Posts Tagged ‘investing’

Finding Under-Valued Stocks

Find under-valued stocks for high profits. Use the most hated stocks for the best investment returns.Jack Bogle gave us the index fund. Warren Buffett has said most people should put their money into index funds.

Personal finance bloggers—especially in the FIRE* community—spout “index fund” like it’s a nervous tick. And you might have noticed this blogger has the same nervous tick.

Some are worried about all this index fund investing. The concern is index funds will control so much of the market that it will lose its efficiency. I remember the same concerns in the 1990s, when I was a stock broker, about mutual funds in general, most of which were actively managed.

Index funds will not break the market any more than actively managed mutual funds did. For one, there will still be plenty of people investing in individual stocks. And the hedge fund guys will do their share providing liquidity.

Index funds are automatic investing. All mutual funds and ETFs for that matter. You drop in your money (dollar cost averaging is suggested) and let time perform its magic. The broader based the index fund, the better your chances of enjoying the stellar performance of the market averages.

But some people don’t like “average”. And even the most hardened index fund investor periodically finds a company she would like to own a piece of directly.

That is where we come in today.  Finding a gem that can add to your portfolio’s performance isn’t easy, but possible if you know where to dig. Many have made a career out of beating the market with thoughtful investments. 

Index funds should be the home for a good chunk of your money. However, you might have a mad money account or even a serious money account for investing in businesses you feel are under-priced while possessing future growth potential.

Investing in individual companies can be very rewarding, but carry significant risks. I’ve been fortunate in finding great businesses that have performed well over the decades. My individual stock investments have outperformed the market. I’ve also noticed I think differently about an investment than most. 

Today I will share why I buy what I buy, and more importantly, why I pass on so many opportunities that seem so obvious. 

 

Buy the Hated, Be Leary of the Loved

Most people buy the hot stock because everyone is doing it and the recent price action has been tilted steeply up. These are the loved stocks. In the early 1970s they were called the Nifty Fifty; we now call them FANG (Facebook, Apple, Netflix and Google, the parent company of Alphabet) today. 

Buying hot stocks is easy because everyone is doing it. That always causes me to pause. 

For disclosure, I own one share of Facebook and a modest amount of Apple. I never owned any Google stock, but had a brief fling with Netflix.

Most loved stocks are priced accordingly. While I do own some shares of FANG companies, they are not predominant in my portfolio. 

Let’s do a brief rundown of the list. Netflix is sporting a 134 price/earning (p/e) ratio as I write. While NFLX has a dominant market share and there are reasonable barriers to entry from competition, NFLX faces stiff competition from Apple and more importantly, Disney. NFLX doesn’t have to fail to drop significantly. If Disney captures even a small slice of NFLX’s business the stock is in trouble.

Google is also richly valued at over 40 times earnings. Facebook is a company I want to own, but management is concerning. FB has a dominant platform and not much in the way of competition. When FB dropped below 130 in December, the margin of safety was large enough for me to buy. But it was a modest investment. 

Apple is a story we’ll address shortly.

I’m not saying there is never value in popular businesses. What I am saying is they tend to be over-priced. Warren Buffet once said he preferred a great company at a good price than a good company at a great price. Think about that for a moment.

NFLX and GOOG are excellent businesses, but are difficult investments to make at the current price. You don’t buy a great company at any price! You want to buy great businesses at a good price (or better) with plenty of margin for safety. Things do go wrong, you know.

Another area I tend to avoid are the socially acceptable investments. Everybody wants to invest in green companies these days. As a result, all that extra money is pushing these investments to levels too rich for this accountant’s blood. There can be select quality investments in this area, but none of it is cheap.

Since investing is about making money and not some ethical or moral statement, I seek value where others tend to avoid. Think of the most hated stocks: oil, coal, tobacco, processed foods.

I don’t own Exxon-Mobile (XOM), but I did take a look-see. As longtime readers are well aware, I own a lot of Altria stock, one of the largest tobacco companies on the planet. This is a good place to start our research on what makes a business worth buying.

 

Anatomy of a Good Investment

I think it was Warren Buffett who said, “It costs a penny to make and it’s addictive. What’s not to like,” about Altria (MO). In my opinion, Buffett would own a large slice of MO if he didn’t have a reputation to uphold.

Peter Lynch, in his book Beating the Street, shared his wisdom with a set of principles. Peter Principle #14 said: If you like the store, chances are you’ll love the stock. While Lynch is a legend in the investing world with a whopping 29.2% average annual return (better than Warren Buffett’s) when he managed Fidelity’s Magellan Fund from 1977 to 1990, there are times his principles are not hard and fast.

Use the secrets of hedge fund managers to find hidden gems in the stock market. Buy before the stock moves higher.Take, for example, Amazon. AMZN is a great company with great management. I love the company and buy plenty of stuff from the platform. Unfortunately, the stock price is not so great. Buying even a great company with great management at nearly 100 times earning is a serious risk. AMZN is a great company, but probably not the best investment for me.

Which illustrates a point. I don’t smoke. Never smoked. But I do love MO as an investment. Their track record is unbelievable and they are doing it in a shrinking industry. 

Still, my purchases of MO slowed these past few years. The price was a bit high for the situation and the 30 years of a declining cigarette market was starting to look problematic. True, MO has the world’s leading cigarette brand in Marlboro and are one of the best managed companies publicly traded. Management loves rewarding shareholders which is also a good sign.

The declining market size didn’t concern me the most; competition did. Peter’s Principle #16 says: In business, competition is never as healthy as total domination. I agree. And MO was facing serious competition for the first time in decades from a new foe: Juul.

Vaping isn’t exactly the most loved industry either. However, vaping was taking market share from MO and it was starting to move the needle. MO made attempts with their Nu Mark product to no avail. Juul was taking over the vaping market the way MO took over the cigarette market. And the regulatory environment creates plenty of barrier to new entrants.

What turned me the most positive on MO in my life was the 35% purchase of Juul. And the best part is vaping costs less than a penny to make and is also addictive. (MO also invested in a Canadian marijuana company.)

My greatest excitement with Altria is the potential size of the vaping market. When you review the numbers it is not hard to see Juul could be a larger company than MO. And more profitable due to the lower taxes on vaping products. 

Excitement is not a good thing when investing! Boring is best because this is going to be a long slog. Patience is the most important quality when investing. I bought my first shares of the now Altria in the early 1980s. If you reinvested the dividends, MO was one of the best performing stocks of the last 30 years. And you enjoyed a couple of profitable spin-offs along the way. 

Here are the things I looked at when purchasing more MO in December and earlier this year:

Is there an existential threat? 

The massive investments MO made in late 2018 required review. The question has to be asked: If the government shut down Juul today would if put MO at risk of collapse? 

After researching the issues it became clear the answer was “No”. If Juul went out of business MO would lose their $12.8 billion investment. But(!), this would not be enough to cause a dividend cut. Dividends would climb slower, no doubt, but the enterprise would continue. Also, if Juul disappeared, the people using the vaping products would probably turn to cigarettes for their nicotine fix, which MO has a dominant share of the market.

What about debt?

All else equal, I prefer companies with less debt. MO certainly has debt. The debt they issued to buy Juul will increase interest expenses. MO management said cost-cutting would be enough to offset the entire additional interest expense. Very encouraging. 

An over-leveraged company should be avoided as the risks are too high. The balance sheet should provide all you need to determine the debt level the business has.

Everybody hates it!

MO’s stock took it on the chin as investors hated the Juul investment, at first. For a brief moment I was able to buy a great company in a hated industry that was hated by even its own investors. And there was nothing to warrant such a response. Yes, MO paid plenty for Juul. However, looking at Juul’s growth, the price will look like the steal of the century in less than a few years. So I backed up the truck. Now my dividends are even higher.

Financials?

You do not need to be an accountant or tax professional to read a public company’s financials. But you do have to read them. Let’s take a look at MO’s balance sheet.

 

 

The balance sheet is the most important financial to review. (The cash-flow statement is a close second.) Income statements can be cooked, if you will. The balance sheet tells me how solvent the firm is. It also tells me if a recent investment creates an existential threat. 

As you can see, MO has reasonable amount in cash and investments in other companies. If MO sold all investments in other companies they own for the price they paid they would have enough to retire all debt. MO investments in Juul and ABInBev are solid investments so they probably could sell these investment holdings at a profit. But we’ll discount some of these investments anyway to pad our safety margin.

When you review MO’s cash and investments against it’s debt and consider the shareholder’s equity, it is easy to see MO is not facing an existential threat due to their Juul investment.

One thing to note. The reason for the large negative number for Treasury Stock is due to share buybacks.  This is not unusual.

 

A Few More Investments

As I noted in the beginning, I have a large share of my liquid investments in index funds. My retirement funds are almost 100% index funds or cash. My non-qualified monies (money in non-retirement accounts) are partially in index funds; a large portion is also in individual stocks. Buying good companies and holding them for a long time by default will increase the percentage not in index funds.

Apple is one of my newer investments. I will not provide financials as I did for MO. You can see Apple’s financials at CNBC

I prefer buying when a company is on sale. December last year when the market was down ~20% had me buying heavily. APPL has been in my portfolio for years and I added to it. I never used their products so I didn’t know if I’d love them or not, but I am fully aware of the cult status Apple users feel about their Apple products.

APPL is a popular FANG stock so it might be something to avoid. Except, the stock price increase was accompanied by increasing earning, low debt, loads of cash and stellar management. Of all the FANG stocks, APPL has the best management team. 

If you take the cash and subtract all debt, APPL still has ~$35 per share in cash! This means the p/e ratio is lower than listed. In other words, the enterprise has a 13.74 p/e ratio on it as I write. This is more than a reasonable purchase price for a company in a class by itself and a cult-like following. Though, I would prefer it “more” on sale before buying more. 

 

Knowing When to Sell

Selling can be harder than buying. Even the world-renown Warren Buffett, who says his favorite investing horizon is forever, sells investments periodically.

Even your favorite accountant has sold a few shares of his beloved MO in the past.

Let’s take an example of why selling is different than buying. Buffett’s fourth largest holding is Coca-Cola (KO). He bought KO in the 1980s (if memory serves) and has held it since. The dividend is solid and growing. 

Learn the secrets of buying under-valued stocks before they are discovered. Buy your investments on sale for quick profits.If you looked at KO today (a hated stock because they sell sweet drinks bad for teeth and accused of causing obesity) you would probably take a pass. The company is awesome with an awesome product and solid management, however. KO is dominant in their industry. But where is the growth coming from?

KO has a lot in common with MO. People are drinking less fizzy soda water and the world population is no longer growing fast enough to power profits higher. Unlike MO, KO can’t raise prices as easily. 

That said, If I owned KO I might not sell it. (I owned KO from the mid-80s to the late 90s.) The financials don’t excite me enough to buy a piece of the company. However, selling doesn’t make sense either. Selling would cause a serious tax bill if you held the stock a long time. And dividends like that are hard to come by.

When I sell it tends to be early on. If my original premise starts to erode I sometimes exit the investment. I bought Tesla and eventually sold. Of course I look smart because the stock was straight up at that time. However, my investment was more along the lines of keeping an eye on the company rather than a new serious investment position. The issue: Tesla without Elon Musk is in big trouble and they might be in big trouble anyway. I consider that a management issue in a very competitive market getting more competitive by the day.

When Facebook did a Faceplant in December, I bought. After considerable thought I came to the same conclusion about management and sold. 

Like Buffett buying KO, I bought Aflac (AFL) in the B’C.’s (actually the early 1980s) and held it ever since. I haven’t bought more in longer than I can remember. The dividends are climbing and it has been a good investment with a very accomplished management team. I looked at AFL recently (for this article) to see if I should buy more. There are certainly reasons to buy, but not enough for me to add to my position.

