Your Money Strength: How Hard Is Your Money Working For You?

Reading The WSJ In The Hot TubFor years I worked hard for my money. I’d get into work before the sun came up and leave work after the sun set every day. The pressure to generate revenue was immense with some bosses relentlessly cracking the whip. Thank you sir, may I have another!

In the end, working hard was worth it due to the optionality I now have. Besides, it wasn’t like I was going into harms way to combat gorilla soldiers in Iraq. Those guys are the true hard workers, which is why the government needs to make sure every opportunity is given to our troops back home.

Nowadays, I’m still working hard for my money ironically, because I’ve reset to zero. I’m being somewhat counter productive in retirement because I’m afraid of getting lazy. If I don’t achieve my goals in one year or feel like I’m not on track, then I will probably just go back to work. To be frank, going back to work would be a failure, unless I found something incredibly awesome, like being a masseuse’s guinea pig.


I only work hard now because I have the energy. One day, my mind will fade to the point where even if I wanted to work hard, I couldn’t. Saving money is EASY compared to making money work for you in this low interest rate environment. Almost anybody can save 10% of their income if they really want to, but I guess less than 1% of the population can return a risk-free 10% every year. Bernie Madoff claimed to do so, and look where he is!

Here are some common asset classes to evaluate:

* Real Estate. One of my favorites takes advantage of rising rents and falling mortgage rates. Money is leveraged for a greater return, while the mortgage principal gets paid down. Hold long enough and I firmly believe most real estate investors will build tremendous wealth. Here is an example of almost $400,000 after taxes in wealth creation after nine years. I firmly believe that real estate is going to see a nice multi-year upswing until the government decides to take away our mortgage interest deductions!

Money Strength Grade: A

* Peer-To-Peer Lending. I’m excited to invest in because of the 5-10% achievable returns for a portfolio with over 100 notes. Such a portfolio can be funded with just $2,500 (100 loans at $25 each), and my hope is to have $50,000 or more generating another $2,500-$5,000 a year in passive income. Once you choose your loans, you can pretty much kick back and monitor the performance. P2P lending is going to be my replacement asset class for CD investing. 5-10% is 3-4X the risk free rate of return. As of 2015, I’ve invested in P2P lending for two years now and have achieved an extremely passive 7.5% per year return. I’m a big believer in P2P now after my experience. You can read my latest post on P2P lending here.

Money Strength Grade: B+

* Dividend Income / Stock Market. Dividend yields are a function of profits and payout ratios. Given the volatility of the stock market, dividend income has also been somewhat volatile. Sure, it’s nice to get a 5% dividend yield, but not so nice if your stock is down 20%! My stock portfolios are bias towards large cap, dividend paying stocks, along with real estate private equity funds. I wish volatility in the stock markets would decrease, but until it does, it’s important to stay on top of rebalancing and asset allocation. The stock market is now at all time highs in 2015. All of us are looking good who have exposure.

You can now be your own mutual fund manager with Motif Investing. Motif Investing allows you to build a basket of 30 stocks for only $9.95, instead of spending the normal $7.95 for each position ($230+ commissions). There’s no need to pay expensive and ongoing active management fees for mutual funds again. Once you build your own portfolio, or purchase one of the 150+ professionally created motifs, you can simple dollar cost average with one click of the button every time you have money to invest. You can even buy retirement Horizon motifs, that act like target date funds, except you don’t have to pay the 1% management fee either. Finally, you get up to $150 in free trading credit when you start trading with Motif Investing. Motif Investing is truly the low-cost, efficient, and most innovative way to invest today.

Money Strength Grade: B+

* CD Interest Income. CD interest income is guaranteed for principal up to $250,000 for singles and $500,000 for couples. When 5-year and 7-year CDs yielded over 4%, they were reasonably attractive, risk-free investments. Now with long-term CDs at only 1.5-2%, the value proposition is more difficult. Everybody should have some money in CDs as part of their diversification, but that portion of wealth should be declining. Take a look at my post on CD investment alternatives.

