Tuesday, May 29, 2012

How to Get Rich - Learn the 50 - 12 Rule

Have you ever heard of the 50 - 12 Rule for Income Investing ?

Chances are, if you haven't been a frequent reader of this blog, you never have !

 Read on and discover it's magic !

Income Investing Basics

Investing for income means quite simply investing in securities that will provide your portfolio with a regular and increasing flow of income. Less emphasis will generally be placed on the ups and downs of the markets. The main focus is on the amount of income you will receive each month or quarter.

This form of investing is designed particularly for the individual investor who wants to retire from the workforce at an early age. It will not be as advantageous for the high income individual where taxation becomes a major drawback. However, even the high income individual can see benefits if they wish to consider early retirement.

The 50 Part

The 50 part of The 50 - 12 Rule is basically investing in a particular security in a way to generate $50.00 per payment frequency of the investment. An earlier posting entitled ( How to Get Rich -  Convert Saving to Income Part Two ) will show you more about how to go about achieving this goal.

This $50.00 per payment frequency investment will become a building block component for assembling whatever desired level of income you wish to have. Now let me explain the 12 Part.

The 12 Part

The 12 part of The 50 - 12 Rule is basically investing in a way to generate an income to your portfolio every month of the year, hence the number 12. In this way, once your portfolio is built to a sufficient level, you will be able to meet all of your committed monthly expenses without working. The first step towards considering retiring from the workforce.

Combine the Parts

Now your first step is to combine the parts in order to provide your portfolio with a monthly income of $50.00 . You can do this by purchasing one investment that has a payment frequency of once per month or you can purchase 3 individual investments that have a payment frequency of once per quarter.

You will now have set up your first 50 - 12 component of your portfolio. To reach your desired income level, simply divide your monthly income needs by 50 and that will be the number of 50 - 12 components you will need to build.

Tailor to Your Needs

This building block approach to income investing can be tailored to each individual's income needs. It will automatically provide good portfolio diversification as each component will be limited to just a portion of your monthly income. For your favorite investments you can even double up to provide $100.00 per month income as long as you realize this will reduce your diversification and potentially increase your level of risk.

As always, I welcome your comments and suggestions for future topics.

Friday, May 25, 2012

How to Get Rich - Beware of Friends

Have you ever heard someone say that their friend is giving them good investment advice ?

Or how about "my financial adviser is a good friend of mine" !

I have heard this term so many times I can't remember !

What is a Friend

A lot of people you meet use the term "friend" very loosely. Some seem to think that everyone they meet is somehow a friend. This is just not so, especially in business.

A recent story in my local media illustrates this point. An elderly lady who had a substantial sum of cash to invest ( over 3 million to be exact) became "friends" with a financial adviser whom she trusted to invest it for her future. To her horror, she soon  realized that he had stolen her cash. He had never invested it as promised and the cash had just disappeared.

This adviser will be spending the next ten years behind bars, but this poor woman will be ruined for life. All of her life savings are gone for good. Meanwhile in ten years, this adviser will be free to spend her money from wherever he managed to hide it.

All this woman could say to the media was, "but he was my friend,. I trusted him". Wow, what a sad story of friendship gone terribly wrong.

True Friendship

A true friend would never steal from you. A true friend would never even think to hurt you. A true friend would help you in any way possible without any expectation of reward.

True friendships normally build over time and a trust must develop through mutually shared experiences that reveal one's character. People you just meet are not true friends. This takes time and the building of a trusting relationship.

Define Your Friends

You must determine who you could trust with your life savings. Everyone else are not true friends, at least not yet. A true friendship must develop over time and positive experiences. Be careful of who you call a friend.. Do not use the word "friend" too loosely, as many do.

True friendships are a blessing and should be cherished. However, they are fewer and farther between than many would like to admit. Be careful.

As always, I welcome your comments and suggestions for future topics.

Tuesday, May 22, 2012

Real Estate Wealth - Control the Key

Have you ever wondered what would happen to your home if you just stopped paying your property taxes ?

How about if you never again paid a mortgage payment ?

I think you know the answers !

Ownership of Real Estate

People often say "if only I owned my home" or "if only I owned several rental properties" , then I would be rich.

