• The stock market provides endless opportunities for everyday Americans to build their wealth. In fact, Alexander Green recently discovered a chart pattern very few investors know about… one that can lead to extraordinary profits. Click here to view Alex’s latest research.
• Last week, the 23 largest U.S. banks passed their annual Fed stress test with flying colors. This means they’re sitting on giant piles of cash and a banking buyback bonanza is on the way. Nicholas Vardy shares three ways to play it.
• The pandemic has motivated many people to take a hard look at their lives and make changes if they’re not feeling fulfilled. This has led to the “Great Resignation,” a mass exodus of Americans leaving their jobs. Matthew Carr breaks down what it means for the economy and the markets.
• Pay more, get less. That’s how inflation works… and it’s not just affecting our wallets. It’s taking hold of the market too. Today, Andy Snyder is sharing the stocks that prove inflation has come to Wall Street.

I’ve been involved in the investment advisory business for 30 years. And except for a few early mistakes buying real estate, the big financial hoaxes and bubbles that devastated so many investors never burned me.

That made a huge difference over time. It allowed me to grow my net worth year after year without a single year of loss.

I learned several lessons about growing wealth and avoiding the biggest mistakes average investors make.

The financial life of the typical investor is marked by a plethora of hopeful speculations. Only a few dozen, at best, achieve their promise. My investment history is less exciting but more profitable.

I get into trends only after they’re proven, I get out as soon as they don’t make sense, and I turn my back on 9 out of 10 opportunities that come my way.

For example, in the 1980s, penny stocks were all the rage. The financial press was full of stories about investors who got rich by buying little-known companies at $0.50 per share.

My boss invested in one and tried to convince me to do the same. I was tempted… but something inside me said to let this bus pass me by.

I’m glad I did. My boss, a very savvy investor, lost 100% of his money on that deal. It turned out to be a scam.

I remember thinking that if a sophisticated investor could be fooled by one of those cheap stock deals, I stood no chance.

Another example: the real estate bubble. By that time, I’d been investing in real estate for more than 10 years. I knew the game. I’d made a lot of money.

But by 2006, the houses I’d been buying were selling for 20 times their yearly rentals. I knew it was time to get out.

I stopped buying, and I advised my friends to do the same. They thought I was crazy. I’m sure they wish they’d listened to me now.

I’m telling you these stories not to brag but to illustrate an important point: You don’t have to be a sophisticated investor to avoid making big investment mistakes. You can do so by applying a little bit of common sense.

Here are the five biggest mistakes most ordinary investors make:

1. Being swept away by exciting stories.

The business my boss got suckered into had an amazing story. A company in Central America was turning beach sand into gold. The company had “proof” of its success – in the form of audited financial statements, geologist reports and endorsements from investment experts.

My partner even went down there to see the operation. He saw the sand going in and the gold dust coming out.

I didn’t invest because the story sounded so fantastic. I remember telling him, “This sounds like alchemy.” I didn’t know anything about geology or gold, but I didn’t need to. The story itself was just too crazy.

When I hear stories like that nowadays, I’m totally turned off. One part of my brain might get excited, but the smarter part tells me, “Stay clear!”

2. Investing in businesses you don’t understand.

My boss was a sophisticated investor. He had his own seat on the stock exchange when he was in his 20s and had been successfully investing since that time. But he knew nothing about gold mining.

His ignorance allowed him to be duped by the reports and the fraudulent factory tour. The scam was exposed by a few people in the mining business. They understood the industry and knew how to read reports with the sophistication of experience.

If you don’t understand the business you’re investing in, you’re investing blind.

3. Allowing yourself to be bullied by good salespeople.

I mentioned I made some bad investments early in my real estate career. They were due to a combination of the two mistakes I just enumerated. Plus, I buckled under pressure from a real estate broker who also happened to be my landlord and – I thought – my friend.

I agreed to make the investments even though I had a hunch they wouldn’t work out. I ignored my instincts because she was so good at manipulating my emotions.

Nowadays, whenever someone tries hard to sell me something, I take that hard selling to be a signal: Stay away!

4. Investing in trends too late – when the only chance of making money is to find “the bigger fool.”

I got into real estate investing at a good time, when prices were already going up but the values were still good. I made a lot of money as the market rose.

When I could no longer buy properties at eight or 10 times yearly rentals, I realized the only way to profit was to ride the bubble to the top.

But riding a bubble when the economics are bad is a fool’s game. Your only chance of winning is to find someone else willing to buy you out… someone who knows less about the market than you do.

Insiders call this “the bigger fool theory.” You’d think anybody with common sense wouldn’t fall victim to this impulse. But millions of Americans (including bankers and brokers) did.

