Tag Archives: real estate

Stock Market Sectors: Is This a Wise Investment Move?

There are some investment advisors who scare away from the idea of sector investing. However, with adequate research, one might find that certain areas of the overall market tend to outperform others in various economic seasons. But is the risk of overexposing ones’ self to sectors worth it?

Before I answer this question I’d like to list the 11 major stock sectors:

1. Industrials

2. Real Estate

3. Consumer Discretionary

4. Consumer Staples

5. Healthcare

6. Financials

7. Tech/IT

8. Telecommunication

9. Utilities

10. Materials

11. Energy

Before someone considers investing in specific sectors, they must recognize that over time there are periods and seasons in which one sector performs better than others. Some of the worst sectors to own in bear markets is Technology stocks like Google, FaceBook, Apple, Amazon and Microsoft. However as times get better, this sector usually outperforms the rest of the market.

My recommendation is to not invest in specific sectors and sector funds unless you are comfortable risking a significant portion of your portfolio. If you do decide to invest in sectors, pick one that is both posed to do well over the next few months as well as the next decade. You want both the fundamental and technical analysis working in your favor. Overall, stock sectors can be a very lucrative strategy for investing.

Renting Vs Buying – 4 Factors to Look At

Most people will spend the largest percentage of their income on housing. Deciding what kind of housing, and how much can be the most crucial financial decision you’ll make. Choosing between renting or buying can literally be the difference between retiring in the next decade or not.

I am going to cover the largest factors that determine which option is better. In a later post I will outline what my math and research has shown, and which options work best for which situations.

Time-frame

For the vast majority of cases, the rent vs buy scenario comes down to timing. If, for example, you plan on moving in the next few years, renting is almost always better because of the closing costs associated with buying. However as we begin to look at longer time horizons, renting generally becomes more and more expensive, relatively speaking.

Location

In certain locations, like San Fransisco for example, it makes proportionally more sense to rent than it does to buy over shorter periods of time. This is due to the fact that there lies what I call a “Cali Premium” for people who buy real estate in any of the large metropolitan areas along the California coast. Because of this higher pricing, the cost to rent is comparatively lower than most areas of the country.

Discipline

The numbers only make sense if the person doing the renting is investing the difference (assuming there is a difference between renting and owning) consistently. If someone simply rents over buying, the numbers skew back in favor of the homebuyer, who has automatically enrolled in a “forced savings plan.”

The Numbers

The last major factor to look at is the actual numbers and data. These are questions like, what is the interest rate on the loan, what is my rate of return on my investments, how fast does my property increase in value, and how fast does the rent rise year-over-year? These four questions are some of the most impactful when it comes to analyzing the numbers, but there are a host of others to ask as well.

Hopefully these insights are beneficial when making these important decisions. I looking forward to seeing how the actual numbers pan out in real life in the years to come.

The Purpose of Investing

The whole purpose of investing is to turn money into more money – it’s to be able to buy more things than you bought in the past. However, why not put all your money into savings? If I can lose “all” my money in the stock market, why not play it safe and keep everything in savings? There are two reasons. 1) You probably want to grow your money, not simply keep it safe. And 2) the value of money goes down over time. Wait, you might be asking, isn’t $1 always worth $1?

Yes and no. While $1 will always be the same, the amount that $1 can purchase generally goes down over time. Let’s use an example. Let’s say you have a small collection of 10 Legos. While you really love Legos, you only have these 10, so you tend to be really careful with them – you like them a lot.

One of your friends offers you an apple for one of your Legos. You refuse because you don’t want to have 9 left. However, a few months later, after Christmas and a birthday, you have received 36 more Legos. Your friend comes to you again and asks to trade one apple for two Legos. While you don’t like the idea of giving away more Legos, you don’t mind as much any more because you now have 36. So you do the deal.

What changed? Why were you willing to give more Legos up for an apple when before you wouldn’t even trade one for one? That’s because the Legos became less rare. This has to do with supply and demand. While demand for Legos stayed relatively the same, the supply increased, which decreased the value of the Legos relative to the apples.

