This is by far my favorite wealth building page. While I can’t get into details about which investmests you should make yaddah, yaddah, yaddah, I can tell you that I spend a lot of time driving around looking at properties….
And a lot of time with excel spreadsheets pulling apart a company’s financials and then driving around looking at the company’s assets….
That being said, the last “account” you have from the personal wealth planning stage is Intermediate Assets. Give a look:
Asset (Intermediate) Savings: My favorite account! This is where you BUILD wealth! This is where you try something new. This is where you roll the die. Of course you need a plan before you go spending willy-nilly, but THIS is where you have the chance to beat the market. Keep these funds in an account according to how and when you plan to use them. How to Build Wealth? Expand your knowledge!
***For example, you plan to buy an investment property in 7-8 months. If CD rates are significantly higher than FDIC insured Money Market accounts, consider a 6 month CD. BUT do not consider putting the money on your friend Bob’s stock pick of the week…. You need to preserve principal and you may as well be compensated for it. Bob’s pick could be a 15 bagger or it could be a flop – there is NO WAY to predict. Let me repeat that, THERE IS NO WAY TO reliably PREDICT the stock market.
***If on the other hand you’re savvy enough to set-up a convoluted hedging strategy, and you like to play the market with potentially volatile twists and turns, you need a brokerage account that has as much power as you do. You may need more than Ameritrade. 99% of people reading this page DO NOT qualify to even consider this strategy. Do not fool yourself. If you are wondering what qualifies as a convoluted hedging strategy, please step away from the idea – you’ll hurt yourself worse than giving a porcupine a back rub.
If you didn’t specifically seek out graduate level Statistics or Econometrics classes, consider sticking with what you can see or touch – in other words, something local – a property or a local business you CAN influence (donut shop, dry cleaner, etc.). How to Build Wealth? Know when to hold ’em, know when to fold ’em; know when to walk away . . . and know when to run! Sing it with me!
Why do I like things I can touch? Well, first off, if my tenant doesn’t pay rent on time, guess what, I am on his door step asking for my money. Same thing with investing in a local business. Maybe you own 10% and you are supposed to get 10% of the profits each year – you either take them as cash or reinvest in the business. You have full rights to see the financial books of the company to determine if you are “enjoying” the full benefits of your investment. Not sure, show up on their doorstep as ask to see.
Let me reiterate what I said in day 1 and day 2: The stock market is a wonderful investment vehicle when you choose responsible investments. For 99% of us that means no-load, mutual funds and I’d even go a step further to say no-load index funds. I’ve used Vanguard for many years, nothing sexy, most cost effective – best bang for my no-hassle buck. I’ve been self employed for some time now so no 401k or other company funded program for me. Go with what is offered by your employer if you’re too lazy to understand how the market works – PLEASE, don’t fool yourself here. Pride can kill you.
HOWEVER, once you have investable cash of $100,000 or more, then you can get enough going to play in the stock market – IF that is your fancy. Until you can safely lose $100K, please don’t trifle with the market . . . no matter how good that stock pick looks. I have data sets from my PhD days that show just how bad we small players really do in the market. The more often you trade, the more you are likely to be losing when you account for trading costs. While the big dogs will thank you for your contribution to their portfolios, do you really want to give the big dogs your hard earned cash?
So yes, I like investing in Real Estate and Local Small Businesses – if something goes wrong, I can see it. It also gives me a way to stay connected with my local community. Which often leads to more knowledge about other local investment opportunities. You still need to do proper due diligence when choosing when/where to invest, but the idea of going local is that you have a little more control BECAUSE you own a larger percentage of the business. You may sleep easier at night knowing the fella running the bakery you just funded. Plus, if that fella takes off for the tropics, you can run the bakery (or hire someone to run the bakery) yourself. I don’t remember FedEx offering me the opportunity to choose new staff . . . oh wait, that’s because I own less than .00001% of FedEx. Right. They couldn’t care less about my opinion.