There’s a time to get into a trend and a time to get out. Neither is particularly difficult… so long as you pay attention to the fundamental economics of the deal and ignore the excitement caused by the bubble.

5. Investing without a way to limit your losses.

Sometimes, even if you use your common sense – and avoid the four mistakes I’ve already explained – you can lose money because something unpredictable happens.

To avoid this, I have a rule: I never get into an investment unless I have a way out.

When you’re investing in a business deal, that “way out” might be a buy-sell agreement.

When you’re investing in real estate, the way out is the income you can get from renting it if you can’t sell it for any reason.

When you’re investing in stocks for yearly gains or income, the way out is the trailing stop loss.

There is always a way to limit your downside as long as you identify what that is before you make the investment – and stick to it. Even if you feel like you shouldn’t.

Those are the five biggest mistakes ordinary investors make. As you can see, they’re all pretty obvious – the kind of mistakes you can avoid by applying common sense. Avoiding these mistakes is part of how I’ve managed to get richer, year after year.

Think about your own investment experiences and the investments you’re making right now. Ask yourself honestly, “Am I making any of these five common mistakes?”

Good investing,

Mark

The post How to Grow Your Wealth for Decades appeared first on Investment U.

We’ve been through a rough year. With the coronavirus pandemic making countless people sick and forcing folks to be separated from their loved ones, it feels more important than ever to be thankful for what we do have right now. Whether that’s good health, a loving family or simply a persistent belief that things will get better.

From all of us at Liberty Through Wealth… thank you for reading.

I have a friend who is battling prostate cancer. Despite consistently bad medical reports, he spends no time cursing his fate, complaining about his circumstances or expressing gloominess of any kind.

He is upbeat, energetic, full of good ideas and humbly solicitous of my health and happiness.

I asked him recently how he manages to keep such a positive perspective on his life. He told me that at some point in dealing with his illness, he came to realize he had no control over what had happened to him and that feeling bad about it would do him no good.

He understood he had a choice to make every day when he woke up: He could be miserable, or he could feel good. He chooses to feel good because it is the only choice that makes the days worth going through.

“Recognizing the preciousness of every day as I do now, I’d much rather be positive and get the benefit of it,” he said. “Besides, when I think back on my life – of all the things I’ve done, the places I’ve seen, the people I’ve met and the love I’ve enjoyed – I can’t feel anything but grateful.”

In his book Lucky Man, actor Michael J. Fox explains that he is a better, happier person today than he was before he was diagnosed with Parkinson’s disease.

He’s not the only person with a debilitating and/or incurable disease who feels that way. Sometimes it takes adversity to appreciate your blessings. Though it would be much better to start appreciating them now.

I recently read a very good book called Stumbling on Happiness by Daniel Gilbert, a Harvard professor of psychology. He cites numerous studies indicating that a year or so after enduring all sorts of catastrophes, from public humiliation to amputation, most people had a higher level of happiness than they felt they had before.

The Preciousness of Little Things

Typically, we take the common blessings of life – health, shelter, food and friendship – for granted. Ironically, gratefulness arrives only after these are impaired or taken away from us.

But if we can learn to practice positivity in our everyday routines, we will find ourselves feeling happier, more loving and even (if we are good at it) grateful.

That’s not a self-help platitude. It is a fact of life we have all experienced countless times. A positive change in attitude improves not only our feelings but also our behavior. And a positive change in our behavior improves nearly all the aspects of living – everything from our income to our sex lives.

We know it. But can we do it?

I think we can. Some self-help gurus recommend being grateful for the big things in life. Smiling up at the skies and thanking the gods or the universe for our health, our freedom, our wealth, etc.

I’ve tried that, but it never worked for me. It was too abstract. After a week or so, it became routine and meaningless.

I’ve had better success thinking small – i.e., being grateful for the little things. For example, here are some little things I’m grateful for:

1. Graciella’s coffee in the morning. Deep, dark and rich. I don’t know how she makes it so well!
2. The New York Times‘ crossword puzzle. Sundays’ are best on the front porch, looking out at the ocean.
3. Friday nights with friends at my Cigar Club, a warehouse I converted into a “man cave” several years ago. The happiest nights are when, after boring ourselves silly for an hour or two, the women (our spouses) drop in to liven things up.
4. Exercising daily. Two days of fitness training with John, a coach and friend I refuse to listen to. Four days of jiu-jitsu and my Sunday bike ride to the Banana Boat with Peter.
5. Padron Aniversarios – simply the best cigars in the world.
6. My art collection. The several hundred paintings I have hanging in every house and office I own give me daily pleasure.
7. Wine. One or two glasses every night. Delicious. Soothing. And fun to learn about. (Did you know that Meritage rhymes with heritage? It’s an American coinage, not French!)