We could get really technical with economics but for now the general principle can ring true with money as well. As the amount of money out in circulation, both physical and electronic, increases, the perceived value, and therefore the purchasing power of those dollars, decreases. In the last 100 years, inflation has gone up at about 2 to 4% per year.

The scary thing is that inflation continues even when your money isn’t growing. For example in 2008 when the whole real estate market and stock market crashed, inflation continued. Meaning, not only did stock investors lose 37% on their money, they also lost an additional 3%+ in purchasing power! Ouch!

In times of great economic panic gold often increase in price because it can act as a fear mechanism for investors when times get tough. When people in the market see inflation increasing and economic certainty decreasing, they often view gold, which has been used as money for literally thousands of years, as a safer location for their money.

The bottom line: real estate and stocks are fantastic investments for anyone looking to outpace inflation over long periods of time.

Stocks vs Real Estate – Which is Better?

Nearly all of the world’s billionaires have created wealth through business ownership. And the way most of them owned businesses was through stocks. So stocks, by default, are the vehicle by which many of the world’s wealthy have gotten there. Does this mean stocks are always the best investment over others? Not necessarily.

Is the list of richest people duplicatable? In other words, is it possible for someone starting off with nothing today, to buy and own businesses that eventually make them billionaires? The answer is clearly yes.

However there are other methods, less versatile that can provide the same type of opportunity: real estate investing. I am talking specifically about rental real estate, real estate built for the purpose of providing cashflow.

So if I’m a young person, deeply interesting in investing and committing to becoming rich, which paths should I take? Well real estate and stocks are both broad categories that are broken more specifically into numerous other sub-categories. So let’s take a brief look at your stock and real estate options:

Stocks

Stocks, which are ownership certificates in little pieces of publicly traded companies, can be broken down into various groups depending on the size of the company. They can also be categorized based on the industry or other factors. There are two general ways to get involved with stocks: direct purchase of stocks (through a brokerage account of some kind) or the purchase of shares of a mutual fund (a “basket” of stocks that is managed by a group of investment managers).

Individual investment in stocks can be a fantastic way to build wealth if you meet the following requirements: 1) Able to control your emotions in favor of logic, 2) time commitment to researching and analyzing your choices and 3) patience.

The other stock option, mutual funds, is perhaps the least involved option. I recommend this path for most people who aren’t wanting to spend a lot of time on their investments. One thing to be aware of in this type of investment is both the type of mutual fund (large-cap vs small-cap) and the fees that the mutual fund charges.

Real Estate:

Real estate is a vast field with both commercial and residential properties to choose from. When considering an investment path you need to pick somewhere and stay consistent. Building your knowledge up in a specific area of real estate can go a long way in mitigating risk, which should always be a big concern.

The best way to create wealth with real estate is by buying rental properties. You can either buy single-family homes, multi-unit properties (2, 3 and 4 units) or commercial apartments (5+ units). You should only invest in real estate if you have both time, interest and are capable of networking and management.

Conclusion:

Stocks can be good for people who have less time and more analytical skills. Real estate also requires analytical skills, but you also have to have interest and time to make money. The best choice for you depends on these factors.

Two Twenty-minute Tasks That Will Boost Your Financial Confidence

Most of the financially successful people we read about in magazines, books or see on social media are often portrayed as charismatic, energized, stage magnets. While a lot of them share many of these characters, what these men and women share more than any other trait is confidence. How did they get this confidence?

Confidence is often portrayed as something you can act or be or do. But while you certainly can “be more confident” simply trying to act this way won’t create the lasting change you’re looking for. When trying to build more personal confidence in yourself you have to be drawing this confidence from somewhere.

For example, while hosting at a sushi restaurant I have often heard fellow employees give me advice to “be more confident.” While I was certainly able to heed their advice and stand up straighter and with more confidence for short periods of time, I never was quite able to stick with it long term.

However the days I found it easy to be confident were the days I was diligently working, succeeding in customer service, and completing restaurant tasks with excellence. In a lot of ways it was a self-feeding cycle. I’d begin my shift with energy and confidence in my abilities and as the shift progressed my confidence would be reinforced by continuous action.