Money Strength Grade: C+

* Money Markets. The average money market account is 0.1%. That is tremendously pathetic. As a result, I moved some money online to Everbank, which is yielding ~1.1%. I’m not going to get rich with 1%, but 1% is still 100X greater than where I was keeping my liquid cash at 0.1%. Money markets shouldn’t be considered an investment. But, you might as well optimize your returns while you wait since the internet makes everything so easy.

Money Strength Grade: D

* Online income. Online income didn’t really exist 15 years ago. For those of you who are able to effectively leverage the internet to generate income, the sky is the limit. I’m enjoying the whole online adventure and being careful not to overdo things. Making a sustainable living online takes a lot of creativity as well as a lot of content. You can’t sit back and watch the dollars come in. You’ve got to always be striving. Just this morning, my site went down for 5.5 hours due to a corrupt harddrive on my server. I have been up since 3:45am trying to resolve the issue. Not fun, but a must!

Money Strength Grade: B

* Physical gold. Physical gold is nice, but where are you going to put it? Gold prices have been steadily going up thanks to the Federal Reserver’s loose monetary policy which is crushing the US Dollar. Unfortunately, gold provides no yield, so it is pure speculation. I’ve got a good chunk of change in the Vanguard Metals & Mining fund myself. However, I’m just gambling here as I expect QE4, baby!

Money Strength Grade: D

* Under Your Mattress. There are plenty of folks who keep their hard earned savings either under their mattress, in the freezer, or buried in their back yard. You might laugh, but it’s true! When banks were going under, it wasn’t unreasonable to just hoard physical cash, despite the FDIC guarantee. Just think what would happen if all electricity went away like in the show, Revolution? There would be no record of any of your wealth and you could never get any of it back. We really are taking a leap of faith by electronically transferring our money to financial institutions.

Money Strength Score: F-


If you think creating significant passive income is easy, you haven’t been trying. It takes a tremendous amount of time to build up a large enough nut to create enough money to twiddle your thumbs in the hot tub all day. My money strength grade has gone from a self-assessed B+ down to a C given the fact I’ve got 25% of my net worth in CDs which are going to reset to a lousy 2% in the coming years if I don’t do anything about it.

Why do you think people who sell businesses for millions, who win lotteries, or who depend on just one income stream fade down the road? Their money strength is weak because of little effort to maximize returns with the nut they had. Everybody needs a savings buffer and a passive income buffer to increase their chances for financial independence. It’s not easy, but you should try!

Recommendation For Improving Your Money Strength

Get a handle on your finances by signing up with Personal Capital. They are a free online financial tools platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, whether I have too much invested in real estate, and how my net worth growth is progressing. I can also see how much I’m spending and earning every month to make sure I’m within budget. Personal Capital takes less than one minute to sign up and is helping me build wealth for the long run for free.

I’ve personally met up with four Personal Capital managers as they are right here in San Francisco. I believe in their mission and they are continuously rolling out new free features to help the consumer such as their latest iPad app launch. The best feature is their “401(k) Fee Analyzer” which showed $1,700+ in annual portfolio fees I had no idea I was paying.

Photo: With an “A” Money Strength grade, you can read the WSJ in the hot tub all day,  Sam D.

Updated thoroughly on 2/10/2015



Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    Sam, you must have read my mind because I have a post coming today about this very thing, although worded differently. I’ve got an account setup with Prosper and will be writing about that process, and I’ve also added a few others like doing mobile apps and real estate rental income (although rental income isn’t quite passive as it does require some maintenance and work without property management).

    I’m happy that I’m at least thinking about all this and giving it a shot. Thanks for providing an example to follow. As you said, saving is the easy part. The earning more beyond that, that is the challenge :)

    Here’s the final list I’ll be writing about:

    * Prosper Lending (peer lending of loans that gain interest)
    * Savings Account (very low interest rate)
    * Website (Adsense, affiliate, etc…)
    * Mobile Apps (Sales)
    * Real Estate (Rental Income)
    * Book (Sales/Royalties)
    * Stocks (Dividends)
    * COD (certificate of deposit)

    • says

      Sorry to front run you there Jeremy! But, good you wrote your post and are listing all the ways you could be making money work for you. It’s all about planning ahead and optimizing what we can!