The Preciousness of Big Things

After you’ve taken time to think about some of the many little things that make your life so happy, you’ll be able to move on to the big things in a meaningful and authentic way. Think about these big ideas for a long time. Consider even writing a few pages about them every week.

1. Your health. You have aches. You have pains. You may have illness and infirmity. But you also have time every day to enjoy yourself and the company of the people you love and are loved by. Be thankful for that.
2. Your wealth. You haven’t hit the Forbes 400 list, but you have enough money to put clothes on your back, a roof over your head and food in your stomach.
3. Your wisdom. You understand the most important things. You realize that of the gifts of life, life itself – particularly a life without pain – is the most precious.
4. The love you share with friends and family members whose company you cherish.
5. The potential of your imagination – your innate and inalienable ability to do what you want with your mind, which is, after all, where your life is located.
6. Your work – the intellectual and emotional challenges that make your day exciting.

The Homework Assignment That Will Change Your Life

Today, if you are up for it, I’d like you to try something. And if this improves your mood, then try to make it part of your daily routine.

Spend 15 minutes doing something relaxing. Make it purposeful by choosing something that allows you to slow your mind. Take a walk while listening to soothing music or looking at nature.

Meditate, either formally or simply by sitting in a comfortable chair, closing your eyes, and focusing your attention on your breathing. Count your breaths if it helps clear your mind. Do this for 10 minutes.

Then spend another minute or two getting a sense of your “here and now.” Be aware of how your body feels: your head, your shoulders, your chest and stomach – down to your toes. And pay attention, too, to the state of your mind. Are you calmer now? Doesn’t that feel good?

Then spend another minute or two thinking about all the “little” things you should be thankful for. Be aware of and grateful for the air you are breathing, the sun on your skin, your lover’s sigh, your children’s voices and the companionship of your friends.

If that works, make a resolution that, from now on, you will devote just 15 minutes a day to making that day more fulfilling by slowing down, focusing on your breathing and then contemplating all the little things that enrich your life, all those things you can enjoy only if you are willing to be grateful for them.

“Gratitude,” said Cicero, “is not only the greatest of virtues, but the parent of all the others.”

Think about it…

Good investing,

Mark

The post The Little Things That Make Life Meaningful appeared first on Investment U.

This is a subject I’ve spent some time thinking about. And my feeling has always been that experience-based gut instincts are at least as valuable if not more valuable than MBA-based analysis from the likes of Harvard, Wharton or Yale.

I was surprised to see that this article supported my view.

The author, Alden M. Hayashi (who was senior editor of the Review when the article was published), says quite correctly that, in making good business and wealth-building decisions, it makes sense to rely on both reasoning and gut feelings.

“The higher up the corporate ladder people climb,” Hayashi says, “the more they’ll need well-honed business instincts.”

In lowlier positions, he argues, one should rely more on facts, figures and established protocols. Instinct is still important, but when you’re new to a company you need to be careful. Those who hired you are alert for mistakes. To avoid costly mistakes, he advises, make sure your impulses align with the facts.

Middle managers who are new to an industry should be careful about shooting from the hip. By sharpening your pencils and following the rules, he says, you’ll keep the bottom line black.

After one moves up the ladder of corporate power, however, attention to detail becomes less important. Gut instinct can help you make the game-changing decisions that will accelerate your career.
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Use Your Better Judgment

Hayashi looks to the late Ralph S. Larsen, former chairman and CEO of Johnson & Johnson, to explain why.

“Very often, people will do a brilliant job up through the middle management levels, where it’s very heavily quantitative in terms of the decision making,” Larsen says.

“But then they reach senior management,” he continues, “where the problems get more complex and ambiguous, and we discover that their judgment or intuition is not what it should be. And when that happens, it’s a problem. It’s a big problem.”

Richard Abdoo, former chairman and CEO of Wisconsin Energy Corporation, agrees. He says that as business speeds up and decisions must happen faster, instinct is even more important.

Henry Mintzberg, professor of management at McGill University and longtime proponent of the utility of intuition, believes the subconscious mind is always processing things the conscious mind may not be aware of.

A sense of revelation (the “Aha!” moment) occurs when the conscious mind finally learns something that the subconscious mind has already known.

I agree.

Decision making at the higher levels of business cannot rely solely on rational thinking and logic. To make the best decisions, we must also call upon our emotional intelligence.

Follow the Patterns

To explain how gut feelings work, Hayashi refers to the late Herbert A. Simon, who was a professor of psychology and computer science at Carnegie Mellon University.