Well, let me tell you one thing straight up. No individual can ever truly own real estate. Well, at least not in my previous experiences. Let me explain this before you go clicking somewhere else.

When you purchase real estate, you purchase the obligations that go with it as well. Every piece of property that I know of has a realty tax obligation attached. If you don't meet this obligation, the government could sell your property to someone else to reclaim this unpaid tax.  Therefore, you don't truly own the real estate.

Control the Key

A better way to look at purchasing real estate is that you are actually purchasing control of how the property is used. You can choose to use it as your Principle Residence. You can choose to use it as a Vacation Property. Or you can choose to use it as an Income Producing Property. The choice is yours.

However you choose to use the property, you will be in control of how it is managed. As long as you meet all of your obligations, you are free to use it as you have decided.

You can receive many benefits from controlling real estate. It can provide you with a comfortable lifestyle. It can provide you with a sense of pride. It can reduce your living expenses by not having to pay rent. It can even provide you with a positive cash flow of income if managed properly.

To Trap a Gain

Another way to benefit from controlling real estate is to coin the term trap a gain. This means simply to sell it to someone at a higher price than what you paid someone else for it originally. This gain could be totally tax free or partially tax free, depending on your local government rules.

Many investors solely invest to trap a gain, while others buy strictly for the positive cash flow it creates. The choice of how they purchase the real estate is totally theirs. In other words, they control how they would like to manage the property to make their desired profit.


For whatever reason or purpose you have for purchasing real estate, please remember, no one truly owns real estate. We merely buy it to control what we want to gain from the property. When it is no longer useful for us, we sell it to someone else along with it's obligations.And so on, and so on, and so on. The only thing constant are the realty taxes.

As always, I welcome your comments and suggestions for future topics.

Friday, May 18, 2012

How to Get Rich - Don't Fall in Love

Have you ever bought an investment with the intention of never selling it no matter what. ?

Do you think it is good for you to fall in love with an investment ?

The resounding correct answer to the above questions should be no !

Investing is Business

Yes, you have to look at investing as a business. You are doing it to make a profit and that is the bottom line.
No other investor out there cares if you make or lose money. They are in it for themselves and that is it.

You must look at each investment in terms of what it can do for you right now. This means that you must continually monitor the status of each of your investments. As prices and market conditions change, so too must your strategies with each investment.

This can generally mean taking profits from a good investment when the time is right and not looking back. It can also mean cutting short a loss on an investment that hasn't done as well as you had hoped.

In both cases above, take your cash and look for the next best opportunity as of right now. Don't look back and second guess your previous decisions. It doesn't matter any more.Right now is the time to focus on.

Investment Lifetime

Even the best of investments can come to a point where they can no longer provide you with the amount of income or potential growth to make them the most profitable choice for your portfolio. In this case, it is time to sell your position and move on to the next more profitable opportunity.

All good investments eventually come to a point where they have increased in value so much, they no longer become as profitable to hold onto. The mistake many investors make is to hold on too long, often some time after the investment peaks in value and starts to decline.

The length of time you hold an investment will be different for each investment. It will depend on your profitability analysis that you must conduct regularly. If another opportunity looks better than what you currently hold, then the time has come to say goodbye.

Rejoice in Your Success

You must be happy when you decide to take your profits and run. You must not worry about leaving some of the profits on the table so to speak. You will never be able to sell at the absolute peak of the market. Be satisfied with what you have made and move on. It will never do you any good to second guess your decisions.

Never fall in love with an investment to the point that it interferes with your business decisions. It will never be profitable, this I guarantee.

As always, I welcome your comments and suggestions for future topics.

Tuesday, May 15, 2012

How to Create Wealth - Don't Forget to Dream

Dreams are what define us as individuals.

The actions that we take to work towards achieving those dreams are what make us.

Define Yourself

Most of us can say that we had many dreams and visions of out futures when we were young. However, as life goes on and we get caught up in out everyday lives, our dreams can often get cast aside.

This is very unfortunate and even tragic in some cases. Many times people are even discouraged by those who claim to love them. In reality, these discouraging individuals are only trying to bring them down to their level. This is a very selfish act on their part and very damaging as well.

What we need to do is never let go completely of our dreams no matter how outrageous they may seem. Have you ever heard the term "get real" or "yeah, right" when explaining your dreams to someone. These people are truly not on your side.Try to align yourself with people that support your dreams.