  2. Grayson @ Debt Roundup says

    I have been trying to figure out better ways to diversify my money and make it work for me. I wanted to get into Prosper lending, but it makes me wary. I don’t have a money market because they are worthless now and I am looking for another CD to deposit some cash in.

    • says

      I was wary for the first 7 years, but they’ve finally tightened up the industry and now have hundreds of millions of loans outstanding. I think it’s an excellent alternative and I’ve written about the various loans by credit score and borrower rating you can check out.

  3. says

    How do you calculate your online income? Do you ”pay” yourself a salary for every hour spent on your sites, and any extra after costs is passive income?
    If you have a basic blog with hosting, costs are $100 per year at most, so making $500 yearly income would give you an A based on real estate or P2P calculations. If you factor your time say at $20 per hour, 20 hours a week, it is much harder to make $1600 and up per month just to offset your time cost.

  4. Larry@DividendIncomeInvesting says


    Lots of good information here. I prefer the ease of dividend investing over almost everything else. A portfolio of 50 stocks or so, especially the dividend champion type, isn’t that hard to manage and has many advantages over other types of investment:

    Monitoring is easy with most information being public and easily available.

    Fees are low. If you buy individual stocks and hold them in a fee free account, the only expense is the commission for buying and selling. And taxes.

    Investments are liquid in most cases and can be sold without too much difficulty.

    Easier to value with prices, earnings, and dividend yields available.

    Easy to diversify across different sectors, and geographic regions.

    Of course, there are times when you are at the whim of the markets and your portfolio can fluctuate greatly. But, as long as the fundamentals are solid, that may be a good time to add to your core holdings.

    I also think that some allocation to income producing rental real estate is prudent for many investors along with the dividend stocks.


      • says


        I think dividend ETF’s have flaws that can hurt their performance over the long term.

        Fees: (SDY) for example has an annual expense ratio of 0.35%. You have to pay this fee every year and it takes a bite out of your return. Whereas, buying individual stocks costs the one time commission and you are done. generally there is no fee and dividends can be reinvested at no cost.

        Yields: The yield of a dividend etf is generally less than the comparable yield of a portfolio that an investor can put together on their own. I think this is due the general weighting of holdings and may be a bigger deal for the investor that is looking for current income versus someone that wants long term growth and income.

        One advantage of dividend ETF’s is that they do offer diversification in some cases that would be very hard to achieve on your own.

        For example, I own (PID) in my dividend income portfolio:

        I like this ETF because it provides access to international dividend achievers that I would not normally buy or hold with a US brokerage account. I think the diversification here lowers my overall risk, since I want to be invested internationally, but I’m not near as familiar or competent with international companies / equities as I am with US companies / equities. However, I do have to pay a fee for that diversification.


  5. says

    I’m just a couple years out of college so my money has very specific goals. My retirement accounts continue to accumulate money and I continue to save to pay down my girlfriend’s student loans once we get married. After that we’ll probably invest more heavily for retirement and some in a taxable investment account. I also want to try Peer to Peer lending at some point.

  6. says

    Dude, money under your mattress gets an F-. Inflation is running at least 3%, which means your cash is actually losing value. You need to be getting 3% to break even at least.

  7. says

    Over time, I invested (heavily) in income property, businesses (restaurant, catering & consulting), stocks, bonds, vacation property (Mammoth, CA), collectibles, commodities,antiques and art. I view the last four as really non investments because I probably will never sell, but they increase in value anyway. By far, income property or real estate was my best investment (A+). Besides my current home I still own a 60% interest in real estate in probably the best area of the country. My stock market investments have kept pace with the indices, but I always felt I was at the mercy of the market (B). My various businesses had their ups and downs. The highs were wonderful and many of the lows were due to outside influences. Taco Bell and McDonald’s started a price war in the 80’s which are still going on that had a material effect on margins. As an independent businessman, you cannot escape from the market place (B). Last, I owned a condo in a ski area (Mammoth) with two friends for 10 years. We were able to go there for a ski vacation 1-2 weeks a year. We broke even including all the non rental times which is pretty good (B).