Simon, who studied decision making for decades, claims that gut feelings result from observing repeated patterns and rules. Emotional intelligence involves noticing, storing and “chunking” such patterns so we can retrieve them instantly and automatically.

It’s been my experience running and consulting with dozens of growing companies over the years that this is true.

It makes sense: The human mind has an amazing capacity to recognize and “remember” patterns – much greater than our ability to remember and recall facts.

In chess, for example, Simon found that grandmasters are able to recognize and recall about 50,000 major patterns of the huge number of ways in which the various pieces can be arranged on a board.

How do they do it? How is it that some executives seem to have the superhuman ability to make good and profitable decisions?

It’s all about this mysterious process of recognizing and storing patterns. According to Hayashi, the experts say they do this while also “cross-indexing” them. That’s when our brains find patterns in one experience that correspond to patterns in other experiences and “tag” them for instant and automatic recall when we need them.

I – and just about every advertising writer I know – do this routinely. While watching commercials about a Rolex, we may notice a pattern in the pitch that is similar to a newspaper ad on vitamins and/or a radio spot on some financial scheme.

We sometimes recognize the patterns consciously. Very often we don’t. But they are recorded somewhere in our gut.

And that’s why, if you want to become a better business leader and wealth builder, you should make your decisions carefully when you are beginning, but, as the years pass, begin to rely more on your gut.

The post Why Intuition Beats Rationality in Building Wealth appeared first on Investment U.

For example, the smart investor plans to get 8% to 12% on his stock portfolio over time. He doesn’t try to get much more than that. He knows that if he does try, he will probably make much less. (Studies show he’ll probably make only 2% to 3%.)

The same is true of every other asset class – government securities, corporate bonds, convertible bonds, natural resource stocks, penny stocks, private placement deals, commodities, currencies, real estate, etc. Trying to do much better than general market averages is foolish.

Let’s look at real estate as an illustration.

Over a period of maybe 20 years, I invested in six or eight deals with E.P., a trusted friend, who built high-end residential communities. The investments I made were as a partner in a limited liability company (LLC).

I was a limited partner, which means I invested a sum of money in exchange for a percentage of the deal. E.P. and his partner were general partners. They put the deal together, built the development, sold it and got a nice piece of the profits even if they didn’t put in any money.

As limited partners, we put up a good chunk of the capital needed to get the project going. We got most of the benefits we would have gotten from developing real estate ourselves, but with two advantages:

1. We didn’t have to run the business.
2. Our risk was limited to the money we put in.

The downside was that we had to pay E.P. and his partner fees for everything they did.

Overall, I did reasonably well for that sort of investment strategy. If I had to guess, I’d say my annual return on investment (ROI) amounted to about 12%. But the individual results varied widely. On one deal, I doubled my money in less than two years. On another, I made a 60% return in three years. One deal went broke, and I got nothing back. The results of the rest were somewhere in between.

In all of them, the management group was the same, the deals were structured pretty much the same and the developments were all in South Florida. So why were my results so varied?

It was because of factors that I had never considered.

Timing, for example…

One deal got held up for almost two years because of evidence that the land had once been a Native American burial ground. Ultimately, it was decided that it wasn’t – or that if it was, it was insignificant. But with large development projects, time is money. And the cost of those two years was so great that the project, even though it sold well, never made a profit.

Another one, a development of about the same size, had three advantages: It was completed ahead of schedule at the peak of the real estate bubble, and it sold out within three months. This is the one where I doubled my money.

As I said, my overall return was about 12%, which I was satisfied with. But I went into those investments hoping to make 25% or better. Several times, as I said, I had those kinds of returns. But several times, I did worse.

What I learned was that these sorts of real estate deals can be good if you invest in a basket of them during an economy that is gradually getting stronger. But I would never again set my hopes at 25% on a limited partnership deal. I know now that a more reasonable expectation is 12% to 18%. (And that’s if you have a fair amount of luck.)

Moving On to Single-Family Homes…

Halfway through my run with E.P., I tried something else. I began to buy inexpensive single-family houses, fix them up and rent them out.

I’m not sure why I was attracted to that particular market. But since I knew nothing about it, I decided to start small and move slowly. And I’m glad I did. Investing in this sort of real estate turned out to be very different from the investing I’d done with E.P.

Acquiring rental properties, I found, has some distinct advantages. The first is that the arithmetic is relatively easy to understand. You find out how much it will cost to buy and restore a particular house. You compare that total cost with the yearly rent you can get after it’s fixed up. And if the numbers work, you buy it.

