Become An Owner Instead of a Worker


When we’re young, we trade our health for money.  We work long hours.  We lift heavy things and wear down our tendons. We spend hours typing or doing other repetitive motions that cause carpal tunnel syndrome.  We spend hours on our feet and wear down the disks in our backs and develop heel spurs.

We trade this wonderful gift of youth and health that we’ve been given, the ability to keep pushing it for may hours, to bounce back when we fall down and heal fast when we get cut, for cash by working way too many hours.  We go in before dawn and leave after dark, never getting out to see the sun and the woods and the oceans.  We work hard to go on a vacation, which is then rushed and filled with work thoughts and emails back to the office the whole time.  We buy large, beautiful homes that we spend all of our free time maintaining and cleaning when we aren’t working to pay the mortgage.  We buy things on credit and then spend a quarter to half of our time working to pay interest payments.

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While we’re young we can make extra money by just pushing it a little harder.  We can make that car payment if we work overtime on weekends so we can drive that shiny new car to work and have it sit in the parking lot all day, slowly decaying away.   We can take on that second job and get all of the cable packages and five different web streaming services.  We can keep buying clothes to impress people we don’t like and buying all of the latest gadgets to look good for people we don’t even know.

When we get old, we trade our money for health.  Any money we’ve saved up through those long hours of work goes to treatments, surgeries, and drugs to reduce the pain our weary bodies feel.  We spend money to try to have the ability to walk and run and jump and heal like we did so easily while we were young.  We get surgeries to be able to walk after long hours of carrying heavy loads have destroyed our knees.  We buy prescriptions to lower our blood pressure after years of sitting idle at a desk, eating poorly, and letting our health decay.

Stop.  Stop today.  Stop right this minute and change your life.

Become an owner instead of a worker.  Instead of getting that new car, drive your old one for a few more years and send those car payments you would have made into a stock mutual fund and become an owner in a group of companies.  Buy a smaller house for cash and invest the money you save on interest.  Stop buying things to impress people and just buy what you need so that you can spend time with your family who don’t care what the label on your blouse or jeans says.

Start building a portfolio so that you will be getting dividend payments and capital gains instead of paying interest payments and penalties.  Let others work for you so that you don’t need to work those extra hours.  Expand your lifestyle by waiting a little while to buy things, instead investing the money in mutual funds, then using the distributions from those mutual funds to add to your income.  Direct some of that money back into buy more mutual funds, and your income will expand on its own.

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Everybody can become an owner.  You can start a mutual fund account with Schwab for only $1.  You can start investing through Vanguard funds for only $3,000 ($1,000 if you start a retirement account).  Start an account and start sending a little of your paycheck in each month to build your wealth.  Own things.  Build things.  Stop just using all of your effort to generate entropy.  Stop having your money flow into your back account through direct deposit and then back out again to bills through auto pay without your even seeing it.

The next SmallIvy book, Cash Flow Your Way to Wealth, will be coming out in about a month.  It gives the game plan to go from worker to owner.  Subscribe to this blog to make sure you get your copy when the time comes and don’t miss out.

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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.

Will the Republican Party Be Changed this Time?


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I was eight years-old when Ronald Reagan was first elected.  Like Donald Trump, he was an outsider, elected after years of a dismal economy under a President who tried Liberal policy after Liberal policy to fix it, only making.  Like with Donald Trump’s predecessor, many of the actions Reagan’s predecessor was taking were probably keeping the economy in the doldrums.

The effect of President Reagan’s presidency on my generation was enormous.  We saw that the Conservative, free-market principles, really worked.  If you cut taxes, the economy would surge as people worked more.  There were jobs everywhere because light regulations allowed businesses to do productive things instead of fill out reams of paperwork and businesses actually wanted to be located in the US.  We learned that if you gave people the freedom to take care of themselves, they mostly would.

Then came George H.W. Bush.  America returned from an outsider to a party insider.  We then started seeing typical Republican actions – talking about free markets and lower regulations, but not really fighting to reduce regulations and government influence in the markets.  He even reluctantly went along with the Democratic Congress and raised taxes after his famous, “Read my lips” statement in the debate.

Under President Clinton we of course saw taxes raised a great deal and all sorts of new regulations come into play.  We saw something interesting under Clinton, however, largely due to the push from Newt Gingrich and the Republican Congress elected under the Contract with America pledge.  We saw a requirement that those on welfare, who were able, go back to work.  I remember hearing stories of women who had gone into the workforce after knowing only welfare saying that they had dignity for the first time in their lives.  The other thing that was striking was something I didn’t realize until Bill Clinton mentioned it in a speech he was giving at the 2008 Democratic Convention for Barack Obama – that everyone was working in the late 1990s, and the economy was on fire.  I came to realize that a side effect of getting everyone to work is that you have a lot more things being produced, meaning there is more wealth to go around.

With the second George Bush, again we saw the typical Republican talk about free-enterprise but no a lot of fight for free markets.  We even saw regulation of the light bulb – phasing out twenty-five cent incandescent bulbs for $3 CFLs and $10 LEDs.  When the mortgage meltdown came in the end of 2008, rather than seeing the government simply support the money markets and protecting depositors as they could have done, we saw the government bailing out the large banks and insurance companies.  The people who made the bad mistakes kept their companies and their jobs, while the taxpayer was left holding the bag.  This was clearly crony capitalism, not free-enterprise.