Our dreams are truly what define us as individuals and they make us unique and special. We are all special as long as we keep our dreams alive. Do not cast aside or let your dreams die out completely. Without our dreams, life can become very discouraging and seem hopeless. That is truly a tragedy.

Get to Work 

To really start living your dream, you must get to work on developing a plan to achieve your dream. A dream without action is simply wishful thinking and will go nowhere towards improving your life.

The complexity of this plan will depend solely on your dream itself. Some dreams will be much easier to achieve than others. For complex ones, divide the project into tasks and work towards solving each task one by one.

There will likely be setbacks along the way, but don't let that discourage you. No great feat is worth achieving without there being a few roadblocks in the way. Breaking through these roadblocks will make you a stronger person.

The secret to success in anything you do, is to never give up on your dreams.

As always, i welcome your comments and suggestions for future topics.

Friday, May 11, 2012

How to Get Rich - Understand Your Risk

Everything in life involves some degree of risk. Every day you wake up it may be your last. Who knows, accidents happen when least expected.

The world of investing is no exception to this rule. Life is risky no matter what you do. Even by not investing you are taking a risk, yet most people don't even realize that.

The Risk of Doing Nothing

Let's say you are very good at saving but never invest the savings. Instead, because you don't trust banks, you stuff the savings in a mattress and sleep on it every night. This method of saving used to be quite common in the past. I am sure there are even still some that do this today.

Now think of the risks of doing this. For starters, you have to leave your savings unattended to earn more money. This leaves it open to theft if someone finds out about it, or what happens if your house burns down.
If either of these happened, you would lose everything. Not smart.

Another not so obvious risk is the loss of purchasing power. A dollar stuffed in the mattress back in say 1940 was worth far more than your dollar you stuffed in there yesterday. Your total stash decreases in value each and every day if you don't put it to work  The reason for this is called inflation, or the slowly decreasing loss of purchasing power on every dollar.

The Risk of Investing

All forms of investing has risk. Whether it be from loss of purchasing power as shown above ( not making enough to match inflation) or the potential for losing from the ups and downs of the stock market roller coaster or somewhere in between. Risk is everywhere.

You can even loose all of your investment if you blindly trust someone and that someone turns out to be a thief. There have been a few lately, no names mentioned. Berney Who ?

Understand Your Risk

The first lesson for every new investor should be the understanding of risk. You must realize that there is risk in everything you do, or don't do.

To know your risk you must understand as much as you can about an investment before investing. Know how to get out of something before you get in. If there is no way to exit, don't enter.

Remember, you will be investing your hard earned money and savings. You must become educated about all the risks associated with the choices you have.

As always, I welcome your comments and suggestions for future topics.

Tuesday, May 8, 2012

How To Get Rich - Optimize Your Yield

Do you understand what yield on an investment really means ?

Do you understand how to optimize your investment's yield ?

 Let me show you the strategy !

What Is Yield

The word yield basically means the amount of benefit you will see right now if you were to purchase an investment at it's current price. I'll use the example given in a previous post to illustrate the benefit.

Suppose a stock is selling for $10.00 per share and the yield is listed at 10% . This would give you an annual income of $1.00 per year for every share you purchase at the current price. In this example, you would have to purchase 600 shares to give you a monthly income of approximately $50.00

Therefore, yield means the amount of income you will currently receive if you purchase the stock right at this instant in time. In this case if you invest $6,000.00 right now, you will receive $50.00 per month of income.

The word yield on charts etc. is actually the "current yield" in economic terms. For simplicity sake it is shortened to just yield and this is understood throughout the industry.

Yield Variations

The yield on an investment, just as the price, is constantly changing. For every trade in the investment the price changes along with the yield. This is because the income from an investment is a fixed dollar amount as determined by the investment's board of directors etc.

Now let's suppose the price of our above example drops to $5.00 per share. The yield would now become 20% . This means that you would now only have to invest $3,000.00 to receive your same $50.00 per month of income. An extreme example, but it does show the big difference proper timing of your purchases can make.

Optimizing Yield

All investments go through cycles based on supply and demand as well as a multitude of other reasons. For the income investor, a downturn in the market is a wonderful opportunity to increase yields substantially.