The formula I used was one my brother (who was ahead of me in this game) taught me. Don’t spend more than eight times gross rent, he said. Example: If the house costs $80,000 plus $20,000 to fix it up, my total cost is $100,000. So, based on the formula, I’d have to be able to rent it for $12,500 a year. Conversely, if I found a house that I could rent for $1,000 a month, or $12,000 a year, I would not pay more than $96,000 for it (8 x $12,000 = $96,000).

I’ve learned lots more about this kind of real estate investing over the years, but this simple rule of thumb has kept me from making the mistake that kills most people in this market: paying too much for a house just before the market crashes.

Over the years, I’ve probably seen an average return of about 15% to 20% – including income and appreciation – on my rental properties. You can grow a lot of wealth over 20 to 30 years at 15% to 20%.

I’ve also experimented with buying and flipping. This can be fun and profitable if you like that sort of thing. Even in an up market, you can pick up houses that are undervalued because of some aesthetic or structural issue that seems worse than it is. If you can find undervalued properties and have the ability to fix them quickly and cheaply, you can make good money.

The big challenge here is your emotions. You have to be able to stop buying and exit the market when the bargains no longer exist.

And Apartment Buildings…

The big advantage that apartment buildings have over single-family rentals is the cost of management. For a 50-unit building, it could easily be 5% or 6% of your rent-roll. For a single-family home, it would be closer to 10%.

The challenge is that apartment buildings are typically valued by cash flow, not intrinsic property value. So if you are in a seller’s market, it’s going to be difficult if not impossible to buy at a good price. Sometimes, however, you can find a building in some sort of distress that can be restored and then rented out at a good rate.

And with apartment buildings, as with single-family homes, if you can find a good partner who is willing to manage the property (for a fee), as I did, you can build a substantial real estate portfolio over the years while having a full-time job and a family. The time commitment with a partner is about an hour a month.

Then Land Banking…

I’ve sometimes done something called land banking. Land banking means buying up raw land and holding it, hoping it will appreciate. The upside is considerable. If you can afford to hold on to the property for 10 or 20 years, it’s possible to see it rise amazingly in value. A lot that I bought in Nicaragua years ago for about $50,000 is worth at least $500,000 today. A 10-acre parcel of farmland that I bought in West Delray Beach, Florida, five years ago for $800,000 I sold two years later for $1.3 million.

Like every other type of real estate investing, land banking has its unique advantages. Chief among them: There’s very little work to do. You buy the land. You pay the taxes (and sometimes cut the grass) for a few years or decades. And then you sell it for, hopefully, a big profit.

Another advantage is that if you buy the property right, when values are clearly low (as they were for me in Nicaragua), the risk of losing on your investment is relatively small. But the downside is the upside. It might take much longer than you imagined to double or triple your money.

The Questions to Ask Yourself…

As I hope I’ve made clear, every type of investment has its own opportunities, challenges and risks. The secret to being successful in any one of them is to understand its inherent characteristics. What sort of ROI can you reasonably expect based on history, not promises? What sorts of risks are you taking, and can you afford to take them? What level of personal involvement are you getting yourself into?

Before you invest a nickel, do your homework. Do your best to make smart decisions, but expect to get average returns over the long run.

By taking that conservative approach, you will be doing the most important thing to optimize your long-term wealth: choosing the asset classes that you are most comfortable managing while diversifying your portfolio to achieve safe, realistic returns.

How have your investment expectations or plans changed this year? Share your thoughts at mailbag@manwardpress.com.

The post How to Make a Smart Investment Plan appeared first on Investment U.

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

It’s a common mistake… yet I’ve never heard it mentioned by retirement experts. Nor have I read a word about it in retirement books…

The biggest mistake retired people make is giving up all their active income.

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

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

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

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

Retirement is a wonderful idea: Put a portion of your income into an investment account for 40 years and then withdraw from it for the rest of your life. Once you retire, you won’t have to work anymore. Instead, you will fill your days with fun activities: traveling, golfing, going to the movies, and visiting the kids and grandkids.
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But consider this: A retirement lifestyle for two, like the one I described above, would cost about $100,000 per year.

How big of a retirement account do you need to fund that?

Let’s assume that you and your spouse can count on $25,000 a year from Social Security and another $25,000 from a pension plan (two big “ifs”).

To earn the $50,000 balance in the safest way possible (from a savings account), you’d need about $5 million because savings accounts pay only 1% interest at most.

But middle-class American couples my age are trying to retire with an account in the range of $250,000 to $300,000. And that’s where the trouble begins. To achieve an annual return of $50,000 on $300,000, you’d need to make 17% per year.

Getting 17% consistently over, say, 20 years may not be impossible, but it’s very risky – too risky for my tastes.

