Understanding Preferred Stocks

DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed investing decisions.  Consult a Broker or Lawyer before making any investment. 

One of the better investment vehicles available to investors is the equity class called Preferred Shares or Preferred Stock.  Not much is said about them, so I am going to try and shed some light on the topic and teach a bit about the basics involved in Preferred Stock.
 
Many Preferred Stock shares pay excellent dividends, and some pay above 10%.   Many can be purchased well below their par value which is normally $25 per share.

Preferred Stocks (or Preferred Shares) are simply a class of equity stocks.  They hold a senior position over common shares. One of the big differences (which is of little significance to small investors) is that Preferred Shares do not hold voting rights.

In concept, they are much like a bond, but they are not a debt.  In case of bankruptcy, bonds being debt would be paid first, then Preferred Shares, and if any money was left, the rest would be paid to the common stock shareholders.

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Minimalism and Delayed Gratification
 
Minimalism speaks of living a simpler, more focused life. Do you ever consider the difference in having it right now, or waiting for a bigger thing later on?

The ability to delay an impulse for an immediate reward to receive a more favorable reward at a later time is the standard definition of delayed gratification. Studies have shown that the ability to delay reward is not easy but has great rewards for those who can learn to do it.
The ability to self-regulate and show control will directly impact the outcomes of all your future plans. In a culture surrounded by messages saying that you can lose the discomfort right now, the ability to wait for a long-term reward is less attractive and few are willing to wait.

Delayed gratification is a muscle we can all grow to serve our future selves. Sometimes discomfort is the more beneficial choice.

Today we are living in a time when people want things, and they want them now.   Patience has almost began to be a thing of the past. Christians sometimes forget that we are commanded to wait on the Lord.
 
(Pro 20:21)  An inheritance may be gotten hastily at the beginning; but the end thereof shall not be blessed.
(Pro 20:22)  Say not thou, I will recompense evil; but wait on the LORD, and he shall save thee.
 
(Psa 27:13)  I had fainted, unless I had believed to see the goodness of the LORD in the land of the living.
(Psa 27:14)  Wait on the LORD: be of good courage, and he shall strengthen thine heart: wait, I say, on the LORD.
 
And the bible tells us we can manually acquire patience, but it comes from a tough source.

(Rom 5:3)  And not only so, but we glory in tribulations also: knowing that tribulation worketh patience;
(Rom 5:4)  And patience, experience; and experience, hope:
(Rom 5:5)  And hope maketh not ashamed; because the love of God is shed abroad in our hearts by the Holy Ghost which is given unto us.
 
So verse 3 says we can acquire patience, but it comes via tribulations.  I think it best to learn a little patience without having to go through the tough times.

I am sure you have friends who got married and expected in their first year of marriage to have a lifestyle better than their parents.   It may have taken the parents a lifetime to acquire their home and possessions.    But the newlywed couple immediately want a large home and two cars.   And with credit so easy to obtain, many buy houses that cost over 30% of their take-home pay, putting a crunch on their finances.     

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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm.   The opinions given are of my own and are not to be used as professional advice.  These are my findings and can hopefully help you to make informed decisions on investing.   Consult a Broker or Lawyer before making any investment.

What Is a Business Development Company (BDC)?

As we plan out how to invest our money to get our maximum returns, we need to make use of a special group of stocks making up the REITs category.  If you do not have some money invested in Real Estate, this is a very effective method to make money.   We did an article explaining REITS a while back.  

Read about Reits here.

Today we are going to talk briefly about Business Development Companies.   Many of these are tied to Reits, but they also provide capital for other business uses besides Real Estate.

A business development company (BDC) is an organization that invests in small and medium-sized companies as well as distressed companies. A BDC helps these firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing.Similar to closed-end investment funds, many BDCs are public companies whose shares trade on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq, and others. As investments, they are high-risk but offer higher rewards.

I try to find solid companies that provide financing that is being sold at a discount and also show dividends of 8% or more.

BDCs are much like private equity funds for small businesses.   While private equity funds tend to be restricted to high-net-worth and institutional investors, Block Development Companies are publicly traded on the stock market and available to anyone with a brokerage account.  What is even greater, is they are transparent and easy to research.  Like all stocks, these may or may not go up in price.   However BDCs do normally pay dividends, and those are the ones I try to buy.

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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

Why I Love Passive Income

What is greater than Passive Income?  Perhaps in this 105-degree weather this week, a bowl of ice cream with some fruit might be better.   But as far as money growth, there are few things better than Passive Income.

What Is Passive Income?

Day in and day out, here are a few things greater in life in regards to bringing in steady money than passive income.   If you are like me, you were taught to go to school and get a great education, find a steady high-paying job, and exchange your time for money.  So the only way you receive a paycheck is by trading your time for the pay.    The problem is you only have so many hours a day, and then tomorrow, you must start over to get more money.
You only have so many hours in life, so we need to find a better way to bring in money.   Rich people do not trade time for money, but they buy assets.  