Now, like Reagan, we have an outsider.  In fact, Donald Trump is even more of an outsider than Reagan since Ronald Reagan was at least Governor of California before he became President of the United States.  Trump has never held an ected office or even been an officer in the military – a first for America.  Donald Trump talks about using free enterprise principles – low taxes, reducing regulation, reducing the cost to repatriate money from overseas — to help those in America who have been exploited by the Democrats and ignored by the Republicans.  Hopefully he will do as he promises and the Republicans in the House and Senate won’t block him.  And, hopefully,  Republicans will see the support he has gotten despite not being the most elegant speaker or tactful politician and realize that really using free-enterprise principles is the path to a strong economy.  And that is the path to keeping the Presidency.

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @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.

Teaching Personal Finance in School


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A dyed red-haired rapper criticizes the public education system in a viral YouTube video, “Don’t Stay in School“.  Looking back at my education, I remember learning the capitals of the states for no apparent reason.  Other than watching Jeopardy, I’ve never used this information.  Now my children are also learning the capitols, again for no reason.  With search engines this information is even more useless than when I was in school.

If we replace the teaching of useless and pointless things like this, or maybe the learning of the three types of rocks (igneous, sedimentary, and metamorphic), we would have time to teach children a lot of really important things for their lives like personal finance.  Much of the information about personal finance that keeps people from making bad decisions was not taught to their parents, which is one reason we see so many people buying new cars every three years or running up debt on 19% interest credit cards.  Here are some lessons that should be taught in schools instead of, say, the types of clouds.

The rule of 72.  If you take 72 and divide by an interest rate, that will tell you how long it will take an investment to double at that rate.  For example, if you put your money into a CD paying 4% interest, you will double your money about every 72/4 = 15.5 years.  Double that rate to 8% by investing in bonds and you’ll double your money about every 72/8 = nine years.  You get a better return because you’re taking on a little more risk since the bond issuer could default.  Go into stocks, which have a variable return, but one that averages around 12% annualized if you hold them for at least 20 years and you will double your money every six years or so.  If you invest your money for 30 years, $1000 will turn into $4,000 in bank CDs, $8,000 in bonds, and $32,000 in stocks.  That’s something worth learning.

The rule of 72 works the other way as well.  If you are taking out a home mortgage at 8%, you will pay in interest about every nine years about the amount of principle that is not paid off during that time. Because you pay back very little of the principle during the first two-thirds of a mortgage, if you have a $200,000 30-year mortgage, you’ll pay about $160,000 in interest during the first nine years and still owe about $180,000 on the loan, as if your payments just vanished.  Over the life of the loan, you’ll pay about $530,000 for that $200,000 mortgage.  If you use the rule of 72 and assume you’ll owe about the full loan value for the first 18 years and then a little over half of the mortgage value for the last twelve years or so, you would estimate paying $200,000 for the first and second nine-year period, then a little of $100,000 for the last 12 year period, which is pretty close to the $530,000 paid.  If you get a 15-year loan instead, you could estimate about $200,000 for the first nine years and then a bit more than $100,000 for the next six years.  The true amount you’d pay would be about $344,000 – fairly close to your estimate of a bit more than $300,000.

Note if you keep a credit card balance and are paying 15% interest, the rule of 72 tells you that you’ll be paying the full value of the balance in interest every five years.  If you keep a $10,000 balance on your cards, you’ll be paying $10,000 every five years or about $2,000 per year in interest.  That is a paycheck or two for many people, meaning you’re working a month of your life per year just to pay interest on your credit cards.  Maybe if people learned this in school, they would be more leery of whipping out the plastic for a vacation.

The power of extra payments.  And speaking of home mortgages, here’s a little trick that is not taught in school that would be very valuable.  If you look at your mortgage pay-off plan, you can determine how many payments you could remove from the loan by making an extra payment.  For example, in year one of a 30-year loan on $200,000 at 4% interest, you’ll be paying about $3,500 in principle and $8,000 in interest.  Monthly this is about $300 in principle and $670 in interest each month, for a payment of about $970 per month.  If you paid an extra $300 in a month (the amount of the principle paid each month), you would be eliminating one mortgage payment, saving yourself $970.  Pay an extra payment, and you’re eliminating about three payments, or $3,000.  If you make an extra payment during the last year of the loan, you’d only be saving about $60 since at that point your payments are going mainly to principle.  By looking at the amount of principle you are paying off each month, you can see how powerful making extra payments is.  Early in the loan (and the higher the interest rate you’re paying), extra payments are very powerful and well worth the money.  Later on, not so much.  Maybe if people knew this, they would try to hit the loans hard during the first several years and save hundreds of thousands of dollars.  People often get serious about paying off their loan at the end, but by that point, most of the damage has been done any you might be better off to invest the money.

Small amounts add up.  Let’s say you run by Starbucks every working morning and drop $6 on a sugary coffee drink.  If instead you made a cup of coffee at home for essentially free (compared to $6 per cup) and invested the money, you would be investing about $150 per month or $1,800 per year.  Invested in mutual funds, making 10% annualized over 30 years, you’ll have about $330,000.  That is enough to send a child or two (or three) to college.  So, just by changing your morning routine and making expensive coffee drinks an occasional luxury rather than a daily routine, you can pay for college.  Imagine how different things would be if almost everyone did this.

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @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.