Certain things will have me selling fast. Hints of accounting irregularities are usually a sign to exit. If new management is failing, I leave. (I owned GE once upon a time and sold all of it because I had no faith in new management after Jack Welch left.) 

 

Waiting List

Patience is key to winning at investing. You wait for the right deal, then buy and wait forever as the business value keeps climbing. The stock price and dividends soon follow.

Finding a list of “hated” companies is easy. I want big, dominant companies in my portfolio. This reduces the chance of catastrophic failure. A good example is Boeing (BA).

BA is one of two major aircraft manufacturers in the world. (There are some smaller firms, but BA and Airbus control most of the market.) Recent crashes of Boeing 737 Max planes put BA under pressure. I bought a share so all the news stories would populate my feed. The stock started climbing so I thought I might not get a chance to buy at a “good” price. It happens. Most “watch list” businesses never become a real investment. 

BA came down again, but not enough for me to buy. Personally, I like BA more than airlines. Buffett disagrees, but I’m okay with that. 

Another watch list stock is JNJ. I owned JNJ in the past and I forget why I sold. (It was a dumb idea.) The recent asbestos in baby power/talc court ruling drove the price down. A little. Not enough to buy.

I’m watching Microsoft (MSFT) also. They really found their mojo after years where management struggled. I think Satya Nadella is a good leader at MSFT.

 

Of course, I own other businesses not discussed here. The idea is to give you the mindset necessary to win at investing.

Here is my final note: There is no crime is holding cash! Sometimes I catch heck when people realize I’m holding cash instead of investing in index funds. I can handle it. When the market is up I buy less because good investments are harder to find. When the market declines, like it did late last year, some businesses get discounted more heavily than others. Usually I find reasons to put my cash to work at those times. 

Now the market is near a new high again and new money is still looking for a home.

So I wait. Patiently. 

 

* FIRE: Financial Independence, Retire Early

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

How to Use this Blog to Earn a Quick $1 Million

People prefer the familiar over honesty. That's not good for your wealth. If you want money you have to stop following the herd.By now you’ve probably realized this blog is a bit different from others in the personal finance arena. Sure, we talk plenty about taxes, investing, frugality, retirement and more, but how we go about it is different on a very subtle level.

The general media and popular bloggers of personal finance preach the same information without saying anything new. They spout “spend less than you earn”, “invest in index funds” and discourse endlessly about the 4% safe withdrawal rate from retirement accounts. 

Well, duh!

Yes, you might find often repeated advice motivational (I do), but you can go almost anywhere to hear it. Dave Ramsey is right. Get rid of debt! You do this by spending less than you earn. Baby steps help as you develop your financial skills. Then what?

However, once you get serious—I mean really serious—advice like “spend less than you earn” seems darn basic. Heck, grandpa told you that 30 years ago without referencing any blogs or media outlets. You need better information if you are going to climb to the next level.

In the early days of this blog I worked hard to find a place in the demographic. I always wanted to take the less traveled road. If everyone said you should retire early and travel the world, I pointed out the flaws in the logic. Conventional wisdom—much like the herd of lemmings racing for the cliff—is wrong!

If I was to add something to the heap of personal finance material already in existence, I would need to take drastic measures. And do it subtly!

You might notice the bloggers spouting the same gibberish get picked up by mass media outlets while your favorite blog (that had better be this one!) gets nary a mention. The reason for this is people prefer the familiar to an honest answer that could make a real difference.

 

Comfort Zone

Therein lies the risk to your wealth. The pantheon of bloggers telling you the same message risks you joining the herd. And as we all know, the herd gets slaughtered. (Grilling season is right around the corner.)

If it’s easy and fits in a witty soundbite (or click-bait title) it gets more attention. But this isn’t necessarily good for you financially. 

I made you, readers of this blog, a promise. Last autumn I promised to change the tempo of this blog, focusing on you, the reader. Prior to that I provided good information, but always with a jaundiced eye toward what would bring in more readers. That required me to sound like everyone else.

Put an extra $1 million into your investments easily. These proven methods are used by the wealthiest people today.But you can’t point out the flaws in over-simplistic information by sounding the same horn. If I was to give my readers a chance to put at minimum $1 million dollars in their pocket, I had to step up my game.

I did that before to some extent with a few notable exceptions when I sold out to the crowd. Time for consistency.

Things are different now. When was the last time a blogger dropped north of $16,000 to test outsourcing so his readers could benefit?

I’m not talking about building an addition to your home and making a blog post out of it. The blogger benefits regardless. I’m talking about dropping serious cash to explore an option with the benefit going to the reader whether it worked or not.

In the office they said I was nuts with my outsourcing idea. It turns out I was. Still, readers won! Other tax professionals (even those hiring a tax pro) received valuable information on a powerful trend affecting many industries.

That is what I mean by being different for the benefit of the readers of this blog.

 

Million Dollar Opportunities

So how can reading this blog add $1 million to your wallet?

You have probably read blog posts on side gigs that pay well. All those posts and articles in the popular media outlets spout pretty much the same thing. And the biggest complaint is that they don’t work as promised. 

The reason they don’t work as promised is because they require a special skill (maintenance man for landlords) or have low expectations (dog walker or Uber driver). Sure, you can make money house sitting and walking the neighbors dog, but the opportunities are limited and frequently less than satisfying ways to spend a day. Doing what nobody else wants to is not a side gig; it’s as torturous as working for the man!

This blog has offered several side gig ideas over the years as well:

Several additional idea have been interspersed throughout the text. 

The nice thing about my side gig recommendations is that they are rarely mentioned outside this blog. And you can do these all from home. Many small tax offices are run out of the owner’s home. It keeps costs low and allows you to stay small so it doesn’t overtake your life. 

Forensic accounting, for example, is a wide open field. Yes, you can work for someone else, but you can also start your own business specializing without any formal education, except what you learned reading The Wealthy Accountant. Nothing is more rewarding than helping people find financial stuff they thought lost forever.

I also warned about side gig risks and even offered a side gig tax guide

 

Flaws and Solutions

So how do you get your hands on the promised $1 million? 

Lists of side gigs have one inherent problem—they lack details. It’s wonderful to tell someone they need a dog walking job, but then forget to provide a play-by-play to do so. My post on 12 seasonal, high-paying side gigs has the same flaw. It takes the shotgun approach and fails as all other similar attempts do.

I did a better job outlining tax preparation and forensic accounting as a side gig. I recommend reviewing those posts if you are serious about a side hustle that is fun and very profitable.

Most opportunities are more subtle. Last week I published on when it’s a bad idea to add to your retirement account. The wire to my email box melted off after I published that. I think I had more people contact me asking for help on this than read the article. (That’s not as much of an exaggeration as you might think.}

The flaw with most blog posts and popular media articles is trying to serve everyone. The solution is to serve just one person: you, the reader. 

You can’t give 30 good ideas and expect people to use any! Research into retirement plans has made this clear. (Several research papers have found that the more options you give people the less action they take.) 

That is why I don’t tell you each week is yet another great side hustle idea. 

Take last week’s post, for example. I provided multiple examples of situations where adding to a retirement account would exacerbate future tax problems. Several solutions were provided while special note was made that facts and circumstances of the individual would prevail (we are all unique). 

I know many readers understand full-well what I was talking about. Focusing on this one special situation is a massive side hustle opportunity with plenty of income potential.

I charge $350 an hour for consulting on stuff like this and I’m booked out till Christmas. You can be just as booked with a few strategically placed speaking presentations at a local Optimist Club or Eagles. The average client will save well into the six figures in taxes and net worth. You will log an average of over 5 hours per client at your regular rate.

 

Show Me the Money

It’s all about focus. You can’t be everything to everyone. (God knows I tried.) 

Find your niche, get good at it and sell it to the world. 

Warren Buffett’s Berkshire Hathaway owns a lot of different companies. But Warren does only one thing: allocating capital. He is really good at one thing and let’s others do that they specialize in.

The same applies to you. Find that one niche that tickles you and exploit it. 

Don’t worry about not liking it down the road. I tried a lot of different things. That is why I have so much to share here. I’m always into something. 

It’s okay to get good at something, do it for a while and then move to something else. I did it my entire life (all under the umbrella of my tax practice, my true focus) to great success.

 

It’s About More Than Earning Money

So far I focused on earning more. Plenty of readers have reminded me it isn’t worth cutting taxes if you are earning minimum wage. Many have lamented not having money to invest so I started with earning more money.

You can pick almost any post on this blog and turn it into a profitable side hustle. I warn you to only focus on one project at a time if you want to keep your sanity. It’s also more profitable that way

The amount of wealth you have is in direct proportion to understanding the secrets of money. Wealthy people know how to focus on the right things for maximum wealth creation.But now that you are earning more money you need to know what to do with it. I’ve discussed that a lot too.

The conventional wisdom is to drop the whole shebang into an index fund and live with the results. It’s sound advice if you can live with the decision.

Instead, I encourage readers to put most of their liquid assets into index funds and also have a small mad money account for crazy ideas. 

But serious money doesn’t belong in a mad money account! That is why I recently revealed I’m dropping my mad money account. Money is too important to just throw away on crazy ideas! 

When it comes to investing, emotions are the most important element. I’ve witnessed so many clients over the years in my office lose money on investments they were stellar performers. The constant buying high, only to be scared out of the investment on a temporary pullback, is cancer to a portfolio.

Last December the stock market dropped around 20%. People in the demographic that read blogs like this one were starting to panic. And there was no real pain at that point! On Facebook people were screaming they were ready to pull the plug (sell into the down market). 

I was buying more. I actually bought my largest portfolio addition of the year on Christmas Eve, the market low of the pullback. I was able to buy when others panicked because I had no emotional attachment to my investments.

When it comes to investing I recommend reading the same thing again and again until it sinks in as long as what you are reading tells you to not trade based on the current direction of stock prices.

If you are good with numbers and have a small amount of business training (you read good business books) you can research potential investments outside an index fund.

I frequently share what I am buying (and every so often, selling) in a private Facebook group.  If you want to join just make a request. Since I run the group you have a good chance of becoming part of our tribe. Just mention this blog post and I promise quick approval.

 

Here’s Your Check

None of this should be surprising. Picking up a side gig where you don’t have to run the world (just focus on a narrow service) is the perfect solution to increasing your income. 

Learning to set aside emotions (something I publish about a lot when the market is down so readers don’t make a stupid mistake) takes practice. If you master that trait you will watch your net worth rise higher than Jack’s beanstalk. 

And it doesn’t take long either. I’ve seen more people build a million dollar income and/or net worth in a manner of a few years more times than I can count. It happens a lot more often than people realize.

Once you learn the secret (it’s not much of a secret anymore) all that is left is controlling emotions.

Set your focus on one post here and read it several times. Then follow the links, if provided. Read outside this blog, too. I don’t know everything and my worldview isn’t absolute. 

Where possible, run scenarios. (Example: If you plan on helping people optimize the right amount to invest in retirement accounts versus non-qualified accounts, run a few few tests to see how the numbers interplay with the tax code.) 

Then set a game plan to acquire clients. I’d tell you how to do this, but I already have (check the link).

Now that you have more money, sock half of it into an index fund. Leave a bit to the side for what I call pleasure investing. Research companies you are familiar with (maybe you use their product or work in the same field they serve). When you find an under-priced gem, buy. (Next week I’ll show you where I find under-valued stocks.)

It’s as simple as that. 