Robert Kiyosaki has written many books on this topic beginning with his best-selling book “Rich Dad, Poor Dad”. In his books, he teaches that we all need to find ways to make Passive Income.  He says we need to create assets that will make us money.   So passive income can come in so many ways.  You could write a book and sell it, and that would be passive income.   Written once, but it sells over and over.

One of my favorite methods of passive income is to buy an asset.   That could be a rental property, but my choice is to buy stocks and ETFs (Exchange Traded Funds) that make me money via dividends.

Investing with ETFs

There are so many good dividend-paying stocks.   I like to use my Schwab IRA to buy ‘stock slices’ in companies I feel are good dividend payers and also are potential growth companies.  This is called DGI / Dividend Growth Investing.   These are companies that will make you steady dividend income, but due to growth may also gain in value as their stock prices go up.

What is Dividend Growth Investing

There are many ways to invest and to find high-paying dividend growth companies.   Two of my favorites are those on the Dividend Aristocrats list and those on the Dividend Kings list.     Dividend Aristocrats are companies that have raised their quarterly dividends for 25 years or longer. Dividend Kings are those who have done that for over 50 years.   Requirements to meet the lists are different, but there are some companies on both lists which certainly are worthy of consideration.  

Read about those two lists at:
Dividend Aristocrats
Dividend Kings

This past year I have come upon 3 other classes of investments that are making me the most in dividends. I will discuss only my favorite of the 3 today. Those high-paying dividend stocks are called Preferred Stocks.  Briefly, the advantage of Preferred Stocks over normal stock is they sell at a fixed par value which is normally either $25 a share or $10 a share.    And because the stock market is liquid, these vary in price a lot. 

So, if you buy a company’s preferred stock that is out of market favor, it will sell at a discount to par. I try to buy all of mine on those with 14 to 70% discount to par. The dividends are still paid on the par value.  So if you buy a stock that pays 8% dividends and you buy it at a 50% discount to Net Asset Value, the real return is 16%.  And if purchased at a discount, normally these move back to closer to par value over time.  

You make a lot more in dividends and the percentage of dividends is great.   When you combine that with my plan of stop loss orders at 92% of the value I paid for it, your chances of much loss are greatly minimized.  I find most of my Preferred Shares on the PreferredStockChannel.com.
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If you sign up for their weekly newsletter, they will send you a complete list weekly of the top 10 highest-paying Preferred Stocks.  Be careful of following that list as some companies are in trouble and may wind up in bankruptcy.   Also, some have declared dividends but have not paid them.   So being on the list simply gives you a stock to review.   Due diligence is required to purchase those that are good buys and not in a serious financial state.

Understanding Preferred Stocks

I will discuss my other two high-paying dividend categories in the next few weeks and also discuss REITs (Real Estate Investment Trusts) which are another great method to earn passive income.

Have a great week.  Study and find some methods to start earning passive income.   A year ago I had almost no dividend income, and this month we are now up to $175 per month.   Not a lot of money, but we are increasing it by $25 to $33 each month and should be at over $1,000 in a few years.   What is great is they pay you while you sleep.  No effort is required on your part but to maintain and monitor your investments and stop loss orders.  I update mine at least once per month.
 
 
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Lessons from a Box of Rocks

It is crucial in life to work with a plan.  Some folks think they can just start each day and things will just work out.   Your day will come and go, but without a clear plan of action, you will not accomplish as much as you could with an organized plan.

In college, I had a great professor who encouraged his students to think outside of the box.   He constantly used unconventional methods to teach.   One day he came to class with a few boxes of rocks.  He said today we are going to use this large box and these rocks to teach some lessons.

He poured the boxes of rocks out on his desk and set one large box on top of the desk.  He asked us what we should put in the box first.  The little rocks or the big ones?  Several students said the small ones, but the majority said to go with the big rocks first.  He put those in first and then proceeded to put in the next largest rocks.

The box was almost full.  He asked, “Is the box full yet?”  Some agreed, and some disagreed.  “What should go in next?” he asked.   We had 2 more sizes of rocks, some gravel, and some dirt on the desk.

Since the larger ones had been the right answer before, we went with the larger ones.   He then filled in the smallest rocks and shook it.  Is it full?   We all agreed it was full now.   
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He then proved us wrong by adding the gravel and shaking the box.  Is it full yet?  We said yes, it is full.  He shook the box and then poured in the sand.  All 5 boxes of rocks, gravel, and sand fit in that one big box.  He then asked, “What did we learn from this?”

One forward-thinking student volunteered “No matter how busy your schedule is, you can always squeeze in a few more things.”   He said “No. That is not the lesson.”    He asked the question again “What did we learn from this?”  Many guesses were offered, but no one had the right answer.

He said what this box of rocks teaches you is that you must put the largest things in life first.  In life, the important large things have to take precedence over the smaller stuff, or you will not have the room and time to do all the things you want to accomplish.

