Reasons You Will Not Become a Millionaire


Everyone reading this post can become a millionaire in their lifetime.  I’m sure there are a couple of people out there who will be able to prove me wrong, but the fact is that the vast majority of people could become millionaires.  It is also true that the vast majority won’t.

The reason they will not become millionaires isn’t because of their income levels.  It isn’t because of things that happen to them.  It is because of their choices.  It is said that luck comes to those who plan.  Likewise, wealth comes to those who follow a plan.

Listed here are the top reasons that people don’t become millionaires.  This is not to say that you can’t do a few of these things and not succeed.  It is just to say that the less of these you do, the better your chances are of becoming wealthy.

1.  Eating more than one or two meals out each week.

2.  Buying new cars.

3.  Taking out student loans that cannot be, (and are not) paid off in less than a few years.

4.  Using credit cards (even if the balances are paid in full each month).

5.  Not putting money away each month.

6.  Not having a monthly budget.

7.  Putting money in a savings account rather than investing it in equities.

8.  Not having an emergency fund.

9.  Changing jobs and starting new careers frequently rather than building experience with a company and depth in a field.

10.  Not getting involved with professional and service organizations.

11.  Having a mortgage that is longer than 15 years and/or which is more than 25% of one’s take-home pay.

12.  Not having term life insurance (for surviving spouse).

13.  Not giving more in value to your boss and your customers than you receive in payment.

14.  Marrying badly and getting divorced.

15.  Taking loans against or pulling money out of a retirement account.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Hey GM, You Made Your Bed, Now Lie In It


The executives and former executives have been quite vocal lately in their calls to be brought out from under the control of the government.  Specifically, they would like the Treasury to sell their remaining shares in the company so that the government would stop dictating things such as bonuses and perks that they can give their executives.  They complain that they have trouble recruiting talent with the restrictions and that it is hurting their image to be known as “Government Motors.”  Well, get used to it.

If the Treasury were to sell its current stake in GM in the twenties, the taxpayers would lose billions of dollars (assuming that the share price would even stay in the mid-twenties if the Government were to dump that many shares).  It is estimated that the stock would need to get to $53 per share for the government to break even.  That calculation, of course, doesn’t include inflation and interest the US Government is paying on that debt, let alone the loss in opportunity for the US taxpayers to invest that money elsewhere.

I strongly opposed the bailout of the car companies.  I especially didn’t like and question the legality of the way that the Bush administration diverted funds from TARP (another things the government should never have done) for the auto bailouts once it was clear they could not get a bill through Congress.  Still it was done, the company agreed to it, and now we are where we are.

If GM wants to get out from under the control of the Government, get to work building great cars that people want to buy as you claim you are doing.  Find a way to make lots of money and cause your share price to go up.  Maybe cut pay and benefits, starting with your executives, down to the bone and save up about $25 billion to pay the original Government loans off.  Or start diverting this money to share buybacks to lift the stock price that way.

You knew the terms and you knew whom you were dealing with when you came hat-in-hand to Washington on your corporate jets.  Now do what every American family needs to do when they buy one of your vehicles and take out a loan with your financing arm.  Get to work and meet your obligations.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How the Dodd-Frank Bill is Slowing the Recovery


The 2008 recession has often been compared with the Great Depression, even gaining the name the Great Recession.  Looking at the recession unfold, however, it actually looked a lot more like the recessions of the 1970’s than the Great Depression.  Unemployment rates were nowhere near the 25% rates seen in the 1930’s.  The stock market fell by about 40%, but not the 90% rates seen during the 1930’s.  The market even recovered about a year after the fall.  After the 1929 crash, it took about 15 years for the market to return to its old highs.

One thing that caused the Great Depression to drag on so long, however, unlike the crash in the mid 1920’s, which was over in about a year, was the regulations created.  There were all sorts of protections placed on employees to prevent layoffs, minimum wages were enacted, and all sorts of benefits were mandated.  While this made it great for the employee who had a job, it meant that companies were reticent to hire any additional employees.  The jobs they had did not create enough value to justify the wages they had to pay.  And, if you hired someone, you had them for life.  Many of these regulations were done away with in the early 1940’s by necessity because of the war.  The economy recovered as this happened.

The 2008 housing market crash and resulting recession is starting to look a lot more like the Great Depression.  Once again, it looks like excessive regulation, along with changes in the way that bankruptcy is administered, is the cause of the drawn out misery.  Here’s how:

A fundamental foundation on which a free economy is built is the contract.  Contracts allow people and entities to define agreements and ensure that each side can determine the risk it is facing.  For example, with a mortgage the individual signs an agreement saying how much he is going to pay and what the interest payments will be.  If the bank then came out the next week and said that he owed the balance in full, or tried to raise the interest rate, he could go to court with his contract.  The home buyer knows how much he needs to pay and can calculate how long it will take to pay the loan off and how much interest he will pay during the loan period.  He can look at his income and determine the likelihood that he will be able to pay off the mortgage.

Likewise, the bank knows what interest rate it expects to receive from the loan, and can calculate how high that interest rate needs to be to limit the risk that it will lose money if a set of defaults occur.  Likewise, it has a method to recoup at least some of the losses by taking possession of the home and selling it.  Banks spend a great deal of time determining how low an interest rate they can charge and still make a decent profit since they generally like to charge an interest rate that is as low as practical so that they won’t lose money to their peers.

Bonds are also legal contracts in which a company or other entity agrees to pay the bond holders a fixed percentage for a number of years and then pay back the original amount borrowed and redeem the bonds.  Part of the allure of bonds is that they generally include in the bond contract first right to the assets of a company should a default occur.  This means that if a factory goes bankrupt, the bond holders would get the proceeds from the sale of machinery and other assets before anyone else gets paid.  While this would still result in only collecting perhaps 30 cents on the dollar, at least it offers some security for the risk taken.

The Dodd Frank law does serious harm to the concept of contracts.  In that law if a company is considered “too big to fail” by the Secretary of the Treasury – an unelected official – his/her office can dictate the terms of a bankruptcy or other action.  This means, as was done with the GM bankruptcy, the government can put others ahead of bond holders.

In this type of environment, in which the terms of a contract can be discarded arbitrarily by an office that can change radically over the life of a loan, who would want to buy bonds?  This means that it becomes more difficult and more expensive for companies to secure funds for expansions and other activities.  This is a big reason why unemployment has remained so high.

 

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.