If you follow what I outlined in this post you should see no less than $1 million of income and net worth growth above what you already have. All you need to decide is how fast you want it.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

A Non-Political Look at Income Inequality and the Wealth Gap

3 ways you can end income inequality and narrow the wealth gap. Together we can change the world.Frequently we look for political solutions to income inequality and the wealth gap. While the issues can be improved slightly from political action, there are two additional ways to close the wealth gap and level income that are more effective.

Politics is the messiest way to fix these problems and history offers ample warning for those who seek answers from this source. One need not look further than Mao’s China or Stalin’s Russia to see how abysmal political leveling can be. North Korea is a modern example of how not to level the playing field. 

Let’s turn our attention to the second way income inequality can be reduced. Walter Scheidel in his book The Great Leveler explains what he calls the “Four Horsemen” of leveling: war, revolution, collapse and plague. Historically these four horsemen have been the leading cause of leveling of income and wealth throughout history. 

Once again this is not a comforting thought. You can read Scheidel’s work for an in-depth review of his research. The record is clear, however; it takes great dislocation, pain, suffering and death for income and wealth to level naturally.

The first two methods of leveling the playing field are not valid choices if you enjoy freedom and like living a comfortable life. These first two methods of leveling are accomplished by bringing the top down rather than the bottom up. Which leads to an interesting thought experiment on how much we really want income equality and a narrower wealth gap.

 

Defining What We Really Want

Before we continue to the third and most viable way to level income and wealth we need to define what it is we really want and what we are trying to accomplish.

Leveling the playing field is actually very easy if you are willing to destroy massive amounts of wealth. Scheidel’s work and the 20th Century are amply examples of fixing the problem the wrong way.

Political solutions eventually lean toward solutions that are relatively effective which means forcing the top down and violence. The four horsemen do the same thing with the crude hammer of god. 

When most people speak of equality they mean they want to bring the bottom up, otherwise they are no better off than before while the upper classes are rent destitute. Normal people are not so dark in their thinking.

Therefore, we really should not care what other people have as long as we are enjoying affluence. Complaining you have one less apple as you relax in paradise is way too diva for this writer; it also shows a remarkable lack of emotional maturity.

In the Western world affluence is high, but there are still people stuck in poverty. The 1% have taken a larger and larger piece of the pie which means the middle class is getting squeezed with smaller gains and the poor are outright losing ground. (See embedded video.)

 

 

From the middle class on up the Western world enjoys massive affluence the rest of the world aspires to. A nice home with two SUVs in the garage are common. Travel is an affordable luxury. Food and clothing ample.

But there is something that grinds on our conscious when one person is paid less than another for the same exact task at the same exact skill level. This requires effort to fix.

While it is easier to ask someone else to make the change, each of us have within ourselves the ability to force equality. 

As a business owner we can take great measures to ensure employees are treated fairly and equitably. But what about large employers? How can we force change across our society?

And before these actions take hold, what can we personally do to narrow the wealth gap in our own life? Can we narrow income inequality in our own life regardless what business or government does?

This brings us to the third way to level the playing field.

 

 

The Numbers Don’t Lie

In 1995 James M. Poterba of MIT and Andrew A. Samwick of Dartmouth College published a damning report on household wealth in America

The above chart shows the household savings rate in America for the last 60 years. In the 1970s the savings rate began a precipitous decline. At the same time income inequality began to grow. Could there be a correlation?

Poterba and Samwick discuss historical stock ownership in America in their report. Their most interesting comment is telling: All corporate stock is ultimately owned by individuals. They allow for foreign ownership of U.S. equities which was around 5% at the time they published.

Here is what you can do to end income inequality today! 3 ways to narrow the wealth gaps and level income.While stock ownership eventually is owned by individuals, the real question revolves around which individuals own these investments.

According to the report household ownership of stocks was nearly 90% in the 1950s and has declined to less than 50% by the 1990s. Since the report it is fair to say stock ownership has continued declining.

The third way to level income and smooth wealth can only be accomplished on the personal level. If most people refuse to engage the exercise they will suffer greater inequality and there is nothing the government or any politician can do about it!

Traditionally the arguments surrounding income inequality involves wages. There is truth behind the inequality in wages over the last 30 or so years. The richest are getting the largest share.

But this ignores every other source of income! In the 1950s virtually all households held some stock. These households had a fractional share of ownership in these corporations. Dividends went to the household, almost all of them.

Now fewer than half of households own stocks which means these households have zero income from this source. The wealthiest by default ended up owning nearly all America’s wealth. People complained, but refused the one solution nobody could stop them from exercising.

And capital gains and dividends are taxed at a lower rate than ordinary income, like wages. Even with this massive incentive for individuals to own stocks the average person took a pass. And so income inequality grew. 

All the gains in America’s growth hence went to the remaining owners of America’s engine of economic wealth. There was no other possible outcome. The people who held stocks (owned a piece of American businesses) ended up with all the gains and the gains were spread to a narrower and narrower group with each passing year.

 

Get Your Share

At first glance you might think something as simple as having more people own shares in American businesses would not solve the whole problem. That thinking is wrong.

Owning a piece of America’s value creating machine means you get a slice of the profits in the form of dividends. Many middle class taxpayers pay a very low or no taxes on these dividends. 

Something else happens when more people own a piece of corporate America. Your fractional ownership slightly levels the wealth gap because you now own something tangible like the wealthy do. Your share might be small, but there is power in numbers. 

When nearly 90% of households held U.S. stocks, dividends were more widely distributed. It also meant nearly every household had a small say in how companies operated! (Remember, you are a part owner when you hold stock.)

As fewer people held stock there was no one to slow down the enormous gains in CEO salaries. The CEOs rewarded the remaining few shareholders and employees were left out of the discussion because they didn’t own a piece of the enterprise.

Of course, owning a few shares in McDonald’s doesn’t give you the ability to dictate policy at the firm. But if many people owned stock in the company they could gather enough influence to change corporate behavior!

It might sound strange, but what would happen if every employee of McDonald’s owned 100 shares and worked together to change wage policy at the firm? I know, I know. People working at McDonald’s can’t afford to own stock in the firm. Yet I argue you can’t afford not to own a piece of the company if you ever want to change corporate policy!

Income inequality and the wealth gap are the same exact problem! As the wealth gap widens the lower end of the economic scale has less and less say. Of course the people on top want more and they get it because nobody that owns the company says different. 

 

The Gift That Keeps Giving

When my kids were growing up they received a share of stock as a gift for Christmas every year. One year they got a share of Wrigley, another year a share of Disney. 

Part of the gifting process was to examine each company they had stock in along with a few other possibilities.

The family came to the conclusion Wrigley was a winner for a variety of reasons. Wrigley gave every shareholder a case of gum each Christmas which my kids found incredible valuable. Stock ownership had real benefits! 

The financial reports also looked promising. Earning grew and so did dividends. Dividends were reinvested while excess cash was funneled into more shares. The growth was impressive.

Then Warren Buffett came along and funded Mars Corporation’s cash buyout of Wrigley. (Damn you, Warren!) Every member of the Accountant household got a big, fat juicy (Wriggly makes Juicy Fruit gum) check for their ownership in Wriggly. It was a bittersweet moment, however.

Yes, a big, fat juicy check is always welcome, but the regular income of dividends ended! And worse, no more gum in the mailbox in mid-December! It was as close to a crisis as I ever saw it!

While many people use index funds, there is something lost when we give authority to a mutual fund to vote our shares. That is why I still own individual shares in companies.

Your influence is minor when you own a few shares in a company. But even without a majority of ownership a large number of shareholders can make life very unpleasant for management tone deaf to owner/employees. 

Regardless your minor control of the companies you hold stock in, you have an unseverable right to your share of profits. This by default shrinks the wealth gap and income inequality for you.

 

Fixing the Wealth Gap and Income Inequality One Person at a Time

It is tempting to blame government and politicians for the wealth gap and income inequality problems. But as we saw above, the problem is not a political one and politics can’t solve it regardless what politicians promise!

You can change the world; you can make a difference in ending income inequality.Natural levelers are down-right brutal. We don’t need a catastrophe to level the field to an acceptable level. Complete equality is a terrible goal as the 20th Century has shown. However, the current environment is way too lopsided to be good for society in the long run either.

Businesses are the engine of value creation and growth; labor builds the goods and provides the services that make that value creation and growth possible. It is fair to say labor should have a reasonable slice of that pie.

Looking to the government for solutions is only a minor stopgap. Social services (the safety net) can be increased (and improved), but this is unproductive after a point. While more can be done in this area, it will not solve income inequality if individuals refuse to own a piece of the means of production! Nor make even a dent in the wealth gap!

Unexpected plague, war, revolution or collapse can temporarily level the field, it does so by bring the top down, leaving the middle and bottom no better off than before and probably worse. To fix income inequality issues and narrow the wealth gap, we want to focus on improving the most amount of lives as possible, not destroy everything until we are all level digging in the dirt for sustenance.

I know the world preaches index funds; so do I. Before Jack Bogle passed away recently he warned of the issues I brought up above. If mutual funds/index funds/ETFs control all the stocks they will vote the rules in corporate guidance. 

If you respect and value freedom you will demand a voice and your voice is purchased with ownership. It doesn’t take much. A few shares of three good companies can do wonders for your economic status. You can still hold index funds with the bulk of your money. (They pay dividends too, you know.)

Even without direct ownership (ownership through index funds) you still personally shrink the wealth gap. The increasing dividends added to your wage income narrows income inequality ever so slightly.

It took 40 years for the problem to grow this wide; it will take more than a few years to fix, even in your personal life. 

Or we could do what we’ve been doing all along and hope it changes magically all on its own.

Or demand a government bailout. (But then you’re just like corporate America.)

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

The Coming Collapse of China

Protect your finances if China's debt bubble implodes. Don't let the trade war ruin your retirement plans.

Protect your finances if China’s debt bubble implodes.

When the Western economic world collapsed in 2008 there was only one beacon of light: China.

For decades China has grown at nose-bleed speeds and looked like an unstoppable economic miracle. Now the foundations of that miracle are exposed and the house of cards is in peril. Shadow banks and ghost cities are only the tip of the ice berg.

Speculation over the years of fudged official economic numbers coming out of Beijing is starting to haunt the government there. As 2018 came to a close the government reported the slowest growth in 28 years. This was still a bit north of 6%.

Unfortunately, these slower growth numbers are probably a wildly exaggerated lie. Recently, a former chief economist for the Agricultural Bank of China mentioned a report that two recent studies show China’s economy growing at a mere 1.67% and another showing the economy actually declined.

While there is no doubt China has made massive economic leaps over the past several decades, much of the recent growth is built on a shaky foundation.

In many Western nations an economic crisis can ensue from excessive indebtedness. The difference between Western nations and China is what the debt funding was used for. In the U.S., for example, corporations can over-extend themselves, causing over-production and an inventory hangover. Household debt might be wasted on stuff that has virtually no value. But homes and autos have at least some value and a good amount of utility. Something we will see China wasn’t spending on.

 

Dangerous Foundation

China is mired in a massive amount of debt. Trustworthy numbers are hard to come by, but many reports claim China’s government and municipal debt are several times larger than the annual economic output of the country.

What China spent the money on is a bigger problem than the excessive debt! The growing mountain of debt is difficult to manage. However, if the debt was used to produce something of value it would be possible to work through the financial problems with only modest economic pain.

China did some of that (spending on productive investments) and a whole lot more creating rubble. 

People inside China have captured videos of buildings built in the last decade tipping over and put them on YouTube. Ghost cities in China are well known outside the country. Whole cities with virtually no people living there. 

What is worse is the quality of construction. A large number (based upon information from people living in China a long time) of buildings only a few years old look like they are more than a century old! It is hard to imagine the crumbling facade and disrepair huge parts of these cities can fall into after only two or three years. Again, YouTube videos allow you to glimpse the slow moving disaster in the works.