Think about that.  If you put in the dirt first, then all the room around the rocks would not have been filled in, and most likely all of the rocks would not have fit.    As you shake a box of rocks, the big ones come to the top and the little ones go to the bottom.  

Another lesson he pointed out is how no matter where you are in life, life is shaking and if you are a big ‘rock’ at the bottom, life will eventually force you to the top if you keep on and don’t quit trying.  And if you are a little rock sitting on the top, the shaking will send you back to your correct position at the bottom.   We need to grow and keep on keeping on to move to the top.  Life has a way of moving us to our level.   This validates the old Peter Principle about how we all fall back down to our level of incompetence. 

The Peter Principle is an observation that the tendency in most organizational hierarchies, such as that of a corporation, is for every employee to rise in the hierarchy through promotion until they reach a level of respective incompetence.

It is amazing how we can learn from something as simple as box of rocks.
 
This past week, I read a book called Rich Habits, Poor Habits by Michael Yardney.   In the book he told about a plan he picked up to deal with issues.  I also read this same plan from a Marine Sergeant in regards to battlefield preparation.  

Both men said to prepare the right battle plan, you need to do 3 simple things.

1. THINK
2. EVALUATE
3. RESPOND

It is crucial to take the time to think.   We need to understand the situation whether dealing with a battle zone or some trial of life.  By thinking we can now evaluate the situation and determine our best course of action.  
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After giving yourself time to think and evaluate, you then respond with action.   Reaction is not the same as responding and rarely the appropriate action.  We need to not get in a hurry but think things out and take adequate time to evaluate.  A response is good most of the time, but reactions can cause us more trouble than they correct.

In life, to be effective, we have to be intentional with our actions.   It is so easy to react to a situation without thinking and evaluating.    Quick reactions are never good.   Think things out and then RESPOND.  

I am sure you remember times when your mouth was engaged before getting the brain in gear.  It is easier to take the quicker method of ready, fire, and then aim.  This is never good and the results are mostly bad.

Before considering opening fire (even about life’s situations), we need to always follow a logical plan of action.   Get ready, aim, and then fire.

To be successful, we need to control our tongues and words.    So when you are faced with any situation, remember the 3 methods Michael Yardney uses:

1. Think
2. Evaluate
3. Respond

 
 
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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

Back to Basics of Investing – Part 2

We began our study on getting back to the basics of Investing last week.   If you did not read that article, I suggest you read it first.   It is the first article on our new blog site:  LifeCanBesimple.blog

Back to Basics in Investing Part 1

We have dozens of articles on our old site which is LifeCanBeSimple.net

I mentioned last week it is important to know HOW TO INVEST, and also what platform to use to invest.   Anyone can open a standard brokerage account, but you have so many things to consider concerning your taxes.
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If possible, always do your investing in either a 401-K plan or a Roth IRA, or a Traditional IRA. If your employer offers a 401-K, you probably want to start investing there.   Most companies will match your first 3 to 5% of your contributions. That means you will immediately have a 100% gain on the money the company matches into your account.   

An example of a 3% company match would be if you put in 3% of your $20,000 salary.  Your contribution for the year would be $20,000 * .03 percent which would be $600.  The company would also contribute $600 making your total year-end balance equal to $1200 plus any dividends or gains you might have had.    Not all companies have a match, but if they do, you sure want to contribute up to that matching amount if possible.

Also, realize that companies may not pay their portion of the earnings until you are fully vested. Talk with your HR department or a lawyer or tax planner to fully understand vesting.

If no matching is available on a 401-K, consider investing in an Individual Retirement Account (IRA).   There are two types, the Traditional IRA and the ROTH IRA.   I am using ROTH IRAs on all 5 of the ones my wife and I currently have, but you may be better off taking the tax deduction on the traditional IRA if you expect to have a lower tax bracket at retirement.

DIFFERENCES in IRAs

Investing requires patience.   Warren Buffet, one of the world's most well-known investors, said: “Wealth is a transition of money from the impatient to the patient.”

Unless you have patience, you most likely will not do well in investing.   You need to look at the ‘big long-haul picture.”  Some people spend all their time looking for a fast dollar.    The best way to make money is to study and be slow and methodical.   Not losing money should be your number one goal.

When making investments, it is crucial to invest using a Retirement Account.   If you don’t invest in a retirement account, you will have to pay taxes on both your dividends and your capital gains or losses.  A capital gain or loss happens when you sell an investment for more or less than what you originally paid for it.   If you held that investment for over a year, you have a long-term capital gain or loss.  

If less than a year, it is a short-term capital gain or loss.   There is a substantial difference in the amount of taxes you have to pay.  Long-term gains are taxed at your current tax rate.  Short-term gains are at a higher rate.

When you own an asset or investment for one year or less before you sell it for a profit, that’s considered a short-term capital gain. In the U.S., short-term capital gains are taxed as ordinary income. That means you could pay up to 37% income tax, depending on your federal income tax bracket.

You must study tax laws to determine the exact price.   