In our financial lives as well confidence can’t come from self-talk alone. Your mind has to feel both the emotional side as well as the logical side telling you to be confident. When you know that you are working hard, and have a plan it becomes easier for your emotional mind to reconcile the feeling of confidence with the logical one. Here are two major tasks you can do that each take about twenty minutes to complete:

1. Make a general (very rough) outline of where you want to be financially.

This doesn’t have to be complicated or long. Just take a piece of scrap paper out or grab your tablet and start brainstorming what kinds of things you really want to get out of your financially life over your lifetime. This task isn’t a one time event. You should be reinforcing this plan as well as refining the details of it, over the course of your life.

However this first basic exercise should catch the gist of where you’d like to be in the next year or two to help you get where you want to be with your long-term goals (5, 10 or more years down the road).

Organize your finances to see where you are

This step is just to catch a brief overview of where you money stands at this point. Get out your bank statements, look at your investment accounts, estimate the rough value of your home and the mortgage you have on it. Once you know your assets, liabilities, and the rough monthly budget you take in (income) and the expense you take out (expenses) you’ll have a very general picture of where you are.

These two, first steps alone will give you a sense of clarity about what really matters to you and where you are financially, thus what is needed to get you to the next step.

4 Aspects of Creating a Financial Forcefield

Who doesn’t like defense? We always talk about it when it comes to football, politics, war and most importantly our personal health. But how often do people talk about defending their finances?

Nearly all the financial advice is geared towards offense (how to make more money and make it grow) but hardly any time is spent on defending what we have. While nothing can ever be 100% safe, there are four steps or assurances you can take that will put you in the best financial position to succeed in your financial offense.

First though, what kind of things are their to defend against? There are three main groups that can sabotage your financial future: The government, other people/businesses and yourself. The four steps I will outline address each of these potential risks…

1. Documentation

While certainly the least exciting form of protection, keeping your records organized can go very far in keeping your legal, and tax responsibilities clean and clear.

2. Legal Entity or Investment Accounts Choice

Where you keep your money can be even more important than how you invest it. Whether you’re a business looking for legal protection (deciding between an LCC or C Corp.) or you’re an individual deciding how to protect your assets against taxes (Taxable Account vs IRA vs Roth IRA), deciding where to hold your resources can become increasingly important as assets grow.

Proper Reserves

Most people in the U.S. don’t have even a couple thousand dollars in case of emergency. What kind of protection do you think they have against unforeseen financial bumps in the road? Not much. Businesses need reserves as well. Setting aside money each month in what’s called a sinking fund (an account designated for a specific purpose) is a responsible step for any business or person.

Insurance

The last of the four main lines of defense is insurance. Why isn’t insurance first on the list? Because by nature, insurance is meant to be a last resort. Using the first three steps and therefore not relying entirely on insurance is a fantastic way to secure yourself. However if all else fails insurance is a great last line of defense.

Conclusion

In each of these categories there are many specifics that I don’t have space to get into. However talking with your financial  or tax advisor about these things is certainly an overarching prerequisite to each of these forms of defense. Never take anything for granted. Finance is just as much defense as it is offense.

Can Debt Ever Be Good?

Most people have heard of Dave Ramsey. His financial advice has helped millions of people get out of debt and free up their financial inflow (their income). So is this simplistic advice the whole picture when it comes to debt?

The list of successful people who have made fortunes with debt says otherwise. When’s the last time you heard of a wealthy person who built a massive business without borrowing money in some sort of way? It’s not very common. In fact, the three richest people in the US, and the world for that matter (Jeff Bezos, Bill Gates, and Warren Buffet) have all built businesses or bought businesses that used debt regularly in their operations.

But why is Dave Ramsey so against debt? While I can’t get into his head, there are three legitimate reasons I can think of why he dislikes the idea of borrowing money entirely:

  1. Debt has to be payed back. While the future ability to pay off debt is uncertain, the requirement to pay it back is definitely certain. This represents risk.
  2. Debt gives control and responsibility of part of your financial life to someone else. While you are still responsible for taking care and utilizing whatever you purchased with the debt, you are no longer owning this thing altogether by yourself.
  3. Debt costs money and time. To borrow money it usually takes time and complications. On top of that there are costs associated with borrowing like origination fees, legal fees, and (of course) interest. While the rate of return you get on your money might be greater than the interest rate, you are involving more risk into your financial picture.