The layers of debt these unlivable buildings have is equally ill-constructed. Municipalities borrow so they can encourage growth which generates tax revenue. (The tax system in China is untenable as local governments frequently find the greatest source of funds though the crazy financial deals with developers.) 

Builders, which are frequently state-owned and very inefficient, pile on more debt to build the structures.

Then the final layer of debt is added when individuals buy, believing real estate never goes down in value. People in China buy real estate because they consider it a good investment even when they don’t live there or rent it out.

Renting is also far cheaper than buying a property in the populated areas of China. Rents frequently only cover a fraction of the mortgage payment so ownership is even more financially demanding.

 

Inside Information

A year-and-a-half ago this blog was one of the few websites allowed inside China by the government. Today it is officially banned!

My oldest daughter spent time in China last year and was able to pull up this blog. She taught English as a second language and lived with a host family. That is no longer possible.

Are you prepared for the collapse of China and the debt bubble? Protect your finances with these 3 simple steps.Many foreigners teaching English as a second language in China are sheltered from the worst parts of China. My daughter, Heather, sought the real experience and got it. Fortunately she had a host family who considered themselves unconventional and enjoyed Heather’s presence. Her friend stayed with a family that wasn’t unconventional and had a miserable experience.

When Heather returned home she stayed in contact with her host family. She grew a bond with the host mom and their 5 year old daughter. 

In the last few months contact has been more difficult. We actually lost contact for over a month and feared the worst. These are good people and we worry about them because they are friends. 

As we started to give up hope of ever hearing from our extended Chinese family the host mom made contact. The story was grim.

This family had another foreign teacher and they had to send her home early over safety concerns. From the inside China has already started to implode.

The government’s solution to the stagnant economy was to set off another round of debt spending. With state-owned firms extremely inefficient and getting a large portion of the additional spending it is like doubling down on stupid.

 

Reality Test

You can hide fiscal malfeasance for a very long time if the government want the facts hidden. However, the natural laws of economics still apply and eventually assert themselves. 

The growing mountain of debt will eventually cause a crisis. The longer the delay before appropriate remedial action is taken the more pain will be measured out. 

China had started steps to resolve the issues. It would have taken a long time to fix the worst of the financial problems. However, the risk was high China would implode before they resolved the worst of the imbalances. The world community, knowing the approximate depth of the problems, quietly played along. What other choice did they have.

Unfortunately for China, the new American president had no patience for such slow resolutions. The trade spat exposed the underlying weakness of China’s economy quicker than expected and might be the trigger to set off the avalanche. 

The Los Angeles Times recently reported China announced more than $600 billion of economic stimulus. The goal is to fix the problem as fast as possible before catastrophe strikes. More debt seems a poor choice of ointment.

China’s history in not encouraging if the slowdown is too fast and/or a currency or debt crisis occurs before adequate safeguards are in place. 

The debt may be too large for an economy the size of China’s to navigate to calm waters. Many Chinese banks are insolvent because they can hide behind government censors. In a true capitalist economy these banks and other companies would have been shuttered long ago. So the inefficiency of the system trudges on and deepens.

Normally I would have an optimistic option at this point. And while I think this could be the next financial crisis to strike, I don’t think it will be the end of good times forever. All I’m saying is there will be a few moments when people get really scared if China collapses.

 

Preparing for the Storm

Dinny McMahon in his book, China’s Great Wall of Debt, does a better job digging deeper into the debt issues in China. This short post can’t cover the details the way a book can. The issues are deeper than I mention with shadow banks and incredible debt loads even greater than the government in China understands since they also know much of their data is faulty. I recommend reading this book. 

The risks posed by China should not cause undue alarm. Planning for the possibility is wise, but no one knows when, or even if (the miracle could actually be a miracle), the boom will drop. 

Is China's debt bubble about to burst? Learn how to protect your investments before it's too late.Since timing a crisis of this nature is impossible you can’t sell all your investments and hope it is the right move. The investments you sell might benefit from the Chinese crisis or the market could rally for years before the flood of Chinese debt consumes the news feeds.

There are some steps you can take to protect yourself if China implodes and if it doesn’t will bolster your financial situation regardless.

The 2008 financial crisis that started in the U.S. was a debt crisis. Home lending was out of control. Appraisals were based on fantasy and fake documents. Almost sounds like what China is dealing with today. 

Debt crisis are always painful events. Companies fail and jobs are lost. People with money hold it tight for fear things will never improve. 

As we saw in 2008, a financial crisis in a major world economy spreads. Very few parts of the world went unscathed by the 2008 events in the U.S. Even China was affected. 2008 set China on a massive borrowing for growth scheme they can’t seem to get off. Once the lie starts you need bigger and bigger lies to keep the charade going. 

Since debt is the cause of so many financial crisis I suggest you insulate yourself by reducing or eliminating debt. (I prefer the elimination of debt because the seriousness of the China issue is large enough to harm virtually anyone holding debt.)

Reducing debt is an easy (relatively) and simple (relatively, again) way to insure your fiscal soundness if China stumbles. Like all debt, it takes time to pay off. Today is the best day to start the process. When the tsunami is visible on the horizon it’s too late; there will only be time to grab something solid and hold tight.

A second security procedure is to keep some of your finances liquid. Most of your money should probably be invested in broad-based index funds all the time. Market timing just doesn’t work. Having two years of spending in a money market fund might also be a good idea. This is a similar tactic people in or near retirement use so they don’t have to dip into investments when the market is down.

 

Final Planning Tips

I wish I could share more, but I fear if I was totally blunt it might harm my friends in China. 

This is a serious issue China works hard to keep from the press around the world. It is easy to think China is loaded with cash since they hold so many U.S. Treasuries. In a crisis China may have to sell large amounts of these Treasuries to defend their currency causing an interest rate spike in the U.S. This would be economically disruptive even if the Federal Reserve fights to counter the effects of such a liquidation. 

The most serious issue happened when we lost contact with Heather’s host family for over a month. They only contacted us because they were traveling outside China. This is very concerning. When things get really bad (and usually just before), totalitarian governments clamp down hard. Foreigners in China have been learning this. The security alert for Americans traveling in China is elevated and travel there is not recommended. This is not a warning to be disregarded.

If the same thing happened in Russia it would be less an issue since their economy is so much smaller. Even with inflated numbers, China’s economy is still one of the largest on the planet. If China stumbles we will all feel the ground quake, especially since some of the debt is in U.S. denominations.

This post is not about inciting panic, rather the opposite. Risk is high and even the U.S economy looks to be softening. Smaller refund checks this tax season means people were enjoying a slightly higher take-home pay during the previous year. That could lead to a softer U.S. economy for a while.

You can weather almost any economic storm without debt. Even in good times debt can be a burden. 

I worry because a family in China close to my heart is living dead center of where the storm will strike. I wish them and all of China well. 

We are all in this together. So take precautions, reduce debt, increase your financial cushion and be well.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

The Anatomy of Wealth

Every fortune starts with the first small investment. See how this man turned a small investment into a large fortune with a steady stream of income.

Every fortune starts with the first small investment.

I did something different this holiday season than I ever did before: I took two five-day weekends. This may sound like a minor thing considering the FIRE* community I supposedly belong to**, but to me it was a serious adjustment.

The first long weekend over Christmas didn’t feel like a true long weekend. Every day was filled with family events so I didn’t have to worry about filling lots of dead time.

The New Year’s weekend was the opposite. I had a full five days to do anything I wanted. Sure, I still checked the office email a few times and kept current with social media, but for the most part I stayed the course and enjoyed five days without the obligations of work.

As most people know, it is easy to waste a day or five if necessary. For hyper-productive people this is more of an issue. Can you imagine what Elon Musk, Bill Gates, Warren Buffett or the late Steve Jobs would do with their free time? You guessed it. They do exactly what they do every other day. Either you create value in the world or you don’t. One has a reason to be alive; the other does not. You choose.

The extra days off were delightful, actually. I enjoyed several good books and extra time with Mrs. Accountant and the girls. Still, I was reading the stuff I always read. I was learning and growing. The only difference is I was on my couch versus my office chair.

But this story isn’t about my long holiday weekends; it’s about money; the reason you stopped by this place.

Anyone Have Some Spare Change?

As the holiday came to an end I was sitting on the living room  floor reading a book as Pinky, my cat, pawed underneath the edge of the couch. I put my book down to see what she found. (I was hoping it wasn’t a real mouse (as opposed to the toy mouse we gave her.))

Pinky had her paw underneath the edge of the couch as far as she could reach and kept trying to push further. Whatever she found—or lost—she wanted back badly. I nudged Pinky to the side and lifted the edge of the couch and reached under and found the elusive prize.

A quarter! Pinky’s keen eyesight found a shiny quarter deep under the couch. A guest over the previous weekend must have lost the coin and it finally fell through the cushion to the floor beneath the couch.

To most people this coin is a modest 25 cents. If found in a casino most people would immediately drop the coin into a slot machine with the outside chance of turning the coin into serious cha-ching. Most people would be just as broke as the moment before they found the coin.

Pinky is not a gambler; neither am I. As small a prize as the coin was, Pinky still wanted it. It was shiny. That was it’s value and Pinky knew it.

The Gift that Keeps Giving

Like any cat, Pinky soon gave up her prize when she realized I wasn’t giving it to her. (In my defense, I retrieved the coin she couldn’t get. A smile emoji might go nice here.)

Proud of the prize I stole from Pinky, ah, earned, I should have dropped it into my coin bucket I use for playing cards Friday night. But I didn’t. Something else entirely different crossed my mind.

Why does one man succeed and another fail? It comes down to one simple rule. Follow it and you win; break it and you lose.

Why does one man succeed and another fail? It comes down to one simple rule. Follow it and you win; break it and you lose.

You see, that simple coin is money! Add enough of them together and it becomes a serious nest egg. Even a mere 25¢ has value! If you respect money—which is a store of value—then a simple quarter will be respected as much as a hundred dollar bill. You don’t toss it away in a mindless casino game.

Even Pinky understood the coin has value (as a toy). But it’s worth a heck of lot more than that to me.

The first thought that entered my mind when I saw the coin was how much of a fraction of a share of an index fund will that buy and how much of dividend (an income stream) will it throw off? Pinky, our resident diva, placed a more immediate, hedonistic value on the coin. Pinky’s human (me) was thinking longer term.

Now I know what some of you are thinking. How much income can one simple 25¢ piece actually throw off? Well, by my calculation, the same amount as every other quarter in my portfolio.

Think about that a moment. From this perspective, your entire investment portfolio is made up of a bunch of quarters throwing off an income stream.

This isn’t a hard concept to understand. Your body is made up of a large number of cells. Cells are made up from numerous chemical compounds constructed from atoms. Atoms are made of electrons, protons and neutrons. And the components of atoms consist of a number of elementary (sub-atomic) particles.

All things of size are composed of many parts. Each part alone seems small, but remove the infinitesimally small part and the house of cards starts to crumble. Remove an electron from an atom and the atom is different; responds and reacts different. Helium has two protons. Take one away and the atom is now hydrogen, a very flammable element. One small change does make a difference.

Anatomy of Wealth

What makes one person rich and another poor?

Two people working the same job side by side earning the exact same wage can have radically different financial conditions. One worker can squander her paycheck each week while the other maxes out her retirement plan and saves even more for a rainy day.

The worker spending all her income as it comes in is under a lot of stress. A slow economy is cause for concern. If her hours are reduced, or worse, she is let go, hard times will follow quickly. The worker saving a large percentage of her income feels virtually no stress. A lay-off or reduced hours is nothing more than a reallocation of life-hours. She can always do something else productive with her time. Since she has plenty saved, money will not be a problem.