When investing with a retirement account, you don’t have to concern yourself with capital gains.  If invested in a ROTH IRA, you will never pay taxes on your profits.  On Traditional IRAs and 401Ks, when taking a distribution, you pay income tax as you take the withdrawals.

It is up to you to make good decisions and study to make wise investments.    I loved what Jim Rohn, a motivational speaker said. “If you don’t like the way things are, CHANGE.  You are not a tree”

Be smart.   If you are not pleased with where you are in life, CHANGE.  Change your habits and get on a steady, consistent path.

What is a good investment plan?  If you read 20 different investment blogs or books, I dare say all will be different.   Who is right?    There are many voices crying out for our attention.   The Bible says that none of those voices are without signification, meaning they are either good or bad.  I listened and tried dozens of them over the past 30 years.  
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Last year I got really serious and started reading, and I mean a lot.  Last year I read 90 books, and this year by June I have read 52 books.  Every book has been about investments, mindset, or habits.   And all have helped me to get a better idea on how to invest.    Is my plan best for you?   I can not guarantee you it is the best.   However it is a combination of about 20 different plans that I have put together.

Here are 4 common methods to invest.

Plan 1 – Use a certified financial planner (CFP) to make your decisions and put together a logical plan. There is a charge for this service.  It can be a fixed amount but normally is tied to the total investment value which ranges from 1 to 5%, sometimes even higher.   One thing to be on the lookout for is that the person making the decisions is not making a profit on the funds or stocks they have you invest in.    This is my least favorite plan as I am a hands-on person and want control over what I invest in.

Plan 2 – Manage yourself and buy mutual funds that have done well over the years.  Magazines like Kiplingers have lists of good quality mutual funds with ratings and percentages they have averaged over 1, 3, 5, and 10 years.   Pay more attention to 3 and 5-year averages than just recently, as the market may have been down and all funds dropped during that period. Mutual funds are categorized into many groupings.  Some are total bonds, some are Large Growth funds, and some are balanced funds with both types.  There are small-cap mutual funds, medium-cap, etc etc.

Plan 3 – Control it yourself, and invest mainly with ETFS. (Exchange Traded Funds)

Investing with ETFs.

You do not have to pay high management fees and can get every flavor of investments in the various ETFs.   On these, always put a large number of your investments in the total stock market using ETFs like ITOT, SCHB, or VTI.   You can mix in specific industries, bonds, Real Estate Investment Trusts (REITs), and dividend growth stocks.

Reits and M-Reits

There are so many flavors of ETFs that I need to write an article on the many types available.    This is one of my best ways to invest.

Plan 4 – Purchase a mix of them all.   Buy Mutual Funds and Bonds for stability,  Then buy a lot of ETFs, and then get into the deeper methods of investing in Preferred Stocks, Block Development Companies, Closed-End Funds, and REITs.   And you always want to invest in Dividend Growth Stocks.

Understanding Preferred Stocks
Using the Preferred Stock Channel.
Explanation of Block Development Companies
Investing with Dividend Growth Stocks

My current investment portfolio is tied mainly to this method with a heavy dose of Preferred Stocks and CEFs purchased at large discounts to Net Asset Value.   Many of these are paying 12 to 30% in dividends.

I have used all four of these methods and what works best for you may be any one of them or a combination of the others.   The reason for my success in late 2022 and 2023 has been the limiting of loss of down markets using Stop Loss orders.

Protecting Your Investments from Huge Losses
 
Another method many use is to buy the same amount of a specific investment continuously.  (Like weekly or monthly).  This allows you to have dollar cost averaging.   In high markets you buy fewer shares but more in low markets.

A person using this concept is Rachel Richards, the author of Money Honey.   She says she has four rules on investing, which can not always be taken into account when doing dollar cost averaging.

Rule #1 – Don’t Sell when the Market is Down.
Rule #2 – Don’t buy when the Market is High.
Rule #3 – Hold investments for over one year before selling.  Preferably for over 5 to 20 years.
Rule #4 – Don’t be a control fanatic.

She has followed her rules and has done very well.  She only reallocates her investments twice a year.   She invests using auto-pilot and lets it run itself.

She uses just 4 ETFs and puts 25% of her monthly investment into each of these categories.

25% to Small Growth Stocks
25% to Mid Cap Growth Stocks
25% to Large Cap Growth Stocks
25% to Global/International funds.

The 4 ETFS she mentioned that she has used were:

IJR
VO
VV
VEA  

The last 3 are Vanguard ETFs.

You might make it 20% and put 20% in VTI to make an even more diverse portfolio.  VTI is the total stock market index.

So I guess we will close the second article on getting back to the investments.    What you do is really up to you.   There is no perfect investment plan, but there are many, many ways.   What I advise you to do is this.    Study, and then study some more.   Try things.  Don’t be afraid to have a few failures.   I learned that from several of Robert Kiyosaki’s books.

RICH DAD POOR DAD book review on Unfair Advantage.

I have not given up when I have had failures.   I kept at it and learned.  You can too.   Is it easy?   No.  But you can be successful.   You are not defeated until you fail to get back up.
Stick to it.   Be determined.
 
