Slicing Through Money's Mysteries
If the delta variant is here to stay, we should come up with an investment thesis to navigate new choppy waters.
After all, the first rule of financial independence is to never lose money. The second rule of financial independence is to never forget the first rule.
It would be a damn shame if we gave up all our gains and then some because the delta variant returns the country back to the stone age!
A good net worth allocation is important to weather the consistent financial storms that seem to come every 5-10 years. The last thing you want is to have a net worth allocation mismatch with your risk tolerance and financial objectives. A savvy investor is congruent with thought and action.
The right net worth allocation by age and work experience will boost your chances of living a comfortable retirement life. The key is to stay on track by following a net worth allocation model. Life tends to get complicated as we age. As a result, it’s easy to get off track.
Before we go through the recommended net worth allocation, it’s important to understand the baseline of American finances.
One of the hardest things for an investor to do is to consistently outperform the S&P 500. Most fail, which is why the general recommendation is to invest mostly in index funds.
However, as humans, we always have hope! And it is that hope of outperforming the broader market that keeps the active money management business alive. Like the lottery, we know the odds are against us, but some of us play the game anyway.
I’m one of those delusional people who regularly has 20% or so of his capital invested in individual securities. I got lucky finding a 50 bagger back in 2000. Unfortunately, I’ve been hunting for my Moby Dick ever since.
A recent high-performing stock example reminded me why we should always try to connect the dots when investing. A great investor tends to see things before the average investor does. As a result, a great investor tends to also be much wealthier.
You’ve heard the recommendations of always having an emergency fund equal to 3-12 months of expenses. Just in case something comes up, your emergency fund will be there to bail you out. However, perhaps the need for liquidity is overrated.
Not only may we not need as much cash as we think, we may also not need our investments to be highly liquid as well. After all, the last thing we want to do is constantly go in and out of our investments. It’s usually better to invest for the long term for compounding and tax minimization.
If you are financially competent, there will rarely be a case where you’ll ever run out of money in an emergency. Further, there are plenty of instances where the lack of liquidity has saved many real estate investors in the past.
Having six months of living expenses in cash is good enough for most people. In this ultra-low interest rate environment, unless you’re trying to buy a house, having too much cash becomes a drag on returns.
One of the great things about being a member of Congress is having power. The more power you have, the more influence you have. And the more influence you have, the more money you can make.
Most senators, representatives, and delegates make a salary of $174,000 per year. However, the speaker of the House makes $223,500 per year. And the president pro tempore of the Senate, majority leaders, and minority leaders in the House and Senate make $193,400 per year.
These are healthy salaries that come with fantastic benefits. But in no way do these types of salaries create mega-millionaires out of members of Congress during their time in office. Instead, it’s their outside investments that make them way richer than the average American.
Bill Gates has taken on many roles over the course of his career: affable tech nerd, aloof billionaire, tennis player, visionary philanthropist. Recently, he and soon-to-be-ex wife Melinda Gates added a new title to that list: largest owners of US farmland.
One way to get rich is to observe what rich people do with their money. Therefore, I think you’ll enjoy this look into why Bill Gates is buying so much U.S. farmland. If buying farmland is good enough for Bill and Melinda, perhaps buying farmland is good for the rest of us as well.
The following is a post by FarmTogether, a leading farmland real estate investing platforms and Financial Samurai content partner. As someone who appreciates owning real assets, please enjoy.
Before you can get to $1 million, you must first get to $100,000. Even though $100,000 doesn’t purchase the same amount of stuff as it did way back when, $100,000 is still a nice chunk of change. Let’s go through how I’d invest $100,000 today.
With $100,000, you can pay for four years of tuition at public university. You could also buy one Patek Philippe complication watch or a BMW M4 and still have $20,000 leftover. Of course, you could wisely invest the money as well.
Ever since getting repeatedly kicked in the nuts working in finance, I’ve focused most of my effort on turning new capital into passive income. I wanted to have children one day. Most of us should be able to earn between 2% – 5% in relatively low-risk ways. Therefore, $100,000 should be able to generate $2,000 – $5,000 a year.
Currently, I’ve got about $145,000 in cash, which is more than what I normally keep for random expenses. The cash has been piling up due to a tax refund, a surprise real estate crowdfunding distribution, and stronger-than-expected rental income from my vacation property in Tahoe.
As a result, I’ve got to figure out how to invest the $100,000+. Perhaps you too have a good amount of cash piling up and are looking for ideas on what to invest in as well. Let me share with you what I’m thinking.
Please note, this is not my investment advice to you. This is a deep-dive mental exercise on how to best allocate capital today for potentially greater returns and more joy.
Chances are you’ve been seeing the term NFT popping up in headlines all over the place. But what are NFTs? NFT is the abbreviation for non-fungible token. NFTs are a type of cryptographic asset that are verified using blockchain technology. Huh? WTH does that mean?
If you a creator and an investor, NFTs could be the right up your alley with the alternatives portion of your portfolio. Let’s dive in.
When I first heard about NFTs, I didn’t know what the hell people were talking about. Now, I understand what they are, but I still find this new asset class incredibly bizarre. This is mostly due to the insane amounts of money people are throwing into them. More on that below.
First, let me help you better understand what a non-fungible token is.
The 60/40 portfolio is a classic investment portfolio consisting of 60% equities and 40% fixed income.
Thanks to a low or negative correlation between stocks and bonds, soon-to-be retirees or retirees have been encouraged to hold a good amount of bonds to reduce volatility and risk compared to an all-stock portfolio.
As someone who is currently focused on de-risking his portfolio before re-retiring once there is herd immunity, I’m considering a 60/40 asset allocation to help protect my gains.
I don’t want to lose my gains since the pandemic began. At the same time, I still want to benefit from any further upside.
My rollover IRA, for example, was 100% equities, 0% fixed income for the past 5+ years. I used equity structured notes to help dampen the portfolio’s volatility and offset some of the downside risk. That said, it was still essentially 100% equities.
Recently, however, I rebalanced the portfolio to 93% equities, 7% bonds. But I need to do more.
Let’s review the benefits of a 60/40 portfolio and discuss why adding other alternative investments may make sense.
On September 15, 2008, Lehman Brothers went bust. I remember this day clearly because I made a $200 side bet with my friend over the weekend that the US government would bail them out. To my surprise, the US government didn’t rescue Lehman, and the stock cratered that Monday and never recovered. This is my most poignant memory of the financial crisis.
Despite all the economic devastation, I wouldn’t mind rewinding time and going back to 2008. I’d rather be 31 than 42, simply because I love life and want to live as many years as possible.
As we potentially head into another recession due to the coronavirus locking up economic activity and the collapse of oil prices causing tremendous job loss in the oil & gas sector, here are some lessons learned during and since the financial crisis.