How much can you turn a 25¢ coin into to? How much of an income stream? If a man and his cat can do it, so can you.

How much can you turn a 25¢ coin into to? How much of an income stream? If a man and his cat can do it, so can you.

So why did one worker save/invest and the other live paycheck to paycheck? It might take a series of questions to get to the bottom line, but I bet the final answer sounds something like this, “I save so I have an income stream when I need it or when I retire.”

The concept is simple in theory; difficult in practice. Everyone knows they need to save and invest for the inevitable day when the money will make life easier. But some see money as a chance to spend and party. So why do some save? What motivates them? Triggers them?

Once the thought entered my head when I saw the quarter Pinky was trying to dig from under the couch it seemed silly. Why was my first thought to invest the newfound wealth for an income stream? And do other people think this way or am I just weird? (Don’t answer that!)

My guess is about the same number of people who have financial wealthy have the thoughts I have about money. Financial wealth is a simple process. Start investing early as much of your income as possible, reinvesting the income stream except in extreme emergencies. Yet, some people can’t do it. If they have it, they spend it.

It comes down to mindset. The ancient Stoics talked about visualization. Well, investing money for an income stream tomorrow requires vivid visualization. I could see the income stream from that quarter the second I saw it. It’s the reason my first thought was to invest it.

People who spend most or all their income can’t see the benefit of saving/investing some of their hard-earned income. “I don’t want to be the richest guy in the cemetery,” they say. “Can’t take it with you.” To which I reply, “You’re right. But I’d like to have some while I’m here!” Perhaps it is time to train your mind to visualize yourself with lots of money and the income stream it provides.

If Pinky can see value in digging a coin from under the couch you can visualize the value and benefits of investing a significant portion of your income.

Warren Buffett is known to keep personal expenses low so he has more to invest. Wealthy people think this way and you need to adopt the financial mindset of the rich if you want less stress and more options in the future.

Every dollar that passes your paw is an opportunity to create an income stream. Even a bank deposit throws off a limited amount of interest. The income stream is vital to your financial health and future.

My grandfather always had a saying that has stuck with me: Never take off the pile. Granddad was an old farm boy living the dream in the backwoods of Nowhere, Wisconsin. He lost the farm in the farm crisis of the early 1980s and then rebuilt his fortune doing nothing more than saving a serious portion of all his income. Most money was only deposited in bank accounts. And he still managed to re-grow his liquid net worth well into the seven figures starting over from an old age. His rule of only consuming the income from an investment had a lot to do with his success.

The corpus of your investments, that original seed money, is sacred. If you never touch the sacred you will always be safe! The income stream keeps growing larger with time. Dividends reinvest to earn more dividends. You don’t need a pension when you have one far safer and personally designed.

 

As for the quarter I commandeered from Pinky? Well, I tossed it into the coin bucket I use for Friday night cards. Seems Vanguard requires a deposit larger than 25¢. Guess I’ll up next month’s auto investment.

 

* FIRE: financial independence/retire early

** Before someone takes these words wrong let me clarify. There is no doubt I’m a member of the FIRE community. I handle tax issues for several key bloggers of the demographic and attend conferences periodically. I say “supposedly” because I don’t feel like a member to the FIRE community. I’ve never been a fan of retirement—I like doing productive activities as long as I’m breathing. As readers may notice, I don’t chum with many members of the community either, instead choosing to keep plugging along in my tax practice. I’m a rural guy who likes his rural life without the bright lights of center stage.

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

Is Staying Fully Invested in the Market the Right Move?

Should you always be 100% invested. It depends on your circumstances. Sometimes cash is the better investment. Cash can also grow your long-term investment returns.

Should you always be 100% invested. It depends on your circumstances. Sometimes cash is the better investment. Cash can also grow your long-term investment returns.

Most of the time the stock market is climbing north. Interspersed between bull markets are those times when rookie investors act as if the sky is falling.

Long bull markets turn normally intelligent investors into casino gamblers; they even use gambling terminology: we’re due for a bear market or as they say at the casino, “Red is due after 8 black spins” at the roulette wheel; as if the ball has a memory. The odds of it coming up red are the same as it was last spin, in case you were wondering.

Of course, long moves in the stock market sets off our sixth sense that this can’t last forever. Before long you’re not fully invested (a religious mantra of many investing circles) which smacks of market timing.

This brings up a good question: Should you always be 100% invested in the market?

If only it were as simple as a yes or no answer.

The truth is many people should NOT be fully invested in the market and some people SHOULD be and it has nothing to do with market timing. The trick is to know when to be fully invested and if not, by how much.

It boils down to your personal situation: where you are on your journey to financial independence, how close to retirement you are (or if you are in retirement), spending habits and viable alternative investments.

Investment Levels

Whether you should be fully invested or have cash in money market accounts includes many variables. The easiest decision is when you are starting out.

Under $100,000: When your net worth (this should probably be liquid net worth) is under $100,000 and you are a good distance from retirement age you should be fully invested at all times.

This is the time to super-charge your tax benefits by funding retirement plans to the max. Employer contributions (if available) are an added bonus.

With time on your side you have to stay fully invested. Markets declines will come and go, but the risk is being out of, rather than in, the market. Riding out the storm of a bear market is only a minor speed bump in the rear view mirror so fully invested you should be.

Fully invested requires some explanation. Fully invested applies to your retirement and non-qualified accounts. These funds are earmarked as long-term investments and should be where they have the greatest opportunity for gain: broad-based index funds. You still need an emergency fund or at least some liquid assets easily accessible should your employment situations change or a major expense arise. We don’t want to be in a situation where we are forced to borrow at unfavorable terms or sell an index fund at market lows. A modest amount of liquidity is necessary and has nothing to do with market timing.

Your level of cash involves several factors. If you own a home and have access to a line of credit, it might be better to keep everything invested always and use the LOC if the need arises. This allows your savings to be working to your advantage. As the economy and business grows, so does your wealth.

In any case, when you are young and just starting out, the more you keep invested the better. Dividends and corporate profits keep climbing with only modest, short-term declines. You need the out-sized returns of the market to reach financial independence in a reasonable amount of time. The broad market averages 10% per year (some years more, some years less) while money market and bank accounts barely keep up with inflation if at all.

Investing can feel like a balancing act. Should you invest in the market or keep some in cash? There are good reasons to keep cash instead of investing.

Investing can feel like a balancing act. Should you invest in the market or keep some in cash? There are good reasons to keep cash instead of investing. Please share on Pinterest.

$100,000 – $1,000,000: The first $100,000 is the hardest. You earn every dime to get your account value up. The higher the account balance, the easier it is to get it compounding with meaningful numbers.

As your net worth climbs, having more cash can be beneficial, especially if you invest in individual stocks or have real estate investments.

When starting out it is important to invest in less risky investments. While the stock market does go down, the long-term gains are enviable for those with a modest amount of patience.

As your account balance rises you may consider alternative investments. Income property comes to mind. So does Peer Street and similar types of investments. (Most alternative investments should be a minor part of your portfolio.)

Retirement accounts will remain fully invested unless you are in or entering retirement where about 2 years of living expenses should be in a money market account.

Non-retirement accounts are a different story. The higher your liquid net worth the more likely you will keep some money in cash. High net worth individuals have more opportunities to invest than low net worth people. (Consider this an incentive to grow your account values.)

With a higher net worth you are either closer to retirement than those starting out or in retirement. A long-term investment horizon makes index investing almost a necessity. However, once retirement pops above the horizon or is your current lifestyle, more cash needs to be held in liquid money market accounts to satisfy normal (and sometimes abnormal) living expenses.

As your net worth grows you tend to learn how to ease up on traditional labor. Ample money allows you the freedom to choose between more time at work or more time with family; most people choose more family time. Because you now have the resources to spend less time in a formal working environment, you will need liquid funds to cover expenses wages may not.

Over $1 million: Even index funds keep a small percentage of their assets in cash to cover expenses and for withdrawals. Now that your liquid net worth reached seven figures you need to consider the same strategy.

Millionaires start to see their income get lumpy. This means you don’t see a steady income, but larger chunks from sales of assets or from your business or commissions, rents, dividends and interest. While wages can still make up a sizable part of your income, other passive forms of income generally dwarf your earned income. (The stock market gaining an average 10% in a year on a $1 million account yields a $100,000 unrealized gain and $20,000 in dividends at a 2% dividend yield.)

More alternative investments tend to show up now that your stash has climbed to million dollar status. The easiest way to invest a small sum is in an index fund. With a larger pile alternatives play a potential role.

We preach index fund investing a lot around here, but everyone I work with that has at least seven figures of net worth has accumulated several alternative investments. Once you begin investing, opportunities abound. Just be careful it isn’t a scam; they abound, too.

There is a difference between a few dollars and a million plus. With a million dollars you now spend more time allocating assets: how much real estate should I own and where, do I own bonds, individual stocks, gold (please, no), micro lending investments and so forth.

Most of the people I work with that have a large net worth tend to keep a small pile in cash. Five percent of a million dollars is $50,000. It sounds like a lot, but a small amount compared to the whole. $50,000 sounds like a lot until you realize circumstances could require you to need this liquid cushion. Remember, income tends to gets lumpier when your net worth gets reasonably high (and even worse when unreasonably high).

Business Owners and Side Gigs

Readers living off business income have a unique set of challenges. Businesses need working capital so uninvested money needs to be easily accessible for operating expenses or opportunities to expand the business or spike profits.

Businesses must have an adequate cash reserve! Every business owner enjoys surprise opportunities unannounced. Some of my best money-making opportunities were the result of having cash available when competitors didn’t.

Cash is king! 100% invested all the time can hurt your investment return. Find the right balance between cash holdings and index fund investments.

Cash is king! 100% invested all the time can hurt your investment return. Find the right balance between cash holdings and index fund investments.

Side gigs are really micro businesses. The same opportunities fall in the laps of side gig purveyors.

The type of business determines the amount of cash needed. In my tax practice I generally keep $50,000 liquid with a $100,000 line of credit. Small opportunities do not require the risk of waiting to sell an asset or borrowing money; I can write a check. As strange as it sounds, there are times when they sell dollar bills for 82 cents a piece. (Well, it seems that way. I use multiple bank offers with this working capital, snagging thousands of dollars annually in bonus interest. I also can buy assets or invest in a new business venture connected to this blog or my practice without funding concerns.)

As you approach retirement you also need to consider more liquid funds because there will be a need in a few years or less. (Index fund investing should have a 5 year time horizon minimum.)

Short-term funds must always remain liquid to prevent a market decline forcing you to sell at a loss! As I stated, money needed within 5 years should be in a bank product or money market account. This applies to everyone at all net worth levels. Nothing guarantees a market decline better than dropping short-term funds in the market you’ll need in six month or a year. It’s almost like God is punishing you for being stupid (or greedy). (Yes, I’m speaking from experience.)

Retirement

Retirement changes everything. As you are growing your nest egg you are also bringing in outside cash from work and/or income properties, et cetera. When you are in retirement you are earning less (or nothing) so you need the income stream from investments to cover daily expenses.

You annual spending habits and investment values determine how much you will need to keep liquid.

If your net worth is really high and spending level low you can keep all your money invested in index funds and live off the dividend stream.

For everyone else it is a good idea to keep around 2 years of living expenses in cash (money market accounts). If the market keeps climbing you can sell enough of your index fund to pay bills. When the market declines you can live off the money market funds. If the market decline is steep you can divert dividends to the money market account rather than reinvesting dividends.

The goal is to a void a cash crunch when the market is down significantly. Small declines ( a correction, defined as a 10% decline from a recent market top) are no problem as you’ll still sell part of the index fund for living expenses (if dividends don’t cover the bills). What I’m worried about is the 2008 type decline of 50%. I don’t want to sell in that environment no matter what. It’s a buying opportunity if anything.