So, after close examination, do Dave Ramsey’s probable reasons and concerns for not using debt seem pretty well founded? I’ll leave that up to you. However they can be summarized in one word: Risk.

Debt represents risk. Whichever way you borrow money, whether for a home, real estate property, or college, recognize that debt is a risk that cannot be overlooked. While I believe debt cannot or should not be eliminated from our lives completely, taking a careful look at it can go a far way in eliminating pitfalls.

What Every Single Rich Person Has – And How To Get It

As the years roll by most people find that they continue to need to pay the mortgage or rent, buy food, and pay insurance. But There is a moment in everyone’s life, whether in college, after a life changes, or in old age, when the money coming in is less than the money that needs to go out.

Rich people don’t have this problem. While they certainly have their own financial problems coming in many different directions and flavors, lack of cashflow isn’t one of them.

However, no matter how much wealth, or how deep their pocket book, rich people all have one thing in common. This similarity runs through the tech titans, the real estate tycoons and the financial gurus. What is this key ingredient? Leverage.

Leverage, is actually a general term. There are many contexts in which leverage can be used and what it can mean. This kind of leverage to which I am referring is in the context of effort and resources – not necessarily debt.

In this context we use googles definition. Leverage is to: “use (something) to maximum advantage.”

You’re probably wondering what leverage has to do with Mark Cuban, Donald Bren, or Bill Gates. Mark Zuckerberg, for example, utilized the leverage of personal engagement to bring attention to his platform, in a way never seen before.

Leverage in the context of the rich is the act of utilizing resources in order to maximize and grow the results. The Rich in every industry have learned to use their effort, along with the effort of others to build great companies. Warren Buffet leveraged his money (in a non-debt way) to turn it into something bigger than he could have every achieved on his own by working a regular job.

So, how can you utilize this strategy of leverage? It starts with finding your “niche” or the thing that you believe you can provide the most value to people than any other. Pick thing one thing and begin building your skills and network in this area. As soon as you see some progress begin to leverage other people’s time, money, resources and connections in a way to build your brand.

Don’t make this one-sided. These should be give and take relationships in which you provide as much value or more to the other person. Often leverage involves borrowing each others skills in a net positive way. Begin learning about your area of interest and learn how best to use the power of leverage…

Financial Steps to Take in Every Economic Season

As the US economy continues its steady recovery from the 08 crash, many people have started to worry about the next economic disaster. When will it happen?

To be honest no one, not even the Fed Chair or the Billionaire class, or economists know when a crash will occur. However, simply looking back at history, it wouldn’t be far fetched for a crash to happen sometime in the next few years.

Going back to our Nation’s founding, we’ve experienced all seasons of the economic cycle consistently over and over again. Some cycles have been longer than others, some have been more dramatic, and various sectors and asset classes have experienced the results at slightly different times. But we know a crash is coming – sometime.

The following are the four economic seasons and where we’re at right now:

Spring: A period of time in which business recovery increases, job growth rebounds, home foreclosures slow, and generally consumer confidence and credit stops diminishing.

Summer: A period of months or years in which the economy, stocks, real estate prices, and even consumer confidence grow. This period usually lasts the longest of the four seasons.

Autumn: The season in which consumers are overly, even extremely confident. Disposable incomes are rising, stocks are selling rapidly higher, and home mortgage applications continue to rise. At the end of Autumn a cooling in economic expansion begins. That’s when the temperature starts dropping…

Winter: This period is by far the most difficult on the average consumer and investor. Prices in real estate and stocks drop, consumer confidence plummets, credit dries up and the media starts panicking.

Which season are we in? While it’s difficult to say, we certainly aren’t in Spring or winter, which means we’re either in late summer or early autumn.