  8. Mike says

    I always factor that I’ll use websites/mobile ads/premium mobile apps to help fund a savings, P2P lending and some of the other things. I notice that it is a lot of hard work, but I love doing what I am doing for alternative incomes-low wage sucks a lot, especially when you are not earning enough to pay bills. Finding and reviewing other incomes is something that I like about reading your blog-since you can state your opinion quite well.

  9. says

    With real estate, things have taken such a hit in some places, that with significantly lower prices and very low rates, there are some real long-term values out there. Especially in some very popular areas – as they say, location, location, location. Plus, unless you’re in Dubai making islands, it’s not like you can make more land and more prime locations.

    I do think that the mortgage interest deduction might be in the 4th quarter of its game, and just might sunset at some point sooner than some folks think.

    • says

      I can’t imagine the mortgage interest deduction going away, HOWEVER, the majority of those benefitting from the deduction reside in California, New York…. Which are actually blue states. So, nope. Not going away.

  10. says

    Real estate definitely is the best way going forward for the next 5 years. I also give B- to Index fund investing as it requires very little effort to build wealth.

  11. says

    I think P2P lending is probably a B-. The return is nice now because the economy is improving, but we have another recession, the default rate would go through the roof. The income is nice, but it’s risky too.
    I’ll give myself a B overall. Most of our net worth are in real estate and stocks at this time. I’ll buy more bonds and CD once the interest rate improves.

  12. says

    I like how you graded each of the asset classes. I have exposure to pretty much everything except for physical gold and money under my mattress. I’ve been trying to diversify more this year as a large majority of my money has been in CDs for a long time and the returns just aren’t that great anymore.

  13. nbsdmp says

    Sam, totally agree making your money work is really hard. I think that is why people who retire very young vastly underestimate the amount needed to throw off the “close to risk free” income you need. My conservative approach is the rule of multiplying you annual nut (pretax)needed times 33…statistically you’ve got a 99% chance then of not outliving your money. For young people who have been successful enough and socked away tons of cash to consider retiring early its a tough # to hit, but I really doubt that people who retire early with 10-20 times their annual nut in savings will make it without major lifestyle adjustments. That is of course they’ve done a great job of setting up reliable passive income streams. Alot of time these “passive incomes” somehow end up being intrinsically tied to work or the reason you were able to save so much money in the first place.

    • says

      Multiplying your annual gross expenses by 33 to get your nut works. Now imagine having 33x your annual nut, and having that annual nut provide sustainable passive income, and work on a hobby like what I’m doing online so you don’t have to even touch the cash flow from the nut! A buffer for yor buffer if you will.

      It becomes almost like a game. You’re playing with houses money at this point.

      Curious to know your situation now if you’d like to share.

      • nbsdmp says

        I hear you about the buffer for the buffer, I’m early 40’s with about 45-50 times my idea annual nut saved right now with a “somewhat” passive income of approx. $400k/year outside of my normal income. I enjoy what I do so I’m lucky right now…I think I would get bored pretty quickly if I did something different. In regards to your developing passive income streams I define those as investments that are 100% on autopilot requiring no interaction, time, or stress. The key I believe is doing something you enjoy (which it seems you do), then making money really isn’t work. We all just need to make sure we enjoy life along the way!

        • says

          Nice! 400K is great passive income a year! Let’s say you got a 4% return, can you share with us how you got to the ~$10 million nut? Or is it other income streams not based off such a large nut? I’ve always believed there is A LOT more money out there than people know, and you’re a great example.

          Is there a time when you plan to spend it?