I retired for the first time when I was 39. I put my money into AAA-rated municipal bonds (very safe at that time), yielding between 5% and 6%. It didn’t take long to figure out the math: At that return on investment, I could not maintain the lifestyle I wanted. To get higher returns, I would have to put my money into riskier assets. I had an instinct – correct, I think, in retrospect – that would end badly.

So what did I do? I went back to work.

I went back to earning an active income because I didn’t want to spend my days trying to “beat” the market and my evenings worrying about how I was doing. And do you know what happened?

The moment I started earning money again, I started to feel better.

Retirement isn’t supposed to be a time of worrying about money. But when your income is entirely dependent on the return you’re getting on your investments, that is exactly what will happen.

As I write this, millions of Americans my age are quitting their jobs and selling their businesses. They are reading financial magazines and subscribing to investment newsletters. They are hoping to find a stock-selection system that will give them the 20% to 30% returns they need.

But they will find out that such systems don’t exist. They will have good months and bad years, and they will compensate for those bad years by taking on more risk. The situation will go from bad to worse.

It doesn’t have to be this way. Let’s go back to the example of the couple with the $300,000 retirement fund and the $100,000-per-year retirement dream. If they each earned only $15,000 in active income and added that to their Social Security and pension, they would need a return of only about 7% on their retirement account, which is more doable.

I am not saying that you should give up on the idea of retirement. On the contrary, I’m saying that retirement might be more possible than you think.

But you must replace the old defective idea that retirement means living off passive income only. Paint a new mental picture of what retirement can be: a life free from financial worry that includes lots of travel, fun and leisure – funded in part by active income from doing some sort of meaningful work.

The first benefit of including an active income in your retirement planning is that you will be able to generate more money when you need to.

But the other benefit – which is less obvious – is that it will allow you to make wiser investment decisions because you won’t be a slave to your investments.

There are dozens – no, hundreds – of ways for a retired person to earn a part-time active income. You can, for example…

• Earn $50 to $500 per hour working from home or the local coffee shop as a freelance copywriter.
• Make $30 to $100 per hour as a tutor. Or you could put your friends and family to work as tutors and make $500 to $1,000 per hour.
• Make $50 to $500 per hour running a home-based business that performs routine homeowner services, such as lawn care, pool maintenance, tree trimming or carpet cleaning.
• Earn $50 to $100 per hour walking dogs and offering your clients other related services, such as pet sitting, dog grooming and obedience training.

These are just a few examples. There are plenty more ways to create additional streams of active income… or complement your passive income in retirement.

The post Don’t Make This Common but Very Costly Mistake in Retirement! appeared first on Investment U.

Economists, politicians and union leaders have been asking this question for as long as I can remember. And it’s a legitimate concern.

Consider driverless vehicles.

In the last 16 years, since the first DARPA Grand Challenge was held in the Mojave Desert, the race to develop a fully autonomous vehicle has been on.

More than two dozen companies are working on it. The current leader is Alphabet’s Waymo, whose fleet of 600 vehicles has logged in more than 20 million miles. (Waymo stands for “a new way forward in mobility.”) And although we are not there yet, industry experts suggest that the first commercial autonomous vehicle will make its appearance in the next several years.

Considering the advantages (safer, cheaper to operate, etc.), it seems inevitable that driverless cars will replace conventional cars just as conventional cars replaced the horse and buggy.

How will that affect the workforce?
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In Ride-Sharing

I’m sure that Uber’s smartest executives are already doing the math on how much money they would save by replacing their 750,000 drivers with driverless vehicles. Add to those the drivers for Lyft, etc., and you’ve got about 1.5 million people out of work.

In Trucking

There are an estimated 1.2 million trucking companies in the U.S. When the trucking industry goes driverless, at least another 3.5 million Americans will be unemployed.

In the Bus Business

There are half a million school buses on the road and another 600,000 commercial buses, which means that 2 million or 3 million bus drivers could lose their jobs.

And that’s not to mention the millions of UPS, FedEx and other delivery service workers who will become obsolete when we have driverless vehicles and automated drop-off facilities.

What will all those people do?

Some Historical Perspective

The average American is not enthusiastic about the increased use of automation by just about every industry you can name. Many fear that it will lead to widespread unemployment and even greater economic inequality.

I have that fear myself. But the facts don’t support it.

When, for example, ATMs were introduced in the mid-1970s, it was thought that the jobs of tens of thousands of bank tellers were on the line.

That wasn’t the case. Since then, in fact, the number of bank tellers in the U.S. has doubled, from about 125,000 to 250,000.

The reason?

The hyperefficiency of the ATMs gave banks more operating profits. And those profits were invested in opening new branches.