How do we deal with change? Is there a way to behave in each economic season?

The answer is that number one you shouldn’t behave in a groupthink mentality. Don’t follow the heard. In fact when everyone is behaving a certain way, consider doing the opposite. When everyone is selling stocks, consider buying. When people are retracting and reacting to the disaster, try to expand.

While this strategy isn’t best 100% of the time, even seeing things through this perspective can open your eyes to which actions are best to take.

Outside of being a contrarian, simply focusing on your life and less on the economy can go a long way. Just because “everyone” is getting laid-off at work that doesn’t mean you won’t find work. You might have to work extra hard, but try to get out of that mindset of thinking that what’s going on in the world has to be true for your life – it doesn’t.

The ultimate outcome of your financial life in both great and horrible times is up to you.

7 Financial Levels – And How To Get To The Top

Here in the US, with higher standards of living than pretty much any other place on earth, Americans have surprising difficulty getting their finances to a healthy point. But here’s the truth: I believe with all my heart that it is possible for anyone who has time, mental health, and true commitment to become a multi-millionaire, and even potentially a deca millionaire within their life.

I have broken down the levels of net worth by category. The numbers I chose are somewhat subjective. But I believe they paint a picture of what true riches look like here in the US.

Before I start the list, I want to clarify what net worth is. Net worth is the value of everything you own, minus what you owe. For this example I have decided to focus solely on financial assets (not clothes, furniture, or cars), which are things like that can be sold at roughly what they’re worth (like houses, stocks, bonds, etc…)

1. Upside-down Wealth – Net worth anything less than $0:

This is a position that many young people, particularly college graduates find themselves in. They get out college with loans, no money and therefore are upside-down with wealth. How can you move up to the next level? Work your way into a job, continue to live like a college student and pay off those loans.

2. Poor (real or fake?) – Net worth between $0 and $10,000:

If you find yourself in this circumstance you have to pick one of two decisions: 1) are you going to stay here forever, or 2) are you going to make the move to the next level? This is a position many people are in. Maybe they have a house, but have only a few thousand dollars of equity. Or maybe they are just starting out in the workplace. Either way, being “poor” should not only be a temporary situation, you should run from it as fast as possible.

You know what you need to do: get a better job, live on less, and begin paying off consumer debts.

3. Currently Broke – Net worth between $10,000 and $50,000:

No one I know wants to be here long. At this point you have enough to feel a little room in your finances, but even just a new roof and a few bad emergencies can wipe you out completely. While stopping by broke on your way up the levels is a necessity, staying here for longer than you need to is too risky.

4. Middle Class – Net worth between $50,000 and $500,000:

The most sought after class of all the classes is the middle class. This is what the “typical” two parent, two kid household is supposed to look like. Maybe you own a home, a couple cars, have a retirement account, yet carry a small credit card balance.

Middle class can feel nice… while you’re working. But what happens when you’re 70 years old and think, “I can’t keep working forever”? You need more wealth to be able to have the flexibility and peace of mind that’s necessary for a happy life. Here you can stand on your two feet financially speaking, but you know there’s something more.

5. Upper-middle Class – Net worth between $500,000 and $1.5M:

Almost everyone knows it – $1M isn’t as much as it used to be. But it definitely isn’t easy to achieve. When you’re net wroth approaches $1M it’s easy to think, “I’ve made it.” But really you haven’t – yet.

The truth is, what happens when you want to help someone else out financially? Or what if you want to explore Europe for a few weeks? Or what if you want to retire a decade early? It’s harder than ever to do those things on $1M.

6. Well-Off – Net worth between $1.5M and $10M:

It is completely feasible for most people in their mid 20’s or 30’s to reach this level in their lifetime. It simply takes hard work, steady contributions to retirement accounts, and a full-blown commitment.

7. Rich – Net worth anything more than $10M.

By now you know what you’re doing. You may not know everything, but you have a skill set that is very useful to say the least. You have discipline. Use this discipline into the future on whatever goals you set for yourself.

I hope this exploration of levels has helped you conceptualize where you’re at and what you can become. It’s never too late or early to start. Right now has never been better.