To optimize your yield simply follow this simple discipline. Do all of your buying of an investment at or near the bottom of the cycle. The rest of the time simply accumulate your income and wait for the bottom of another cycle. In this way you will be paying the least amount for the income stream that you desire.

As in many strategies, it is simple. However, it does take discipline and a lot of patience to wait for the proper moments to make your investments. But it will be well worth the wait I assure you.

As always, I welcome your comments and suggestions for future topics.

Friday, May 4, 2012

How to Get Rich - Convert Savings to Income (Part Two)

You should now have opened your on line brokerage account and set up your Money Market Fund to deposit your savings into.

It may take some time to accumulate enough (at least $5,000.00) to make your first long term income producing investment. However, now is the  time to learn as much as you can about the investment choices that you will have.

It is not my intention to provide you with specific recommendations. There are plenty of services for that if you should need help in that area. I will show you instead a plan of action on how to organize and manage your chosen investments.

Where To Start

Investments you choose should provide you with a monthly (preferably) or quarterly income. This income should be stable and there should be a long track record of regular payments. The companies should earn this income and not rely on capital payments to meet their monthly or quarterly amounts.

Look for your choices in your on line brokerage stock screen section. Do a screen on dividend paying stocks and focus first on the highest yielding ones. Research each interesting choice and focus on ones that are recommended by analysts that report in your on line brokerage.

How Much to Buy 

I would recommend buying enough shares of a company in order to provide you with a monthly income of $50.00 (or approximately this amount). When buying your shares, always buy in multiples of 100 shares. Never buy what they call odd lots as they are much more difficult to sell when the time comes.

By purchasing in this manner, you will be limiting your exposure to any one company. You will not be putting yourself in a position where you become too dependent on any one holding to provide your monthly income.

Calculating Your Income

Yield is the measurement of your income. The yield, as a percentage, will be listed on all stock charts. This amount changes constantly as share prices change.

To calculate the annual income do the following calculation. Take the share price shown on the chart and calculate the percentage shown as the yield  (Example : A share price is $10.00 with a yield of 10% -the annual income would be $1.00 per share)

To calculate the monthly income simply divide by 12. To calculate the number of shares needed to provide $50.00 per month income simply divide $50.00 by the monthly amount previously calculated. The above example would be as follows : $1.00 per year divided by 12  = .0834 per month. Now $50.00 divided by .0834 is approximately 600 shares. Remember, always buy multiples of 100 shares.

You should now be able to start building your long term income producing portfolio. Simply repeat the above each time you accumulate enough to invest and soon you will be multiplying your monthly income streams. Watch for more in Part Three in a future posting.

As always, I welcome your comments and suggestions for future topics.

Tuesday, May 1, 2012

How to Get Rich - Avoid The Big One

Have you ever wondered how the rich continue to get richer no matter what ?

Even in bad markets they seem to prosper, that is true.


One of the biggest mistakes many individual investors make is they don't know their position on each individual investment. They don't develop a plan with each investment prior to investing their funds.

The experienced investor knows exactly how much of a gain and or income he/she wants before making the buy decision. They basically have a plan of what they feel each investment should do for them before deciding on the investment.

Know The Range

Most investments have a point where it makes them very profitable to buy. When these investments reach this point, the experienced investors buy. When their values increase over time, their buy in profit decreases and therefore makes them less desirable to most investors.

When other investments become more profitable than their current one, many experienced investors will decide to sell, take their profits and move on to the more profitable choice.

This range in points is known as the trading range. The experienced investors know exactly when to buy and when to sell beforehand.

Avoid The Big One

Much wealth can be lost if an investor has bad positioning. This happens when an investor buys too late and at too high a level compared to the experienced investors. A sudden trend reversal, which will happen when the experienced investors start selling, will leave this individual in a loss position.

To limit the loss, the individual should know ahead of time at what point to exit if things don't work out. Take a small loss and move on to the next opportunity. Never ride the position down hoping for a recovery. This recovery may never come.

Remember that we all make mistakes no matter how much experience we may have. The key to building wealth is to limit your losses on your mistakes and move on to the next positive opportunity. Do not turn your small mistake into the big one that could destroy your wealth.

As always, I welcome your comments and suggestions for new topics.