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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

Back to Basics – History from Cash to Mutual Funds

The years 2022 and 2023 have been quite a trip regarding Investments.   In early 2022, the S&P 500 was down over 30%.  To say there were challenges in investing in 2022 is a vast understatement.

The purpose of our blog is to help investors get started in investing.  Several of you have mentioned that my most recent articles on investing have become a bit complex covering tougher subjects like Preferred Stocks, BDC (Business Development Companies), and CEFs. (Closed-End Funds.)    The complexity certainly has not been on purpose.  My goal is to help everyone find the niche they need to make money consistently. Like all endeavors, we must continue to grow and expand our knowledge so that we can apply what we have learned to gain the maximum returns.

This is not something you learn once and never need to expand or grow for the rest of your life.  So for those of you who are not ‘seasoned investors’, this week is for you.  We are going to take a historical view of money and how we got to where we are today.  We won’t go back to Genesis 1:1 where God spoke the earth and man into existence, but we will begin talking about the simplicity of cash.

The original method of exchanging money for goods was done simply with cold hard cash.   If a horse cost $10 in the olden days, you pulled out ten one-dollar bills and made the purchase.   Banks came along and allowed people to store their money safely and later started savings accounts where they paid you money for the use of your savings dollars.    As banks got into making loans, they then started offering CDs.  (Certificate of Deposits).     This tied up your money for terms of a few months to five years.   If you took the money out before the maturity date of the CD, you paid a penalty which is still how it is done today.

The first stock market began in the 1400’s, but the New York Stock Exhange began in 1790. So early on, companies began selling stock certificates to allow people to invest in their company.   Back then it was a physical certificate, but today computers keep up with who owns the many shares of stock.  

Many companies began paying dividends on their profits, making it more profitable to own the stocks.   Dividend-paying stocks are still one of the best investments out there.   The high-quality companies began to be known as Blue Chip companies (where the term blue chip stocks originated.)   They pay 1% to 15% in quarterly dividends.    A stock is simply a unit of ownership in the company.   If you own IBM stock, you own a part of the IBM Corporation.

There are many elements to the stock market.   Stocks are very liquid and also fluctuate in price a lot.  In one day they might go from $95 a share to $120 and then close the day at $90.    The 3 main indices of the stock market are the DOW (Top 30 stocks), the NASDAQ consisting mainly of 100 technology stocks, and the S&P 500 which are some of the largest 500 stocks.   Different rules apply on who makes up these 3 lists and changes do happen year to year as to which companies make up those indices.

One of the great things about stocks is they can theoretically go up and up, but the most you can ever lose is the amount you paid for the stock. There is no liability associated with owning stock, so you will never be sued for corporate wrongdoing when you own stock.  You can lose your full investment (which is rare), but that is the maximum loss.

Some of the Investment Categories

Soon another monetary element came along called a bond. A bond was an IOU from the company paid to the bondholder.   It was a debt the company was to pay the bondholder and had various maturity dates such as one to 5 years.  A bond is an IOU from the company to you the bond holder.  Again in the early days, there were bonds with coupons to cut out to get your monthly or quarterly interest. Today computers keep up with the ownership of the bonds and no real coupons exist.  

The bond market is even bigger than the stock exchange.  Bonds are not as volatile in price as stock, but as interest rates change, they can move up and down rapidly in price. A Treasury bond that has 30-year maturity will go down substantially in price when interest rates rise but will go up in value when interest rates drop.  All maturities fluctuate, but the 30-year maturities move the most due to the time they have to be held until maturity.

What is a bond?

The Pros of bonds are they are less volatile and offered in many different maturities.   You can buy 90-day Treasury bills and notes, and go out to 30 years on Treasury Bonds.   Corporate bonds typically are not for more than 10 years.    So bonds offer less volatility and more stability.   As a person nears retirement age, owning more bonds gives your portfolio more stability.    One of the better investments in 2022 was the I-Bond. 

These are inflation-protected treasury bonds that are tied to a 30-year bond rate plus the inflation rate.  In April of 2022, these were paying 9.62%, but have since dropped each six months to the current rate of 4.3%.   But still not too shabby for a government backed security.

Information on I-Bonds and How to buy at treasurydirect.gov

The Cons of bonds are that they normally pay less than what Stocks will pay you over time.
Since stocks are volatile, it means you must have holdings in many companies to diversify.   That is when Mutual Funds were created.  By buying into a mutual fund, you are buying a portion of many stocks and/or bonds.  When you buy a share of a mutual fund, it automatically gives you a lot of diversification.  

Some mutual funds are just for specific types of stocks, some just for bonds of various maturities, and then some that are called balanced funds that own both Stocks and Bonds.   These sort of became the marketplace gems in the early years of the 70s and 80s.  You paid the manager of the fund a fee to manage your investments.  These fees could be as low as 2% but some much much higher.   Today most are sold as no-fee mutual funds, but while no upfront fee is paid, there are still management fees of 1 to 2%.