Market Timing

As my net worth grew over the decades I noticed I keep more and more money in cash when valuations become stretched. While this isn’t technically market timing (buying and selling to capture small market movements), it is done with the expectation of investing at a later date at a better price.

Currently I’m at a high cash position. Money pouring in over this year I’ve kept in money market accounts (I still invest automatically in my Vanguard index fund, but the money coming in is always more than the baseline I automatically invest). For a while I invested in Peer Street and made a few other modest investments. I tried to get out of investing in individual stocks, but I had to invest more in Altria when the world was coming to an end and the dividend yield jumped over 6%. I also added to my Facebook and Apple holdings modestly when their stocks declined significantly.

Another reason I keep more money liquid now is that I want a ready pile of cash for an emergency investment. The economy is humming right now, but the day always comes when a piece of real estate shows up 30% below market value for a fast sale. And I’m just the guy to make a fast sale to because I don’t need a loan; I can close this afternoon.

Liquid funds have a low rate of return until you can pull the trigger on a deal like no other in zero time! Businesses and individuals frequently have fire (or should I say FIRE) sales for a variety of reasons. I enjoy getting first dibs because the seller knows I can close the deal fast.

Bonds

Interest rates also play a key role in how  much you should have in equity index funds. When interest rates are high it’s easier to keep more liquid funds as your money market pays stock market returns.

We haven’t seen high interest rates in well over a decade. That doesn’t mean those days will never return. In the early 1980s you could buy a 30-year Treasury with a 14% coupon (the bond paid 14% interest annually for 30 years) and the interest was state tax free. Regardless of what the stock market did, I would not have had hurt feelings if I had money in Treasuries for 30 years at 14%. That is about the best risk-free investment there ever was.

If Treasury bonds climb to 7% or higher I will probably keep some money in bonds. If you are starting out you still need to ride out the stock market storm as you need the compounding effect of growing businesses to build your nest egg. If your stash is a bit bigger risk-free bonds might be at home in your portfolio. (For the record I currently hold one, that is 1, Treasury Inflation Protection Security (TIPS) of $1,000; my entire bond portfolio.)

If interest rates ever climbed to double digits there is nothing wrong with dumping a large portion into Treasuries, especially if you are retired. You can throw the 4% rule out the window when the U.S. government is paying more than 10%.

Wrap Up

Reading personal finance blogs might lead you to think holding cash is a sin. It Isn’t! Having plenty of cash ready to jump at a moment’s notice is a powerful wealth building tool. Warren Buffett keeps large amounts of cash at his firm, Berkshire Hathaway. He keeps the cash handy for potential claims from his insurance business and for opportunities to buy good businesses at a good price. You and I should be no different.

If you buy and sell the market hoping for a quick gain you are market timing and you will eventually get you head handed to you (if you already haven’t). Every client I ever had who *traded* the market had sub-par results and most took a bloodletting.

It might seem like a fine line between market timing and what I’m suggesting here. It isn’t. Money I keep to the side for potential investment can stay in money market accounts for years for all I care. If I don’t find a super deal for the money is plods along earning 2.3% (the rate as I write). It may never get invested. If, however, the market declines I’ll allocate more of these liquid funds to the index.

And if Apple decline more or Facebook drops (or gets better management) or Altria stays at these levels (or buys Juul, I think it’s a god fit) I’ll be exchanging more of that cash burning a whole in my pocket for pieces of those businesses.

xt-align: center;”>More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

The History of Polarized Politics in the U.S. and Money

How much is polarized politics affecting your financial situation and wealth. Don’t let the politics of others destroy your dreams. Learn how you can take control and excel.

How much is polarized politics affecting your financial situation and wealth. Don’t let the politics of others destroy your dreams. Learn how you can take control and excel.

The polarized political environment in America is not unusual. What makes the current situation so incredible is the comparison to what came before.

After World War II the United States experienced a prolonged period of relative political calm. While disagreement was rife, there was a sense of compatibility between the opposing political parties. A few Republicans were more liberal than some Democrats and a few Democrats were more conservative than a few Republicans. It was a world where liberal Republicans and conservative Democrats existed.

That started to change in the 1970s and blew full force as the 1980s arrived. The reasons are varied, but not the topic of today’s discussion. We are interested in the history of polarized politics and how it affected wealth. The goal is to learn from the past so we can better position ourselves for success in the toxic environment we find ourselves.

Politics is always a dangerous topic to cover. And it might not have an immediate connection with money or wealth. But experience (with heavy doses of research) reveals politics indeed has plenty to do with wealth and wealth creation or destruction. Polarized politics has visited America before and in much worse circumstances.

We will address politics first, then personal finances.

History of Polarized Politics

 

Founding Fathers

There is no exact count as to how many Founding Fathers the U.S. had. Some say there were 7, others 10. The Constitutional Convention had 55 delegates.

Regardless the number of Founding Fathers, there are several points worth noting about their behavior. First, they were all men of the landed class. In other words, the Founding Fathers were men with at least a modest amount of wealth in real estate. This isn’t the most politically correct situation by today’s standards. But we can (or at least should) agree this group of men did a pretty good job at nation-building.

Many Founding Fathers owned slaves. Benjamin Franklin had to dance around the subject when he was the American agent in London for the colonies. The British found it ironic Americans wanted freedom while holding tight to slavery.

Storing crops was more difficult in those days so it was common to store the excess corn crop as whisky. Consumption of alcohol was high in the 18th century. Bad water also encourage more alcohol consumption. It is no exaggeration to say the men who brought America to life were inebriated much of the time. While not drunkards by the standard of the time, some might be surprised how much work these men accomplished with the blood alcohol level they regularly had.

Benjamin Franklin

We only have time to discuss one Founding Father at length; we will touch on several others for reference. Since Ben Franklin is a leading Founding Father he will make a prime example for our discussion.

Much of the polarization of modern politics revolves around the identity politics of the left and the conservative ideas of the alt-right. There isn’t a single Founding Father who wouldn’t be nauseous over the current national dialog. Or would there?

Conservative Franklin: To the chagrin of the left, most Founding Fathers were decidedly conservative. Before President Reagan, Benjamin Franklin had his own version of trickle-down economics. Franklin believed the more money the rich had the more it percolated down to the poor. Franklin stated the”rich do not work for one another…” The rich, according to Franklin, spent their money on the poor buying the goods and services they produced. (Benjamin Franklin: An American Life  by: Walter Isaacson; Simon & Schuster; 2003; pages 267-8.)

Welfare and Social Security: Franklin also warned against the welfare state. He wrote welfare had unintended consequences and promoted laziness. Modern ears may find this palatable, but Franklin went further. “I fear the giving mankind a dependence on anything for support in age or sickness, besides industry and frugality during his youth and health, tends to flatter our natural indolence, to encourage idleness and prodigality, and thereby to promote and increase poverty, the very evil it was intended to cure.” (Italics mine.)

What Franklin was saying is you either work or deserve to starve, even in old age or during illness. Social Security is something Franklin would probably not approve of. If you lacked the necessary frugality and industriousness during the vigor of youth, you serve as a living example to those who consider such sloth.

Minimum Wage: Franklin also disagreed with the minimum wage. By artificially raising wages Franklin felt it would overprice goods destined for foreign markets.

All these positions place Franklin decidedly to the right of center. But was he really cold-hearted? Did Franklin believe people should be allowed to suffer?

While conservative readers might be licking their lips by now, the liberal folks will have something to cheer shortly.

Liberal Franklin: Benjamin Franklin had a balanced political stance. In some ways he could be called a liberal Republican by today’s measures. Franklin had no problem with taxes as long as they were coupled with representation. His lack of debate against the Stamp Act of 1765 is indicative of his political position. Only when there was a serious backlash back home did Franklin give us our first political spin campaign to right his reputation.

Policies should encourage hard work, according to Franklin. He felt hard-working people lucky enough to achieve wealth (became rich) had an obligation to serve the community. These duties should improve the lot of the community, providing for a prosperous middle class. Those in genuine need (people suffering illness before they had time to work for their keep, children and widows, et cetera) were the responsibility of the wealthy. Today we might consider many welfare programs as serving this need in a much larger population than existed in 18th century America.

There are also a few things we might find appalling in Franklin’s behavior even in the Age of President Trump.

The Un-family Man: Franklin left his wife and children to serve as colonial agent in London for the Thirteen American Colonies. Even when opportunity arose, he chose to stay in London or travel to Scotland and Paris, even as his wife’s health failed. Ask John Edwards how that helped his political career. Even the King found this behavior strange when he inquired as to why Franklin remained in England in 1774 when Franklin had no more duties there.

Womanizer: We can forgive Franklin for many of his political positions due to the age he lived in. His position on slavery softened over the years, but as Isaacson reports, Franklin used the qualifier “in time” in letters he wrote. He knew slavery wasn’t a workable prospect, buy also kicked the can down the road.

Modern eyes are ears will be most disturbed by Franklin’s behavior towards women. The list of affairs and potential affairs is long. Need I remind you Franklin was married with children during many of these flirtations.

History records Benjamin Franklin enjoyed the company of women more than men when it came to social gatherings. The flirtations weren’t always innocent and the women not always unattached. There is a crude sketch by Charles Willson Peale of a scene he walked in on of Franklin kissing Polly Stevenson, the daughter of Margaret Stevenson (Franklin’s landlady). It is possible Franklin befriended Polly’s mother for the purpose of spending time with Polly. Mary “Polly” Stevenson was 18 years old at the time Peale accidentally walked in on the kissing scene. But there is also a story of Franklin in a flirtatious conversation with Polly when she was 11 years old discussing her desire to be with an older man Franklin’s age.

Final Notes on Franklin: I spent a fair bit of time on Benjamin Franklin for a few reasons. Franklin is a Founding Father and certainly one of the most important and influential of the Founding Fathers.

He was a man with all the failings and shortcomings of men. His humor was crude at times, as we see when he recommended to the Royal Academy of Brussels that they should study the causes and cures for farts. It is unlikely Franklin was faithful to his wife and was distant to his family often. He even missed his only daughters wedding.

Franklin had strong political beliefs that would have toppled normal men. He didn’t suffer such a fate because he never held a high office. He was more a grandfather and guiding hand in the creation process of the United States. His role was certainly instrumental, but he managed to avoid the polarization politics brings once high office is held. Even Washington faced real criticism for the first time as president.

Another benefit of reviewing Benjamin Franklin is he shows us the world and human nature when the United States was just a dream and there were only American colonies as part of the British Crown.

If we fault Franklin for his short-comings that many current political leaders share, then we espouse the notion that Franklin should not have been allowed to do his work of nation-building. Such opinions at minimum presuppose the right of the United States to exist or at least ever to come into existence.

It is a truism of the ages: The worst of human nature can lead us to greatness.

Maybe we should be more open to human failings if we aspire towards a better tomorrow.

Thomas Jefferson

We will cover the next actors with less detail as they all share similar traits we find so disqualifying.

Thomas Jefferson is also a Founding Father of the United States. He wasn’t the biggest fan of slavery and history assumes he treated with slaves with dignity and respect. (How else could we remember a man as great as Jefferson and his contribution to our morals, values and standards.)

Jefferson also served as the third president of the U.S. That said, Jefferson did own slaves regardless his dialog on the subject. Over 100 years after the abolition of slavery in this country we still feel the scar it has left. The black community more than any other.

To make matter worse, Jefferson had a child with at least one of his slaves. In a modern era where people in authority are criminally liable for sexual activity with someone under their authority, this seems like a serious offense. Yet it happened and we seem unmoved by the act. Maybe time does heal every wound. Or not!

