Credit - Other Peoples Money
Risk and Reward

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What is money?  A man is a success if he gets up in the morning and gets to bed each night and in between does what he wants to do.
Bob Dylan

That money talks I'll not deny, I heard it once, it said goodbye.
Dorothy Parker


All it really takes to become a millionaire in America is a disciplined plan for savings and investing.  Persistence counts more than education, genius etc.  Optimism, a positive attitude and a belief in yourself is also most helpful.

The reason most people don't have money is that they don't give it much thought.  They go to work  and pay their bills, save for vacations and the car repairs, and that's that.  No wonder that most people can't afford to retire and must keep working, rely on social security and friends and family for support.  An old person with out money is very sad.  Consider all of the missed opportunities that must have passed them by.  Consider the lack of self respect one must suffer each time they have to reach out their hand for financial help.  The choices we make today determine our future standard of living.  A family with an annual income of $50,000 that saved ten percent of that income ($5,000) each year starting in 1981 and invested in large company stocks, would have accumulated over $529,730 by the end of 1998.  This is not trading in and out of the stock market but averaging in over time and sitting on your investments.

A good place to start in our investigation is to distinguish between earning money and making moneyWhen we work for money we are earning money.  When our money works for us we are making money.  We either work for money or money works for us.  Our working lives are finite.  If we are working for money, whether we are paid poorly or well, our income stops when we leave work.  We could lose or jobs, our contract, we want to retire but with out savings and investments what is the alternative?    With out savings or investments when they go on vacation of their contracts expire their money stops coming in.  Often I have found high income earners who face dismal retirement prospects who are shocked  the realization that even though they have made and spent millions of dollars throughout their lifetimes they have almost nothing in the way of assets much less income producing assets.  They find they have some equity in there home a closet full of expensive suits and dresses but little in the bank, no retirement funds, and nothing in the market. Living off of a small social security check does not look attractive. We must recognize the difference between income, even very high incomes and true wealth.  True wealth is income or valuable assets.  Income is only a tool, often an extremely valuable and useful tool, to develop real wealth.

Compounding money over time is  the key to real wealth, how to best do this is always the question.  The power of compounding is the greatest gift ever given to investors.  If you start with a penny and double it twenty eight times you will have over a million dollars. twenty nine times over two million, thirty five times one and a half billion dollars!  As you can see it is not necessary to start with a bag of money to have some spectacular returns. It is unrealistic to expect to double your money every day, but it is also unrealistic to believe one starts an investment with only one penny.  Make good long term investments. If you are trading in and out of the markets, you will never obtain the big gains.  If you had bought a big winner ten years ago, say a Microsoft or  Dell computer , and made a nice gain and sold on a dip to capture a hundred percent profit, you would have missed out on the thousand percent profits you would have enjoyed if you held on.  By not selling a great company investors can multiply their investment throughout their lives.  Remember to buy quality companies that will be around for the long haul.   

Another menu for success is to diversify into different types of business.  In other words develop multiple streams of income that are independent of and complement each other.  When one area is slow the others may continue to do well or perform even better and help develop a strong financial foundation under your business success.

One other concept we should consider is the concept of risk.  A common misconception of risk is that risk means loss.  In financial terms risk is actually means the difference, plus or minus, from your expected return.

Often the biggest risk is often not taking a risk.  Your financial future will be the sum of the results of the investments and opportunities you make today, as your current position is the sum of decisions you have made in the past, allowing that time and chance happen to all men.

Financial Planning Review

Plan a solid foundation and protection strategy for you your family and your investment strategy by following the following suggestions.

  • Cover insurable risks - You need health insurance, medical costs can destroy your families savings. disability insurance to protect your income in the case of injury  or sickness (you are much more likely to become at least temporarily disabled than to die in any given year).  Property insurance and liability for your home, business, cars and other possessions.  Life insurance, preferably term insurance, if you have a family dependent on your income.  Consider  an umbrella policy that your liability coverage into the millions for a small marginal cost.
  • Contribute to your retirement account as much as you can.  This is the best way to obtain tax deferred long term compounding.
  • Pay down your credit cards.  Card debt is very expensive.  It would be hard to get an investment return as high as your interest rate.  Paying down your debt frees up your cash flow and gives you an emergency or opportunity fund to tap if needed.
  • Set up an emergency fund that is equal to three months expenses including but not limited to housing, food, insurance and other payments. Ideally this money should be in a savings account at a bank or credit union.  This money can be taped for life's little emergencies such as unexpected car repair or medical expenses.  This fund is a very important safety valve that provides a cushion and a layer of safety to your investment program.  Repay the account as quickly as possible whenever you borrow from it.
  • Develop your investment plan.  Budget for and fund the account before you pay any other expenses.  In other words, pay your self first.  Consider a automatic deduction from your checking account to go automatically into a mutual fund or a drip plan with your favorite stock.  The earlier you get started the longer your compounding periods will be.  If you wait even as little as a few years to begin ( you know the excuses as to why this is not possible to do now) your retirement will be half of what it would have been.  Consider even If you start today it will be half of what it would have been if you started a few years ago.  I have found that the feeling of urgency helps to keep your investment program on track.

"The petty economies of the rich are just as amazing as the silly extravagances of the poor"

    -William Feather


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