Three Quality Fidelity Mutual Funds

What investors discovered after much study was that most fund managers can not beat the average of the overall stock market.  That is when Mutual Index Funds began being sold that tracked stock market indexes. These were not truly managed funds so the fee was less.  Vanguard Investments is known for its low-priced index funds.   

Someone came up with the idea of making a type of investment that was not a mutual fund, but just an index.  These became known as ETFs (Exchange Traded Funds), and they have almost no fee involved.  Normally 2% and most under 1%.   So if you buy an ETF like VTI (Vanguard Total Index ETF), you are tracking ALL the stocks in the whole stock market.   A great simple way to save money and get consistent returns.   

Many say that the average return on the full stock market over the last 50 years is 12% or higher.   Be aware that there are many times that the stock market has lost money for 3 consecutive years.  But on average, stocks and ETFs are a good way to invest when tied to the index of the whole stock market or dividend-paying stocks.

ETFs are one of the most popular investment vehicles in investment circles.   You can sell them anytime the market is open.  The ETF price reflects the whole market segment they represent.    You must realize that there is an ETF to track almost any type of investment nowadays   So what we are talking about being safer is FULL MARKET indexed ETFs like VTI, ITOT, and SCHB.   SPY is another good one for the S&P 500 only stocks.

Simple Path to Invest using ETFs.

It is amazing how much you must talk about to make basic investing simple.  It simply cannot be done in one article.    I think we need to continue on this next week and explain a bit about capital gains and how to shelter your retirement from income taxes.  
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You will not fully understand all of the options in the stock market without studying for several years.   All of the articles on our Investment Page can help identify various methods to invest.

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Thank you for your patience.   It truly takes an investment professional to help you fully understand what is involved and the tax concerns of investing.   Your lawyer or investment broker can shed more light on the complexities.  You must study and grow to be effective in investing.   We began last year with many basic articles if you go to the bottom of our Investment Articles list and work your way up.
 
 
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DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment. 

How to Survive Without a Salary by Charles Long

This book was recommended by several of the people promoting the early retirement movement.  (FIRE – Financial Independence Retire Early)  It is not easy to obtain.    I got my copy used on eBay for $4.  This link to book on Amazon is for $62.    

You can read about some of the people involved in FIRE movement in my article on Why Work 40 Years to Retire.
 
I thought the book would be interesting and it was.   The author is quite candid and tells you upfront that it takes great discipline to live without a traditional salary.   He points out immediately that we all must have the cash to survive, so you must have an alternate stream of income like side jobs.   There are many ways to make money.  In years past, many bartered for their needs.  And people controlled their wants much better than we are taught in society today.

WHAT I LEARNED FROM LIVING WITHOUT A SALARY

Charles Long begins the book by explaining how today is different from any other time in history.  Think how just a few years ago, there was no Internet, now everything is tied to computers all around the world.  Today we are told that we must specialize and do one thing really well.   Our parents and grandparents and all our ancestors were never so taught.   In the past, you needed to know a lot of things.   Specialization will not help you to survive in our changing world.   We need to know a LOT of things to survive.    

But as things change, we find out that today to survive, those that know a lot of things do much better than those who know just one specialized thing.   Life is teaching us that career ladders are not working out like they did in the past.   Today with Globalization, jobs are going away faster than one can realize.   Today it is almost impossible to go into the job market and work a full career for one company.    As Globalization expands, wages continue to drop as some other country is always willing to do the labor cheaper than the last.

To combat this, we need to learn ways to survive.  Mr. Long says he has lived the vast majority of his life without a traditional job with a salary.    His success has been due to seeing things differently and being willing to cut costs to a bare minimum.   Living below most people's standards is the key to his success.   And he thinks outside of the box about almost everything.

He teaches that we must learn what we truly need, and not worry about what we want.  You truly can get by without that 40-hour work week.   Charles Long still works, but he tries to work smart.    He does things smarter and is willing to do odd jobs to make a few dollars as needed. He lives what he calls the “Conserver Lifestyle”.    To accomplish this, he is willing to ask hard questions and look for alternatives to just about everything.

Mr. Long gives an example of the difference in acquiring a refrigerator.  Person number one goes out and buys a $1,000 refrigerator by putting it on his credit card.    With a 7% tax, that comes out to $1230 after you consider the 15% extra interest on the credit card.   This is based on paying it off in one year which most people will not do.   And most credit cards are above 18% nowadays.  If you are in the 25% income tax bracket, the reality is you must make $1,640 to make that $1,230 to pay back the loan.

Person number 2 finds a quality used refrigerator for $500 and pays cash for it by withdrawing cash from his savings account.   With tax, it is $535 plus $35 of lost interest as he puts money back in savings.  If in the same 25% tax bracket, he must earn just $733 to pay for it, meaning less than half the cost of person number 1.  Plus there is no pressure when you pay with your own money.   Not to mention that debt causes stress.

