Financial Samurai

Imagine waking up one morning to see a Genie at the foot of your bed with milk and cookies.  She grants you the wish of converting your future earnings or current illiquid net worth into $250,000 cash.

For example, say you were to work for 20 more years and earn a median income of $60,000 a year before taxes.  Instead of methodically saving 20% for the next two decades, you can get all that money right now.  Would you take it?  I bet most would say “yes” since it’s your money and the present value of a buck is greater now than later.

The big question is, what are you going to do with the $250,000?  The stock market is volatile, bonds are bubbliscious, and savings interest rates are less than 0.2%!  Perhaps you’ll use some of the money to pay off your debts, further your education, and help out your loved ones.  Or maybe you’ll invest the money in your start-up company and watch it grow into the multi-millions.

Finally, maybe you’ll do absolutely nothing with the $250,000 and just keep it liquid for a rainy day.  The political landscape is pretty horrific as there’s no way the Jobs Act Bill will get passed since it attacks charities and municipal bonds which fund state construction.  Massive layoffs are imminent before the holidays despite cashed up corporate balance sheets because demand is uncertain.  You might very well be in for rough times, and that $250,000 + $1,600/month in unemployment insurance will help you get through!

Genies are appearing in front of many homeowner’s beds thanks to Ben Bernanke and the Fed’s low interest rate policy.  Few people would have ever expected the 10-year yield to drop below 2%, but it has.  Cash-out mortgage refinances are tempting people night and day now, but the party can’t last forever.  Ben’s nickname is “Helicopter Ben” for making it rain money.  I prefer to call him “Bengenie.”

WHAT I’D DO WITH $250,000 OF MY OWN MONEY (REMEMBER, IT’S NOT FREE MONEY!)

* Look for attractive 8%+ yielding 2 bedroom, 2 bathroom rental properties.

* Decide which municipal bond ETFs to buy.  Examples: CMF, CXA, HYMB, INY, ITM, PVI, NYF, PWZ, PWA, SHM, SMB, SFI.

* Invest $10-20,000 into the Yakezie Network for better user experience, interface, etc.

* Look for offshore high yielding, but stable assets given the USD will likely continue to remain weak or depreciate.

* Send $15,000 to my parents to help contribute to their home remodeling project.  Good luck guys!

* Do absolutely nothing with all leftover funds and wait for a potential recession to come when Obama gets re-elected.  There could be much better opportunities in the stock markets as a result.

Readers, what are some of the considerations before accepting the Genie’s wish? 

What would you do with an extra $250,000?

Regards,

Sam

There’s only been one bank that has consistently treated me like cow poop all these years and that’s Bank of America.  When I saw its shares dip to $6.5 (-45% YTD) during our S&P downgrade meltdown, I couldn’t help but wonder whether it was just karma striking back.  Granted, Bank of America has some wonderful people working for the firm.  I guess it just so happens that I hardly encountered any of them.

During the financial crisis in 2008, I spread my money purposefully to Bank of America given that I was afraid any and all banks could fail, and the FDIC only insured up to $250,000.  Before BoA, I had been banking with Citibank, USAA, First Republic, and a little bit at Chase.  As the markets began to recover in 2010, I withdrew all my savings and expiring CDs and refinanced a mortgage away from Bank of America because I just couldn’t take how uncompetitive BoA’s rates were and how poorly I was treated.

Banks are a commodity business that takes in money and pays you a certain rate, and lends out your money at a higher rate.  It’s what banking analysts call the net interest margin, or NIM for short.  The bank should provide safety, liquidity, and access.  You know what the differentiating factor is in a commodity business?  Good service.  Someone forgot to tell Bank of America!

I HAVE FEELINGS TOO BANK OF AMERICA BAILOUT Read more…

According to Fidelity, one of the largest 401k providers in the world, the average 401k balance is now around $71,500.  In three not so short years, we’ve finally breached the peak average balance of $69,000 in 2007.  Hooray!  At the depths of the crisis in 2008, the average 401k balance plummeted 25% to around $50,000.

401k participation levels hover at a respectable 71% for those making $40,000-$60,000 a year.  Participating levels are therefore clearly much higher for those making more, but the exact number is unclear.  For those making $20,000 to $40,000 a year, the participation level drops to just 53%, which is understandable.

Let’s say the average age surveyed is between 30-35, you can now see how absolutely pathetic these balances are if you are actually depending on your 401K to retire.  You should consider “Treating Your 401K Like Social Security And Writing It Off“.  Don’t depend on any of this money being there when you retire.  You need to have the mindset of always maxing out your 401(k) every single year while saving at least 20% of your income after full contribution.  There really is no other guaranteed way to retire comfortably if you aren’t saving a good amount.  The power is all in your hands!

SAVING IN YOUR 401(k) IS A MUST Read more…

For some reason, some continue to not pay off their credit card bills every month.  Can you believe this nonsense? Who willingly buys something they cannot afford, and then pays massive interest on something for months, if not years?  That’s just silly.  Let’s get that 30 pound dumbbell and drop it on your toes.  After your metatarsals are broken, get a really long needle and start ramming them into your eyeballs.  Maybe after a while, you’ll realize how stupid it is to live beyond your means.

We have proposed creating government restrictions on what you can and cannot buy, and how much credit you can get based on your high school and college transcripts.  If you’re stubborn enough not to see the value of doing well in school, then you are likely stubborn enough to buy things you can’t afford.  The government can be a helpful big brother to save consumers from over-consumption.  Listen here, this is only one solution to help protect people from themselves.  You are welcome to offer up another novel solution too. Read more…

For my cash asset class, I pretty much dump all my money into long term CDs.  My net worth is divided almost equally into stocks, bonds, cash, and real estate.  I didn’t plan for it to be this way, it just happened and I don’t mind one bit.  I love real estate the most because I like having a real asset which is tangible, produces income, and provides a hedge against inflation.  My second favorite asset class is cash.

Cash is the only true means of passive income generation.  I literally don’t have to do anything for the interest income earned after I decide on a CD.  It just compounds and automatically renews to another similar duration CD after the initial period is over.  My goal is to generate five figures a month in interest income from my CDs by the time I retire.

QUESTIONS TO ASK BEFORE INVESTING IN A CD Read more…

* In order to pay for President Obama’s $450 billion Jobs Act Bill, he has proposed removing the muni bond tax exemption benefit for those above the 28% marginal tax rate (~$200,000 for singles).  Given those in the 33% and 35% tax brackets invest the most in muni bonds, there will be a huge sell-off, and a resultant rise in borrowing costs for State governments.  This will lead to more budget shortfalls due to higher expenses, and less local construction.  As a result, MORE jobs will be lost or never to be re-created!

Taking advantage of State level governments to pay for a Federal Jobs Bill is very astute.  The more States get crushed, the more dependents and voters will be created for the Crusher. 

If you haven’t heard, the United States of America is having some serious state budget problems!  It’s estimated that 44 out of 50 states will have a budget shortfall for fiscal year 2012, which starts on July 1, 2011.  The largest absolute dollar offender is my home state of California, with a $25.4 BILLION shortfall that accounts for a whopping 29.3% of the state’s 2011 budget!

Everything is relative though, and there are three states more screwed than California based on a deficit as a percentage of 2011 budget: Nevada at 42%, New Jersey at 37.4%, and surprisingly Texas at 31.5%.  The overall US shortfall is $112 billion dollars, accounting for 17.6% of 2012′s overall budget.

THERE’S NO PLEASANT SOLUTION Read more…