Tag

index funds

Early Retirement, Lifestyle, Taxes and Investing

How Actively Managed Funds Legally Lie about Performance

Past performance is no guarantee of future performance.

I’m going to start an investment company. Actually, I’m going to start a whole bunch of’em. Anyone interested in throwing in with the Wealthy Accountant? Read on if you think I am a good investment risk.

As an accountant I don’t want to leave anything to chance. People invest in firms with proven track records that exceed the norms. Therefore, my investment company will start several investments with only my money at risk. Several different strategies will be used to see which ones outperform. Underperformers will be closed without any investor money put at risk.

Before you start shedding tears for me, know I only invested a token amount into each fund. My loses were small and so were the gains. I just needed to know which ideas worked best.

Only the winners will be offered to the public. That means you, kind reader. Only the finest for those reading my blog.

Once the deadbeats are eliminated I can provide paperwork showing the wonderful returns on the winning investments. In fact, every investor from now on will see investments returns that include the numbers when the investment was really small and unavailable to the public.

Since the early, and unavailable to you, outperformance carries the same weight as the future returns when the fund is larger, the investment might have lost money overall and still claim a positive long-term return to investors. In other words, results are not weighted.

Oh, but the Wealthy Accountant knows future returns eventually catch up to a guy. So, I will close funds that take’er on the chin. Nobody wants to see that kind of thing in this investment company. Only survivors get to live on around here. For the laggards: OFF WITH THEIR HEADS!




Continue reading

Related posts
Living with a NIMCRUT
July 14, 2017
The Fastest Way to Grow Your Net Worth
July 3, 2017
You, Inc.
June 28, 2017
Early Retirement, Taxes and Investing

Stay the Course with Your Investments




dollarrThere are two dangerous times in a retirement plan: when things are going really bad and when things are going really good. We have been lucky the last seven and a half years. The market has marched higher at a steady pace with nary a pullback to be seen. There are people in their 20s who have only seen the mildest of market corrections (a decline of 10% or more) and have never seen a bear market (a decline of greater than 20%).

The steady beat higher for so long is unusual. Regular investments have only known one direction: up. Money invested last year is worth more this year, same for the year before that, and so on. It is easy to invest in such an accommodating environment. The goal of early retirement looks so easy when every year is an up year.

Now the election is over and we have seen a serious move higher in the stock market. Bonds have been down more than stocks are up. The rally is narrow. High dividend yielding stocks and growth companies are down significantly. Banks and other financials are drinking the Kool-Aid. For the first time in years I have clients calling and readers emailing me for my opinion on borrowing money to invest in the market. Ahhhhhhh!Continue reading

Related posts
They’re All Dead
July 21, 2017
How Milking Cows Taught Me to Respect Women
July 19, 2017
I Preempt Our Regular Programming (Can We Talk?)
July 17, 2017
Taxes and Investing

Signs It Is Time to Sell an Investment: The Unfolding Lending Club Fiasco

23b65f55-97d0-408b-9215-14e47abb86fbI started investing in Prosper, the micro-lending platform where you can invest as little as $25 on a loan, back in June 2012. By investing a small portion in a large number of loans risk is spread out; no one loan going bad has an outsized effect on performance. I started withdrawing money after the returns plummeted after changes were made to the platform. Because it takes time to collect payments from loans held, it is an illiquid investment. My original investment of $13,400 is still worth $979 after withdrawing $15,430. Not great, but not bad either.

Before investing I did my research. I wanted to invest in Lending Club, but was unable to at the time because Wisconsin residents were not allowed. Prosper was my second choice so I took the plunge. Eventually I was able to invest in Lending Club, but because the rules were so easy to change (as I saw at Prosper) and the investment is illiquid I only added $5,000 to my Lending Club account.

When Lending Club went public I was allowed 200 shares of the IPO (I think, whatever the max was) at the IPO price. I sold within a day or so after it went public for a tidy profit. My opinion (and review of the financials) was investing in loans was better than the stock. My instinct served me well in hindsight.


Continue reading

Related posts
Living with a NIMCRUT
July 14, 2017
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
Recommended Reading
June 26, 2017
Early Retirement, Lifestyle

5 Things Rich People Do That You Don’t

20131025_124816The difference between wealthy people and non-wealthy people comes down to a small set of habits anyone can embrace themselves. There is no special trick or secret. Wealthy people do things the average person does not. Super wealthy people like Elon Musk, Bill Gates, and Steve Jobs share the same wealth-building habits with a bit of luck to give them a push. The great news is you can be rich, too! No promises on the super-rich thing, but you can be a millionaire if you choose.

There is an advantage for people like me working in accounting. I see people from all walks of life and their true level of wealth. Over time it becomes apparent how their habits reflect in the level of wealth and quality of lifestyle they have. We stand in awe and envy when we see people retiring at age 30 or 40, and rather than learn their habits, we seek to tear down their success. The only difference between people who retire early and those finding a comfortable retirement at 65 is how soon the wealth building habits are learned. Here are the five things I see rich clients do on a regular basis and non-wealthy clients frequently do not. Not only do the wealthy have these habits, they exercise them daily.