If in a lower tax bracket, it will cost perhaps less than $600 in total.  Learning what you MUST have and limiting your tax liability can save a lot of money in a year.  As many have learned, sometimes LESS IS MORE.

To live the “Conservers Lifestyle”, you have to make good financial decisions.   Good choices that are Deliberately Calculated. 

Always think things out.   Don’t get in a rush, and try thinking outside of the box for alternative ways of doing things.   Don’t worry about keeping up with the Joneses, most likely they are broke and looking for relief.   Living a life of consumption is not living a life of freedom.

Being able to wake up each day and do what you want is worth so much.  Maybe you don’t have the shiniest gadget, but you can be very happy when you live the Conservers Lifestyle.  
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Charles Long urges you to not rush out and quit your day job without thinking things out.   You must survive, and a plan carefully calculated can get you to where you want to be soon.  And don’t think when you quit your job that all the hard work is over.   The reality it is just beginning.   A freedom lifestyle may require more hard work than you have ever done in your life.

Gardens require work to maintain.  Raising animals bring in new costs and extra chores.  As the old motto says “Nothing Is Easy”.    While freedom from your job with a salary may be great, don’t believe all the hard work is over.  It is not.  In reality, hard work is now starting.

The examples in the book on HOW to buy things are fantastic.  I will never be the same when it comes to buying from now on.   He explains how to buy almost everything.    NEVER PAY RETAIL.   If one person won’t work with you, go to the next one.  Everyone wants to make a sale and keep their customers happy.  And his number one rule is NEVER PAY RETAIL.

At garage sales, some great prices can be found.  However the best prices don’t come early in the day, but late in the day when the person is eager to get rid of all the junk.  When you could not buy for $20 in the morning may be had for a couple of dollars.   You might have all that is left in the yard for $10.   Just be patient and wait it out.

Charles Long says he sets a Maximum and Minimum price to buy items.  The Maximum is much less than retail new price.   If he can buy at the minimum price or less, he buys multiples and then resells the items.  He never pays more than $5 for a door but sells them for $10 to $20 all the time.   If he can buy one for 50 cents or less, he buys them all.    Why?  Doors can be used for so many things.  Think of how many heavy-duty shelves you can make out of doors.    A new floor for your trailer.   Maybe even a wall for a shed.   As I said before, this guy thinks outside of the box.

One of his better chapters is on negotiating.   Everything we buy can be negotiated.   People who pay retail are losing out on one of the fun parts of making a purchase and wasting a lot of money. Someone owns that store.  If the clerk won’t negotiate, ask for the manager.   If no one will talk with you, then move on to another store.  

There is ALWAYS a better deal down the street, whether you are buying clothes, houses, land, or vehicles.   All things can be negotiated.   Dave Ramsey once said that a really good deal only comes around about once every 6 months to a year.   But be ready to move on it when it comes and be able to recognize the great deal.

One of my favorite stories was when Mr. Long decided to put in a wood stove.   He looked for a long time until he found a used one in good condition for $50.  Then he discovered you must have protection on the walls around the stove. Normally these are special panels to reflect heat made of a fire proof material like asbestos.    But each sheet was over $100 and the separator/spacers were like $20 each. 

Thinking it out, he figured out that metal panels could do the same thing.   He found 20 metal sheets for $10 and used 3 of them and sold the others for a profit.    He then found some electric fence wire insulators for under $2 each to attach the metal to the wall.   This is smart thinking to find cheaper and sometimes even better than new options.   Most people spend over $1000 installing a wood stove, and he did it all for under $100 including the pipe.

In conclusion, I would say that you should read this book.   Perhaps living without a salary may not be your cup of tea, but hey, learn how to negotiate and think outside the box like Charles Long.   And a good starting place is to not pay $62 for the used copy of this book.   Developing the right ‘purchasing’ mindset can save you a lot of money over a lifetime.

I think another way to accomplish this freedom is by having a lot of passive income streams.   Nothing beats having money flowing in without you having to work for it.

What is Passive Income?

Can we live without a salary?   Yes, but you must learn to make money in alternative ways such as side jobs.    And remember, you may work harder in your life of freedom than you did at your old job.   Cutting costs and living frugally will help you to get to a life of freedom.

​As I mentioned at the start, the book is not easy to find as it was written in 1988.  But it can be found used with a little determination.   After reading this book, I will certainly change my ways of buying.    Look for the best buys and show some discipline in your life.  How to Survive Without a Salary is definitely a recommended read.
 
 
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​DISCLAIMER -  I am not a Financial Advisor and do not work for any Brokerage Firm. The opinions given are my own and are not to be used as professional advice.  These are my findings and can hopefully help you make informed decisions on investing.  Consult a Broker or Lawyer before making any investment.

WHEN TO START INVESTING?

Nothing is greater than having a loving family.  We need to take steps to provide for our family, and that includes investing.    What is the best age to begin?   Many start in their 60’s, some in their 50s.   Fewer in their 40s, even less in their 30s, and almost none in their 20s.    The younger you are the less we seem to think about retirement.   