For all Thomas Jefferson gave this nation, he was still a man with failings. Failings we would consider criminal in the current environment. If modern rules were applied Jefferson would never have been president and his work may never have been created. How a man with such concerning behavior gave us rules to live by is hard to understand. But once again, the greatest of us tend to have the greatest failings, too.

President Andrew Jackson

President Andrew Jackson did more to define and solidify federalism than any other president. But could a man of such accomplishment be endowed with faults?

Polarized politics were at their worst in Jackson’s day. Jackson won the popular vote three times and the presidency twice. He also gave Native Americans the Trail of Tears.

Instead of focusing on Jackson’s flaws, I want to refocus on our topic: political polarization.

People today think the things said and done are the worst ever. Wrong! People had no problem Jackson killed a man in a duel, he was also hated enough to be the first president to have an assignation attempt on his life.

He married his wife before she was legally divorced from her husband. As you can imagine, adversaries made hay of this knowledge. They hounded Jackson and his family to the point of murder.

The political campaign of 1828 was brutal. The fight contained numerous ad hominem attacks. This isn’t so different from modern times. The difference was how the attacks also dragged Jackson’s wife, Rachel, into the fight.

Rachel Jackson started to suffer from what we would call today anxiety and depression. The stress became so acute it lead to a heart attack that killed her. Jackson never forgave his enemies for murdering Rachel. We have no way of knowing if the stress caused her death, but Jackson didn’t care. He blamed his enemies and hated them to then end for what they had done.

If you think politics are polarized today, you might want to read up on President Jackson. Few political leaders in the U.S. experienced such an assault in attaining office.

President Abraham Lincoln

Most Americans hold President Lincoln in high regard. They hold views of Lincoln as a moral and honest man. He freed the slaves so he must be good, right? He also preserved a nation rent in two by political division. Never before or since has our nation been so politically divided. There is nothing in the current dialog we can compare to the division our nation faced and underwent in those days of the early 1860s.

These are not the worst of times. Our nation weathered far more serious problems than a misogynist Trump. Need I remind you the great Abraham Lincoln consorted with prostitutes while married. Yeah, great leaders are riddled with flaws. Perhaps the flaws are what make them great.

Yes, I digress. It is political division that most concerns us. Except, all the discourse on said divisions seem to revolve around moralistic behavior.

FDR

Before we finish with the Supreme Court and discussing the personal finance implications, we turn to FDR, the hero of the left.

FDR also had serious flaws when it came to women. He also had an affair. (It starts to sound like a nervous tick after a while.)

The Great Depression was the issue of the age when Roosevelt took office. You would think after the economic crisis the Republicans presided over, the Democrats would have unchallenged rule. You should think again.

Before World War II became an issue, FDR had a New Deal. There was only one problem. Republicans packed the Supreme Court for years and the Court kept knocking down his programs.

Roosevelt had an idea. If the Justices wouldn’t retire so he could nominate his own choices friendly to his programs, he would expand the Supreme Court so he would have vacancies to fill.

This struck Republicans a very wrong. And what do you know, even Democrats felt it was a power grab by FDR. FDR’s own party denied him the ability to expand the number of justices on the Supreme Court for political reasons. Talk about political polarization! Yes, it happens even within parties. Even worse than we see today.

Supreme Court

There is always the temptation to think this is the worst time EVER! Rarely are such thoughts true.

Brett Kavanaugh’s nomination to the Supreme Court by President Trump signals the worst ever injustice in the history of the U.S. But is it?

There is already talk of impeaching Justice Kavanaugh. Some have warned this would set a bad precedent and has never happened before. And that is a lie!

Here is a quick rundown of notable Supreme Court dramas.

Removed from Office: Supreme Court justice John Rutledge was removed from the court by the Senate in 1795. Yes, 1795! Rutledge’s wife died in 1792 and he didn’t take it well. His mind deteriorated to the point where there was no other choice.

The same year Justice John Blair suffered from such severe headaches he was unable to continue. Rather than have the Senate remove him, he resigned.

Assassination: Justice Stephen Johnson Field was nearly assassinated in 1889 by a California State Supreme Court justice in a confusing story of divorce, alimony and a lost case.

Antisemitism: The Supreme Court had a justice so hated not a single member of the court attended his funeral. Justice James Clark McReynolds was a very vocal anti-Semite. In 1916 the Jewish justice, Louis Brandeis, joined the Court. McReynolds left the room every time Brandeis started to speak.

Racism: Justice Hugo Black  belonged to the Ku Klux Klan prior to taking the bench.

There are stories of bribes and other nefarious behavior by Supreme Court justices. Justice Kavanaugh may still resign or face impeachment by the Senate at some point in the future. Regardless, we sometimes wrongly assume the Supreme Court, the final arbiter of law, rule and justice in our nation, is free from political polarization. Unfortunately, the Supreme Court is just as liable to the shortcomings of human nature as any group.

 

With the groundwork on political polarization in place, we now turn to the impact polarization has on personal finances, wealth and money.

Personal Finance in the World of Political Polarization

 

The lesson above clearly outlines a history of political polarization in the United States from before its inception until today. The luxury of self-pity falls on deaf ears when history is called into action. Things have been marching higher for a long time, as Steven Pinker notes in his landmark works: Enlightenment Now: The Case for Reason, Science, Humanism, and Progress and The Better Angels of Our Nature: Why Violence has Declined

Stop burning money! Learn the secrets the wealthy have used from the beginning of time to build their financial fortune.

Stop burning money! Learn the secrets the wealthy have used from the beginning of time to build their financial fortune.

The Long March of Growing Wealth: Humans have lived on the Earth for a few hundred thousand years. We lived short lives back then and progress was slow. Life was dangerous. Basic shelter might have been a cave, tree or outcropping.

Then man (it might have been a women for all we know) discovered how to create and control fire. Cooking soon followed which improved life immensely. Cooked food was easier to digest and it killed pathogens. Life was still hard, but lives were made a bit easier with the discovery of fire.

Shelter improved slowly over the eons. Fire made the home warmer in cold climates. Still, disease and subsistence meant most lives were brutal and short.

The pace of human progress was painfully slow for the first several hundred thousand years. Rape, murder, war, disease and starvation were constant threats. Men died from injury and women in childbirth. When God informed Adam and Eve of their curse as they were kicked out of the Garden of Eden, he meant it. But curses have a shelf life.

Civilization: Somewhere back there, over 10,000 years ago, humans became civilized; congregating in cities, that is. This was another improvement. War was a constant threat, but now a larger group was needed to harm the community.

Health issues were the age old problem.

Fast Forward: The pace of improvement in the human condition keeps accelerating. First rudimentary shelters, then fire, now cities. A few lucky souls avoided disease and injury, living to an old age, even by modern standards.

Cities grew and slowly man discovered ways to alleviate medical afflictions. Many remedies were more harmful than helpful. Such is the nature of progress.

Money was invented and the ancient Greeks debated what money really was and how it worked. (Sapiens: A Brief History of Humankind) Over half of Jesus’ parables dealt with money or wealth. Life was improving at the fastest pace ever in history and it was slowly picking up steam.

China flourished in isolation from the West; Europe enjoyed the Pax Romana. It would be nearly the thirteen hundred years before mankind experienced the Pax Americana.

From the scientific advancements of Greek and Roman culture, mankind dropped into a Dark Ages. The path of progress is steady and up, but there are plenty of detours along the way. The line is not straight, but it leans ever more so upward every day.

1870: Something happened around 1870. The Dark Ages had long passed, the Renaissance morphed into an Age of Reason and science and discovery flourished. And most important, enough humans finally existed to hit a critical mass, causing an explosion of economic growth the world has never seen before.

 

Gross World Product

 

As the graph above illustrates, economic growth was painfully slow until 1800 where we see a slight tilt north. In 1850 the Gross World Product turns decidedly higher and goes parabolic in the 20th Century.

The pace of wealth creation accelerated like never before. Things got better. A lot better! Really fast.

Pockets of suffering still exists. The 20th Century experienced two world wars, Stalin’s Russia and Mao’s famine. Many people suffered and died. But many more lived better and longer, too.

Inequality: The buzzword of the day is inequality. The rich seem to get richer while the poor get poorer. But is this really true?

Inequality still exists and surely always will as long as more than one human is alive. There has been an uptick in income and wealth inequality recently. Compared to historical norms we live is really good times.

The wealthiest people alive in 1930 rarely, if ever, had indoor plumbing. Today, with rare exception, we all enjoy indoor plumbing.

Medicine is even more widespread. Polio is a rare disease; small pox eradicated. While indoor plumbing eludes many in third-world (I hate that term) countries, modern medicine is brought in on a regular basis. Fewer women are dying in childbirth. Men have fewer dangerous jobs shortening their lives. Children live beyond infancy at a very high rate. These numbers have never been so generous ever in history. Things are as good as they’ve ever been, and believe it or not, it’s still getting better and better every day.

Walter Scheidel in his book, The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty -First Century outlines how inequality is on the decline and has been for a long time. Periodic catastrophes level the playing field immensely, but there seems to be a natural level of inequality. The good news is that everyone can have a significantly high standard of living even on the lower ends of the income distribution scale.

Optimism is the Best Financial Choice: If you have to make the call, always bet things will get better. For thousands of years things have been doing just that and at a rapid clip for over 100 years.

Warren Buffett has a reputation as a master stock investor. People spend a lot of time dicing his decisions looking for the secret sauce. I can save you the time. Buffett is the most optimistic guy you’ll ever meet. Even his good friend Bill Gates acknowledges surprise by how upbeat Warren always is.

Buffett came out in support of Hilary Clinton in her bid for the presidency. When Donald Trump won many called it the end of America and probably the world. A bit dramatic, I think. Buffett made it clear America has the “secret sauce” when it comes to economic growth and that America will do just fine even with Trump as president. I personally think the human race has a bottle of that patented sauce.

Yes, some people have it bad. Cancer might not feel like a time to be optimistic. But this isn’t about the individual level. We are talking humanity here. As a whole things are chugging higher all the time with only periodic setbacks.

The stock market reflects these facts. In the U.S. the stock market has powered higher decade after decade. Even the Great Depression is a minor speed bump when the charts are viewed over large time periods. It looked scary up close and personal. Then, a few decades later it looks like a minor dimple on the chart.

The 1987 stock market crash is the same story. The Dow dropped 22.6% in one day. The decline requires you squint your eyes to make it out now.

To the Future and Beyond: Life is good and getting better! Calls for the “end of the world” have been with us from the beginning of time. It’s a story that sells, but never delivers.

The future is bright. Today isn’t so bad either!

America and the world will have challenges ahead. That doesn’t mean optimism is wrong or dead! It is only an acknowledgement of reality. Every challenge will be confronted and re-challenged as we boldly go where no species has gone before.

Don't miss out on the progress happening all around you. Don't let polarized politics harm you financially. Use the "secret sauce" the wealth have used forever to build wealth.

Don’t miss out on the progress happening all around you. Don’t let polarized politics harm you financially. Use the “secret sauce” the wealth have used forever to build wealth.

Back to Politics: I know, I know. We never had a president like Trump. True.

We never had a Founding Father like Franklin either. How could such a womanizer, a masher, be allowed to engage in nation-building after the things he did.

And a president who fathered a child with his slave! How will the nation survive?

And don’t forget the evil of the Trail of Tears, a duel and murder and the death of a president’s wife.

A Civil War didn’t slow us down. A great president with massive flaws sewed the nation back together.

FDR tried to manipulate the Supreme Court to no avail. Talking of the Supreme Court, these are the people who gave us Dred Scott! These flawed men (most of them were men) did something wonderful as a whole. As bad as they were, their flaws made us stronger, more vibrant.

