on traveling when your travel budget is on life support.

You want to see the northern lights in Iceland? See it on a YouTube video.

You want to go skiing in Switzerland, Aspen, France or Vail? Watch a travel show until you can afford it.

You want shopping sprees in Milan, Paris, Rome, New York’s Fifth Ave, or Rodeo Drive?  Focus on buying things that will appreciate in value. Clothes, once purchased, is money that’s burnt.

I know you watch the television shows and see all the families going to Disneyland or Hawaii. However, what they don’t tell you is how much it costs to go to these places. Lots of times the studio or the network is picking up the tab.

They do it for ratings. Because who wants to watch a show about people sitting on couches all day. They want to see the lifestyles of the rich not the broke and unknown. I say just stop watching those shows.

Focus your attention on earning and working. If your head is down working, you never can look up and notice what everyone else around you are doing.

FORGET FOMO (fear of missing out). It’s a myth.

I know plenty of people that go out, spend money, buy nice cars, big homes, fly to the islands, and go to lots of parties.

However, they are not the boss. They work a 9-to-5 just like everybody else. One missed check could cause havoc on their already precarious finances.

Many people are one paycheck away from being on the sidewalk.

Don’t be like them.

Practice the 13 virtues. Be frugal. Then you can live like no one else because you will actually be rich instead of acting like you are.

FORGET PRETENDING TO HAVE MONEY

Forget pretending to be rich. The only time bluffing works when it comes to money is at the poker table.

And you know what happens when the hand is over, the bluffing stops there.

So leave the bluffing at the table and check it at the door.

Remember that scene in the comedy movie Back to School with Rodney Dangerfield. He was a wealthy guy named Thornton Melon, but always said to his son: A man without an education is nothing.

There was one scene in the film where he was talking in class about being in business and all the things a businessman is doing to make it in the real-world.

The teacher disagrees with his assessment, even though he was coming from a place of information.

When the professor asks where to build the business after scolding Melon he replies, “How about fantasyland.”

When it comes to your money you cannot afford to live in a fantasy. You have to keep your feet planted firmly on the ground and your actions based in reality.

Earn money, save it, invest it, and get rich slow.