You think retirement is WAAAYYYYYY out there.  Reality is it is on you before you can blink.   The sooner you get started, the easier it is to accumulate a large amount of money.    As a young person, it is hard to make the mature decisions that will give you excellent long-term results.

I want to tell you a little about my own personal life and how I viewed investments starting in my 20’s.  I was no different than most people in my young years.   Having the cool car and motorcycle was way more important than worrying about saving money and investing.  It made little difference at all to me.  I preferred striving for the fastest drag racing car in those years. Riding dirt bikes was way more important in my 20s and 30s than investments.

Being a Christian, God dealt with me about my lack of service to him, and in my early 20s, I gave up the dragstrip and started serving God on Sundays.  Soon I got married and after a few years, we purchased our first home.   At the tender age of 27, my first son was born.    Investments weren't on my mind at this point.   To me, I had my whole life in front of me.

In my 30s, I finished up my college studies and began some investment study.   I opened my first brokerage account at Merrill Lynch and was blessed with a great broker.  The problem was he could not change my spending habits.   Even after I started my consulting business and began making a lot of money, I could spend $1,000 more than I made, sometimes even in a month.   The more I made, the more I spent.  I blew a lot of money and didn’t save any for retirement.

We had more children and decided to move to the country and buy land and build a large 4-bedroom home.   With over 50 acres of land, we built 4 wheeler and motorcycle trails and bought more and more toys.  The older the kids got, the more expensive the toys became.   We also worked a lot in those days and built barns and raised cattle and horses. 

It was a lot of fun, but as before, we continued to spend more than we made.  By the time I bought all the horse trailers and other ranch equipment, I was now spending as much as $20,000 more per year than I was making.  This was accomplished by having too much credit limit on several credit cards. We traveled in those years and spent over $5,000 yearly on vacations.    Someday I would easily pay it all back I thought as I made more and more money each year.

When I got into my 40’s, I saw that things were out of control and sought help with Consumer Credit Counelling.    With their help, I would have made it out of the bondage, but some business situations went south and I wound up having to declare bankruptcy and start over.   

It was in my 50s when this bankruptcy happened, and in a way, it was a blessing.   I sold the big home and did a restart on my finances.  With help from Dave Ramsey and his book Total Money Makeover,  I finally saw the danger of debt.  We got out of debt totally in 2021 and I got serious about investing.  We started multiple IRAs, but by waiting so late to begin, I lost the edge in compounding.

The Compound Effect by Darren Hardy explains how compounding is a great blessing in life and especially so in investments.

My issue was a lack of self-discipline.   Read my articles on Resilience and Determination which are attributes we need to acquire.

Article on Resilience
Article on Determination

My lack of understanding about Compounding really hurt me.   In my college years, I did study the Rule of 72 in accounting at college.

The Rule of 72

In summary, the rule of 72 shows you how long it will take to double your original investment based on a specific rate of return.   You take the interest rate and divide it into 72 to determine the number of years it will take to double your money.

Examples:
Interest Rate      No. Years  Calculation
6%                              12           72/6
10%                             7.2         72/10
12%                             6             72/12
20%                            3.5          72/20

In reverse, the rule of 72 can tell you what interest rate (return) it will require for the number of years to get it doubled.   Divide the years into 72 to get it.   If you want to double in 4 years, it will take 18%.   (72/4)

So, a practical example of this would be if you could make a consistent return of 12% every year, your money would double every 6 years.   Think of the number of times that would happen if you started at age of 23 versus 59.

If you started at age 23, you would double your investment 7 times before 65.
65-23 = 42    42/6 = 7

But at age 59, it would only double one time until you are 65.   HUGE HUGE difference.

The sooner you start, the sooner you can acquire a huge sum in your retirement account.
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Show discipline in your life and start now.   If you are young, take my word for it.   You really need to start now.  Don’t wait until you are in your 50s as I did and miss all the simple compounding of investments.    

The simplest and most direct way is to start investing now in a Roth Ira.

Differences in Traditional and Roth IRAs

By investing in a Roth IRA, all of your Interest, dividends, and capital gains are never taxed.   You don’t get a break on your initial contribution as you do on Traditional IRA, but there are no taxes on withdrawals and no forced RMDs.   (Required Minimum Distributions.)

If you already have a traditional IRA, it is ok to use it.   But you will have to pay taxes on your distributions.  One option is to convert it to a ROTH IRA and pay the taxes now.  Each situation needs to be evaluated.    An accountant or tax planner can give you good advice.
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But the answer to the question of “When To Start Investing” is TODAY.

If young, get started now.   If old, get started.   But the sooner you begin the sooner you will start having success.  Study and read about investing every day. 

​Read books by Robert Kiyosaki and Joshua King. (Kindle books)  We have many articles in our Investment’s tab.  Read all of our investment articles and pick a good strategy to invest and consistently fund your IRA while you can.  You must have Earned Income to make contributions.
 

 
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