        • nbsdmp says

          I left a very large company and risked my life savings and partnered with a few people to build a small existing company into a nicely profitable medium sized company. It takes years of hard work, but once you turn the corner it is all worth it. My advice to people is “it usually takes 15 years to make an overnight success”. I have no intention of spending the principle, and still get a kick out of my day job, so right now it all gets plowed back into new investments(and a few toys)…I do my best though to have alot of fun along the way! Yes there is a ton of money out there, what I worry about is people feeling a little disenfranchised with the war on the rich and not be willing to take the risks and go out and do what I did. There are about 80 more families at our business that have nice $70-$120k jobs now because of greedy capitalists. Now I imagine guys/gals in similar situations as me feel more responsibility to the employees than they have the desire for more $.

  14. says

    I think getting in the real estate game is a good bet for the future. The rates right now cannot be beat, and if you buy for just investment purposes in a tax advantageous area you will eventually hold a nice chunk of cash flow after the mortgage is paid off. This is the next investment area I want to be in so that I can retire like Sam and Joe.

  15. says

    As a whole, I’m just not on the whole dividend stock thing. I mean, you’ve got CFOs talking about creating shareholder value refusing to distribute idle cash in a time when everyone knows that the quickest way to realize shareholder value is to up a dividend. I give them a C – lots of buzz but no substance. /rant

    I tend to like BDCs as a way to grab higher yields, albeit with more risk. BDCs like Ares Capital Corp (ARCC…I don’t own it) reward investors with strong dividends with no exposure to dividend tax hikes since distributions are taxed as income. Something to think about for people who don’t like REITs because of their current premium prices or lower-yielding dividend champions, which don’t really spew off all that much income at 2-3% per year.

    My investment universe is pretty much limited to equities. Younger folks have to accept volatility because we really can’t afford not to. Real estate looks attractive for people who have the time. I like it at less than the cost of replacement and record low rates, but I have no skin in that game. It’s a business before it’s an investment.

    • says

      JT, per your comment on real estate, younger folks have THE MOST time. You just need to build the but first for the downpayment. I used my equity wins from 22-25 to buy my first place. Just got to do due diligence before you buy what may be the biggest purchase of your life.

    • says

      JT, ever look into high dividend players like AGNC (15%/yr) or SDRL (9%/yr) just to mention a few?
      Primarily using those 2 I’ve managed to hit gains of 23%+ for each of the past 2 years in one facet of my overall portfolio (that is outside of my 401k).
      I don’t own either of them currently, but when my buy price gets hit I will.

      • says

        Sam, I hear you on real estate. Trust me, it’s an asset class that’s always stuck in my mind as I move money around. I think I can beat it right now with less work/concerns (I have no idea where I’ll live a year from now), but you can bet my first home will likely be a multi-unit place.

        Chris, yeah, I own AGNC’s parent company ACAS, which is a BDC that doesn’t pay a dividend right now. I’m probably going to start selling that soon as they go back to paying dividends in 2014. So, in a way, I have exposure to yield chasing because they make good money as the asset manager for AGNC. I put the mREITs in the “too hard” category and haven’t invested in them myself. Right now I’m mostly focused on total returns, so the highest yielding companies haven’t been on my radar…I feel like there’s too big of a premium for yield in the current environment. Look at SDRL relative to RIG on an adjusted P/B basis for an example. RIG trades at less than their rigs are worth. SDRL trades at a substantial premium.

  16. says

    I’m only a few years out of college and put most of my money in stocks or in retirement. I’ve got a little bit in my savings account for emergencies.

    I’m really interested in moving up from a rental situation to a mortgage, but with the amount of money I have I still can’t reach the 20% downpayment : (

  17. says

    Pretty good income source evaluation. I wonder if is open to Canadian investors too. I couldn’t find any info about that on their site. Maybe there are other p2p opportunities I can find up here though because I’m interested in that space. An income generating asset I would like to own some day is a royalty or patent. It could be to write a song where radio stations pay me every time it’s played, or a design patent where I can license it for others to use, or even write a book where I get a cut of each one sold by a big publisher/distributor. Don’t know how others feel about that, but I would give royalties a money strength grade B- or higher :D

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