Thus, although the number of tellers at each bank did go down by a third, the number of branches increased by almost half.

It gets better.

Because the ATMs handle a majority of routine banking functions, tellers are freed up to do more challenging – and higher-paying – work (such as customer service and loan processing). And that means they make more money.

This is not to say that some jobs aren’t lost through automation.

From 1850 to 1970, the U.S. agricultural sector shrank from 60% of the general workforce to 5%. Today, it’s 1%!

Manufacturing jobs, too, have been on the decline. Partly because some operations were moved overseas, but even more so through automation. In 1960, manufacturing workers represented 26% of the labor force. Today, that number is barely 9%.

But here’s the thing: Except for the Great Depression and the Great Recession, U.S. employment opportunities, in general, did not shrink. On the contrary, they expanded.

One example: In 2012, after putting robots to work in its warehouses, Amazon was accused of being “determined to profit by creating a future where automation replaces good jobs.” But within a year, instead of having fewer employees, Amazon had added nearly 30,000.

Out With the Old…

When I was starting out in business in the late 1970s, every executive I knew had a secretary.

Being a secretary was a decent job for a smart person with a high school education and good typing skills. You could make $14,000 a year with benefits. But it was also mind-numbing. All you did was type, file, answer the phone and book appointments.

Today, thanks in large part to computers and changes in the way businesses are run, secretarial jobs have pretty much disappeared. (My primary client has more than 1,000 employees, and I don’t think there’s a single secretary among them.)

So what are all the people who once might have been secretaries doing? They are event planners, graphic artists, paralegals, personal assistants and freelancers in dozens of fields – jobs that didn’t exist 50 years ago.

In much the same way, that’s what automation is all about.

Yes, automation replaces human labor. But countless studies, both in the U.S. and in Europe, have found that innovations in technology, particularly in automation, have actually created more jobs.

What’s happening, I think, is this: By lowering the cost of the dullest and most tedious forms of human labor, automation generally increases profitability. A general increase in profitability stimulates economic growth. And when the economy grows, new jobs are created in every industry… jobs that are more demanding, more interesting and more financially rewarding than the ones that were lost.

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There are many sorts of wealth. This essay is about only one of them: financial wealth.

Financial wealth can easily be defined as net worth – the sum of one’s assets less the sum of one’s liabilities.

You’d think a concept so simple and straightforward would be easy to understand. But surprisingly few people do.

Years ago, at an investment conference, I asked the audience to volunteer definitions of financial wealth. About a half-dozen were proffered, none of which was net worth. The two most popular were having a lot of valuable things and making a lot of money.

Neither one is true.
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Get What You Pay For

I bought a Richard Mille watch years ago in Paris. It was new to the market then, and I was in some kind of spendthrift mood. I bought it on impulse for $35,000.

A few years later, it stopped working. Getting it fixed cost me another several thousand dollars. A few years ago, it broke down again. That brought my total investment in the watch up to nearly 40 grand.

It’s a handsome watch, but it’s not any better looking than several other watches I’ve bought for a fraction of the price. And in terms of keeping time and reliability, it doesn’t compare to a digital Casio I could have bought at the time for $35.

I should be ashamed of myself for buying it in the first place. From a financial perspective, it was foolish. But I didn’t buy it to keep time. I bought it to give me a dose of serotonin – i.e., the thrill of spending money foolishly. And the purchase delivered that.

Since then, several people have complimented me on the watch. Those moments felt pretty good too. And somehow, the combination of that first thrill and those half-dozen compliments feels like a fair deal to me.

On an ego-gratification basis, I feel like I got what I paid for. But from a net-worth perspective, I would have been better off buying a Casio and investing the rest in real estate.

Measuring Wealth

When we acquire things for emotional reasons, we almost always pay more than they are intrinsically worth. And when we exchange our cash for status symbols, we generally make ourselves poorer in terms of net worth.

Acquiring status symbols is a bad way to build wealth. And having lots of expensive things is not a valid indication of wealth.

That kid driving the red Ferrari? The doctor with the oceanfront mansion? The woman wearing the Oscar de la Renta gown? The look says, “I’m wealthy.” But you can’t know that. The kid in the Ferrari might be making $40,000 a year. The lady in the gown could be in the middle of an expensive divorce. The doctor in the mansion might be worth less than nothing.

No, you can’t measure wealth by the things people have.

What about making a huge income?

What about your idiot college friend who is “pulling down 200 G’s a year” selling life insurance? Or that jerk you met in law school who charges $700 an hour for his services?

Alas, that is no indication of wealth either. Earning a big income is certainly a very solid step in the right direction, but it is useful only if a good percentage of that income is saved.