Politics is NOT more polarized than ever before. The First Lady is miffed, but not dead or even scuffed.

Things are not going to hell in a hand basket. The economy may falter from tariffs, but before long we’ll scale even higher heights. It’s almost unbelievable and then it happens again!

Never lose faith. Optimism is always the best choice. Things are good and getting better. We live longer and better lives. Economic and personal wealth is at sky high levels and rocketing higher! And any decline in the markets is a correction soon to be followed by greater heights!

It’s not a Dream; Success is Real: I’ve been around long enough to personally hear many of the doomsayers. They fall by the wayside every time. Yes, much of the Western world in more polarized than it has been for many decades. Let me remind you of the above chart. From 1850 to 1900 the U.S. exploded higher economically. During this time we experienced the Civil War and what many in the south thought was the end of the world, the freeing of the slaves.

Not only didn’t the world end when we took the moral high ground, we excelled. But we had to experience the debauchery and evil of slavery to propel us from the ignorance. We certainly don’t want to go back. It will require vigilance to retain our hard fought gains.

This is not the End: In recent times we were told the U.S. was caput because  a womanizer like Clinton was president. Did anyone take the time to research Franklin and Jefferson? Caput! I think not!

Then Bush was a sign of the End Days. Nope! President George W. Bush proved to have human failings, but we did fine.

President Obama was the worst. I had clients who came into my office saying their life’s mission was to prevent Obama from getting a second term. What a waste of time! The economy grew, the stock market was up and America and the world did great after a serious economic debacle.

And now we have the hated President Trump. Many tears have been shed. The Supreme Court is forever tainted (unless you read few history books where you’ll discover it was always tainted). I’m not a fan of Trump. I disagree with many of his policies. But not all! An honest person will find issues where agreement exists. Who doesn’t like lower taxes? We can debate who gets how much and the fairness of taxes, but com’on! I also agree with more infrastructure spending. I’m against tariffs which are nothing more than a tax on consumers. Call it a quasi value added tax, if you will.

The Beginning: In the darkest hours of World War II, Winston Churchill gave encouragement to the British people as Nazi bombs decimated London. His immortal words are as vital today as they were then as we worry ourselves sick over geopolitical events. His words are a reminder things always get better and setbacks are only temporary.

Now this is not the end.

It is not even the beginning of the end.

But it is, perhaps, the end of the beginning.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 

Paying Off the Mortgage vs Investing the Difference

You don't own your home until the mortgage is paid off; the bank does. Mortgage payoff tips you can use to become debt-free. Dave Ramsey #wealthyaccountant #daveramsey #mortgagetips #debtfree #mortgagefree #mortgagepayofftipsOne of the most difficult decisions you can make as you struggle toward financial independence is deciding between paying off the mortgage quickly or investing the excess funds instead. The water is more muddy when we see a roaring stock market for as far back as the eye can see coupled with low interest rates. The answer seems simple and obvious: pay off the mortgage as slowly as possible and invest the difference in broad market-based index funds.

You might also think people well past the mile-marker of financial independence would have an even easier choice. Once the risk of a market decline passes due to your excessive net worth, it is tempting to automatically choose the course with the greatest opportunity for maximum gain.

Your favorite accountant has struggles with the same decision: pay it off  or invest. It all came to a head recently when the topic came up on Facebook. I gave my opinion and the fur flew. Before long my inbox was stuffed with requests for a fully fleshed out explanation of my position.

My Struggle

For someone working his entire life in finance this shouldn’t be a problem, you’d think. But it isn’t that simple.

Any first year accounting student knows leverage (debt) can spike returns. Less understood—for reasons I can’t understand—is the effect leverage has when the investment goes down or even treads water. Leverage does enhance profits nicely in a climbing market. When the market goes sideways the interest expense of leverage starts to hurt. In a down market is turns brutal with losses magnified and interest accruing to rub salt in the wound.

When it come to real estate a false sense of security sets in. Unlike securities, real estate doesn’t face a margin call if prices decline. The bank will not borrow you more in such cases, but you don’t have to come up with more money over the regular payment. As long as things eventually turn around you are fine. At least that is the theory.

Should you pay off your mortgage early or invest the difference? Here are mortgage payoff tips to help you decide between investing and paying the mortgage off faster. #wealthyaccountant #mortgage #mortgagetips #mortgagepayofftips #creditscore #DaveRamseyArmed with this information I begin my journey. I bought the farm (No, really! A beautiful 10 acre farm with hiking trails and a pond. What did you think? I died?) in the mid 1990s for $120,000. Five or so years later the mortgage was down to ~$40,000.

My old farmhouse needed serious work. We jacked up the house to secure the foundation, remodeled the original home and made serious additions. The Accountant household went from 950 square feet of living space to over 3,000. (No, I’m not proud of my extravagance.)

The remodeling and additions cost more than $200,000, all put on the credit card, aka, the new mortgage. The Accountant household had a serious debt now.

The good news is that I had no other debt and a net worth approaching eight figures. Our home appraised at $400,000 and change. Borrowing was relatively cheap and there was no real risk to such indebtedness in my situation. I did make payments well beyond the minimum to pay the house off sooner. (Some habits are hard to kill.)

By the time the world ended in 2008 – 09 I had the mortgage down to ~ $100,000, maybe a bit lower. The stock market tanked and I had plenty of room to borrow more against my home.

With my credit the bank was willing to give me pretty much anything I wanted. They needed to lend to low risk people and businesses and I was the lowest of risks. Since I have a farm I qualify for special loans only available to farmers. As luck would have it, I snagged a 2.125% loan fixed for 30 years!

Not being one for half measures I borrowed nearly $300,000, reducing my home equity to the lowest level in my life. I dropped the cash in the market.

It wasn’t a long wait. The market stopped declining and then started rising in fits and starts. For almost 10 years now my gambit has worked well. I made extra payments once again, but not as much as in past times.

Five years ago the mortgage was ~ $300,000. The market turned the borrowed funds into a bigger number. I refused selling the investments. But I increased my payments to reduce the large number on my loan statement. (It bothered me!)

Income from my practice now started going into loan reduction over more market investments. Yes, the market kept climbing, but I wanted that mortgage much lower. I found it disturbing to have the highest debt level in my life when I enjoyed the highest net worth of the same life. Even my business lived debt-free. This house thing, while a good move according to first-year accounting students, occupied my thoughts better used on other projects.

I also turned up the frugal. I learned to cut costs like a crazy man! Coupled with a nice business income I was able to shave $50,000 or more from the mortgage each year. My goal was to reduce the interest expense. Yes, the rate was low, but $300,000 at 2% is still $6,000!

Last year the mortgage collapsed to under $200,000. The race was on. Without resorting to asset sales I refocused my efforts to reduce the mortgage. By the end of last year the mortgage stood a hair into the six figures.

The Final Assault

There are several dry-erase boards around my office. Many are filled with cryptic messages on my personal and business finances. I use a type of shorthand known only to me. Sometimes employees ask what all the gibberish means. I tell them if it’s pertinent to their job.

Here is why you must start paying extra on your mortgage today. Investing the extra mortgage payments instead does not work. Pay off your mortgage in 5 years or less. #wealthyaccountant #savingmoney #personalfinance #moneyA dry-erase board outside my office door has a series of numbers. The cryptic numbers were my madness to retire the farm mortgage. The original goal was to pay $56,800 on the mortgage this year, including interest. (Don’t ask why $56,800; it’s along story.)

As I entered summer it looked as if I could meet my goal. By late summer I met the goal for the entire year. Something snapped in my head when the mortgage hit $58,000 and change. I wanted it gone and now!

In the last two months I drove the mortgage from $58,000 to under $16,000. After I return home from FinCon in Orlando I will move money from a side business to retire the mortgage.

For the first time in my adult life I will be debt free before Halloween. That sounds so insane to me. I can scream “I’m debt-free!” to Dave Ramsey for the first time since the early 1980s while my net worth is well into the eight figures. I kept the mortgage to pad my net worth when the advantages would do absolutely nothing for my lifestyle.

And once again I was forced to reconsider my choice as the course of financially savvy individuals raked me over the coals on Facebook.

Why I Took the Course I Did

When I gave my opinion in a finance group on why I felt paying off the mortgage was better than investing the difference I was mobbed. In a matter of moments there was nothing left but a grease spot  on the pavement.

My argument was simple. Paying off all debt not only reduces risk of default, but frees all the time spent thinking about managing the debt. That was my come to Jesus moment. I discovered I was spending more time thinking about my $300,000 mortgage than the millions I had in investments!

The mortgage was always planned. Payments were on automatic, but extra payments had to be considered. I also kept thinking about how long I wanted to keep this darn thing. Am I willing to keep a mortgage until I’m 70 just to kite the difference I could make in the market? The answer, once I seriously thought about it, was NO!!! And the more I thought about it the more I realized I was wasting quality time on a debt I don’t even need.

The only argument against my solution was that the market does a heck of a lot better than the 2 1/8% I pay on the mortgage. Once I thought about that I realized it was a stupid argument. Yes, it worked well for me since the market has been climbing with barely a hiccup for a decade. What they were really saying is that the ends justify the means. I disagree.

Investing versus extra mortgage payments? It isn't an easy choice. Learn the best choice for you. #wealthyaccountant #mortgage #money #mortgagetips #payments #investments #invest #timeI won because the market was up a lot. How would I look if the market pulled a 1968 to 1982 when the market went nowhere for 14 years? Not nearly as smart, I would gather.

After careful consideration I came to the conclusion (took me long enough considering my age) that paying off the mortgage as fast as possible, regardless of tax deductions or the interest rate, is the only correct course. Here is why: The mortgage is guaranteed while the market is not. The market may climb or it could sink or stagnate. It’s happened for long periods of time. We sometimes forget our history. The mortgage is always there until paid, plus all the interest. No reprieve.

The other expense a mortgage has is time. Even with payments on automatic you still need to manage funds to make the payment. You either earn money or transfer from an investment into the account funds will be drawn from. Don’t forget or there will be penalties!

Time, more than interest or money, were the deciding factor. You might think debt doesn’t take time and allows you to spike your investment returns. Well, it does take time and thought and planning. That time comes from personal time. And debt is a harsh mistress when investments turn south.

I was a Dave Ramsey Endorsed Local Provider (ELP) for years. I have no problem putting every expense I can on the credit card. I pay it in full each month with auto-pay. I also make room for modest mortgage debt. I’ve changed my tune.

I think debt-free is the only way to go. Even if you have massive wealth outside the debt with zero risk to your FI (financial independence) status, it is still better to retire the mortgage on the primary residence, second home and rental properties. (Income properties do very well without mortgages, even in terrible economic times. Hard to lose when there are no monthly payments.)

There is one last thing I noticed as I approach the final payment on my home. Mrs. Accountant and I are giddy as school girls. (I don’t look good in a dress so no ugly comments.) Breaking the million dollar net worth marker didn’t get so much as a “Yippie!” out of Mrs. A. Every time I go to Farm Credit and drop another 10 grand or so she walks on air.

So do I. I must confess I feel a heavy weight lifted off my shoulders. I can’t believe paying off a debt that didn’t even register in the household budget affected my subconscious so much. But it did! It is impossible to understand how much debt affects you until you remove it. How much weight bares down on you until it is removed.

I always thought it was about how much I was worth. No more. I think you are a helluva lot richer without debt than with a massive net worth. I feel better about myself financially now than ever before. I always knew I owed somebody. Now that is gone and I can yell:

“I’M DEBT FREE!!!”

I hope you will join me. You can’t believe the colors on this side of the fence.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!