Continue reading

Related posts
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
The Fastest Way to Grow Your Net Worth
July 3, 2017
You, Inc.
June 28, 2017
Early Retirement

20 Is the New 50

20131025_163051

Don't let retirement sneak up on you.

The world looks different from my side of the desk. Three decades working with clients dreaming of retirement and the good life has revealed things you can’t fully understand unless you see it with your own eyes. We hear crazy talk like 70 is the new 50, indicating people at age 70 are as active as people once were at 50. Bullshit! I would be happy as hell if I could pry some people’s asses off the couch for more than a trip to the fridge at age 20. The noises they make is a tell; they are ready for the nursing home by 30. But I digress.

There is good news, however. Twenty is the new 50. It goes like this: the same people return to my office year after year as broke as they were in prior years. This goes on for decades. Then one day they hit 50 and realize, “Holy shit! I only have 15 years until retirement.” Spending slows and investing increases. Now they are open to the Wealthy Accountant’s advice. Fifteen years later my happy client reaches retirement with a nice nest egg. Now image how soon they could have retired if they had their “Holy shit!” moment a bit earlier in life.

The New Age Paradigm

Make no mistake; the pattern is still firmly in place. Convincing a client to slow spending and max out retirement accounts is an uphill battle. The excuses have remained consistent over the years: I earned a Hummer, SUV, 4-wheeler, boat, and on ad nauseam; I deserve a vacation; I work hard so I deserve an over-sized home; after a long week of work I need to party all weekend to unwind. Giving up bowling would be a cold day in hell until age 50 arrives.Continue reading

Related posts
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
You, Inc.
June 28, 2017
$10 Million Isn’t What it Used to Be
June 19, 2017
Taxes and Investing

Occam’s Razor

Keiths Razor

Keith's razor. Ah, hahahaha! Oh, grow up! This is serious stuff.

Life is more complicated than it has to be. More moving parts do not mean better. Electric cars have one moving the part, the motor; whereas gasoline powered vehicles have several hundred moving parts. More moving parts mean more things can go wrong. When all things are equal, the machine with fewest moving parts that still gets the job done is usually the best choice. Electric cars will outperform old-fashioned gasoline engine vehicles on every front as electric vehicles are improved. Lots of explanations will be given as to why electric cars blow gasoline engines off the road, but the simplicity of an electric vehicle will be a significant reason for the lower costs and higher performance.

Enter William of Ockham, a friar from the fourteenth century. Way back then he told us why electric vehicles, with fewer moving parts, would be a better choice once the technology was worked out. William of Ockham gave scientists a tool we now call Occam ’s razor. What William taught us is that the simplest answer tends to be the correct one. Scientists use Occam’s razor as a tool to break down theories into their simplest components. Therefore, by breaking down the theory into small (simple) testable parts, fewer excuses can be made when the results are falsified. When there are too many moving parts it is too easy to make excuses as to why the experiment failed. With fewer moving parts the test results are more reliable because there are fewer opportunities to give explanations for the test failure due to other circumstances. The same applies to the world of FI (financial independence).


Continue reading

Related posts
Living with a NIMCRUT
July 14, 2017
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
The Fastest Way to Grow Your Net Worth
July 3, 2017
Taxes and Investing

Valuation: Warren Buffett Style Investing

Book only.

Book only.

In the course of my work I am frequently asked to place a value on a business a client wants to sell or acquire. There are several ways to determine value in such situations. Today we are going to focus on the value of listed companies (stocks). Warren Buffett has stated most people should drop their money into an index fund and let it ride. If you are like me you follow Warren’s advice, but invest a portion of your money in individual stocks anyway.

There are numerous books on Warren Buffett and his style of investing. These books glance over the process Warren uses, focusing on tidbits of advice Warren has given over the years. Reading Graham and Dodd’s Security Analysis exposes how difficult it can be to value a company. Since Graham and Dodd, our understanding of value creation has grown and Warren Buffett uses the new analysis tools in his investing style.

Continue reading

Related posts
Living with a NIMCRUT
July 14, 2017
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
The Fastest Way to Grow Your Net Worth
July 3, 2017
Early Retirement, Frugal Living, Lifestyle, Taxes and Investing

The Tragedy of the Commons in Investing

Just one more cow.

Just one more cow.

Back in the early 1980s a CPA named Herb Vest had this crazy idea to merge the investment and tax preparation fields. By the 1990s both HD Vest Financial Services and your favorite wealthy accountant’s tax firm were hitting full stride.

My first career choice was not tax preparation or accounting, it was financial services. I fell in love with the stock market crash of 1929 my sophomore year of high school and from that point on wanted to be a stock broker. Tax preparation was a seasonal job I preferred over working all year long, putting the stock broker idea on hold. Besides, I invested most of my income and the library was filled with great books on the stock market and its history.

Continue reading

Related posts
How Actively Managed Funds Legally Lie about Performance
July 7, 2017
Laziness Made Me Rich
July 5, 2017
The Fastest Way to Grow Your Net Worth
July 3, 2017