What commonly happens when our income increases is that we reward ourselves by increasing our spending too. The temptation to do this is almost impossible to resist for most people. And the serotonin hit we get from spending more becomes addictive. Before we know it, our spending has matched or exceeded all that extra income.

Once again, we end up poorer, not richer, despite the appearance – and even the feeling – of gaining wealth.

We cannot escape the simple truth of personal economics: Wealth is net worth, and net worth can be grown only by making more than we spend.

The post How to Build Financial Wealth appeared first on Investment U.

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Making more income is the best way to build wealth. So long as you don’t spend it as fast as you make it.

In other words, the shortcut to getting wealthy quickly and efficiently is to…

1. Increase your net investable income.
2. Save the lion’s share of it.

What do I mean by “the lion’s share”? Between 70% and 90%, depending on how close you are to your Magic Number.

(Net investable income is my term for what you have after you deduct two asset classes from your net worth. One includes the money you have set aside in your “start-over fund” – cash, coins, etc. Another includes the value of your house and any other tangible assets, such as jewelry or family heirlooms, that you want to keep for the rest of your life.

Your Magic Number is the amount of money you need to have saved and invested in order to quit work and enjoy retirement. That is, a lump sum of money that can provide enough interest income to live off of.)

Most people don’t do this. As their income rises, so too does their spending. Some actually spend more than the extra money they make.

Why? Because having extra things – a bigger house, a newer car and assorted luxury toys – is what we’ve all been told wealth is about. We work hard to buy this stuff. And then we are happy. The more stuff we buy, the happier we are.

That’s true in Hollywoodland, but in real life the truth is very different. Spending more on “happy” stuff is a junkie’s habit: to get the same thrill (in this case, ego thrill), you need to take bigger hits.

I like to use Mike Tyson as an example. He had career earnings of more than $400 million. And yet, amazingly to me, he ended up tens of millions of dollars in debt. He accomplished this financial feat by spending his money on $2 million bathtubs, $3.4 million worth of clothes and jewelry, and two Bengal tigers that cost more than $10,000 per month to feed, train and insure. Iron Mike also made some bad “investments” and ran up a multimillion-dollar bill with the IRS.

Recently a friend sent me an article from Sports Chew that provided other amusing examples of out-of-control spending habits:

• Vince Young’s rookie contract with the Tennessee Titans provided him with a $26 million paycheck. Like Tyson, he was brilliant at spending it. He has made dozens of crazy purchases, but one is typical of this mindset: He spent $22,000 of that money on a Southwest Airlines flight from Houston to Nashville. Why $22,000? Because he wanted some “alone time,” so he bought every seat on the plane.
• After making many millions as an NBA ballplayer, Latrell Sprewell was offered a $21 million contract extension by the Minnesota Timberwolves. He said he was offended by the “lowball offer,” saying, “I have a family to feed.” They countered with another offer: zero.
• Curt Schilling, a longtime pitcher for the Boston Red Sox, probably thought he was “investing” his money when he put his life savings, $50 million, into something called 38 Studios, a video game company. It promised to create titles to compete with EA Sports and Activision. His total return? Zero.
• Terrell Owens has made about $80 million playing for the NFL, but today, according to reports, he is broke. Much of his income went to the usual things – mansions, luxury cars, big champagne bills – but a good deal of it went to “investing,” such as the $2 million he spent on a bingo hall, which violated NFL gambling policies and returned him nothing.

These are not isolated examples. In fact, according to Wyatt Investment Research, 78% of NFL players and 60% of NBA players file for bankruptcy within their first five years of retirement.

Lest you write this off as a “poor dumb jock” problem, consider this: The average American has more than $100,000 in total debt and less than $1,000 in savings.

There are several lessons to be drawn from this:

• There is a natural tendency to spend more when you make more. If you want to become wealthy, you must be alert to this tendency in yourself and resist it.
• It is also natural to want to reward yourself for earning more money, but how much you spend on that reward is unrelated to the psychological benefit it gives you.
• Along the same vein, there is no relationship whatsoever between the worth of toys and how much you pay for them. A $300 watch can look as good and work as well as one that costs $3,000 or $30,000.
• Speculative investing is a type of gambling. The guy who sells it to you will call it an investment, but don’t fool yourself. If you don’t understand the deal from the inside out, chances are you will lose 100% of your money.

Wealth acquisition, as I said in the beginning, has everything to do with increasing your net investable income and saving an increasingly larger percentage of it. When you boost your income, give yourself a reward. Buy or do something fun. But don’t spend more than a small fraction of that extra income. The rest you should put into savings.

Good investing,

Mark

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