Do you want to make Money Part 4

In our last part of this series, we will talk about why you want to invest for the future. Don’t get investments mixed up with gambling. You gamble for fun. Some people have a sickness and destroy themselves and their families using gambling as the means to do it. Investment is to help you and/or your family achieve the objectives that you would like to do in the future.

At age 8 through 18, I decided to make a living by becoming a technical expert in the computer field. I also studied finance and business so that I could manage the money that I wanted to make. I made out a time line for such things as being baptized, getting my driver’s license, buying a house, getting married and having children, creating an organization for educating my descendants in the professions and trades, funding my children’s education, retirement, and plans for my death. I recently showed my plans to my 27 year old daughter and mother of 2. She has her own plans with her husband and children. I asked her if my time line from my youth to now was on track. She agreed that I did much of what I wanted to accomplish.

This was done because I was able to generate money by means of investments. I used 10% to 20% of the money that I made to finance these projects over a 50 year period. Anyone can do what I did. I can give you reasons why most don’t do what I have done.

Pier Pressure -- People don’t like to see other people accomplish things. That is why the average person calls people who want to achieve something names like “nerd” or “egg head.” Most people don’t want to be called names so they do nothing to fit in with everyone else.

Loving Money – Some people will call you names such as”Money Lover” because you use money as a tool. They think it is OK to get paid on Friday and it’s gone on Saturday. I am sure you heard people say that it is “Money Transfer Day” not “Pay Day.” That is because they live paycheck to paycheck and when the money stops, they lose everything that they have.

Religion – I wish I had a dollar for every time someone told me that it is easier to take a camel through the “Eye of a Needle” than to enter the Kingdom of God. This shows ignorance because what the Bible is referring to is the small opening in the city walls of a city like Jerusalem. If you approach the City from behind, you don’t want to go all the way around the city to enter. So you go through the small opening on one of the three sides of the city wall. These openings are called the “Eye of the Needle.” Here you have to unload your camel go through then reload your camel. It is not impossible to go through; it is just harder to do. How do you think Jesus got his money to run his ministry? God did not rain money down on him.

Only care about next weekend – Most people will plan for an event that happens within the next two weeks. How many people do you know wait until their children become 16 year olds then decide to look into financing college that starts in less than 2 years? How many people wait until their car stops running before they try to figure out how to get another car? How many people spend and have a good time just to wake up one day to find the “Repo” man jacking up the refrigerator, the car, and the furniture because of none payment? Most of this happens because years or decades before, no one did any financial planning.

These are the reasons why you have to plan for future event and use your money as a tool to achieve them. That is what investments are for! THE END….

Do you want to make some money? Part 3

In the past two blogs, you have seen what I am doing with my IRA. One of the smartest money moves a young person can make is to invest in a Roth IRA. Follow the rules and any money you put into one of these retirement-savings accounts grows absolutely tax free. You won't owe Federal Taxes at all even when you cash out in retirement. This is how I am able to use the Mathematical rules of 72, doubling my money and 115, tripling my money. When I am in retirement, I will be able to withdraw money tax free.


Plus, a Roth IRA is more flexible than a 401(k) from your employer and from other retirement plans because you can invest it in almost whatever you want, from stocks and mutual funds to bonds and real estate. This is why this type of Account is ideal for investing in discounted corporate bonds.


I did not always have the money to start an IRA. I got my first chance to start an IRA in 1982. If you don’t have a Roth IRA and you are working, open one now. You have until your tax return deadline April 15, 2011 to set up and make contributions for the previous tax year 2010. The government sets a limit on how much you can contribute to a Roth IRA. That limit was $5,000 for 2009 and also for 2010. That means if you act before April 15, 2011 you can invest up to $5,000 for the tax year 2010, giving you a solid start to your savings. You have until April 15, 2012 tax deadline for tax year 2011 to hopefully invest up to $5,000 for year 2011.


I am sure you are saying that you don’t have $5,000 to save every year. Most people don’t but many can plan to save and build an IRA. The trick is to start early. Let’s say that you bring home $600 twice a month and your mate does the same. That is $1,200 two times a month. Open two IRA accounts with you being the beneficiary for your mate’s and your mate’s being a beneficiary on your account. From each account that you and your mate open at your bank or Credit Union, you automatically deposit 10% of your checks into the two IRAs. Your employers or your banker can help you set automatic deposits from your pay checks. That is $600 times 10% equals $60 each. You both are paid 24 times a year giving $1,440 for each IRA Account. Over 10 years, that is $14,400 in each account or $28,800 for both.


Once over $5,000 in your bank Roth IRA, you want to start transferring money over into a new Roth IRA at the online brokerage firm that I mentioned in Part 1. Open one for you and one for your mate. Every few years, you want to transfer money from your bank IRA to your online brokerage account. At that time you want to invest in discounted corporate bonds as was discussed in Part 1 and Part 2.


If you invest $1,440 per year for 10 years at a rate of 10% for 40 years, you will have $440,508.07. If both of you follow the same investment strategy, that is $440,508.07 times 2 or $881,016.14. See figures below. I am only talking about starting January 1, 2011 and stopping on December 31, 2020. You will have $440,508.07 or $881,016.14 in the year 2050.


If you get paid every two weeks and invest $60 per pay, you will have $835,962.52 for one account and $1,671,925.04 for both accounts. Pennsylvania State workers are paid every two weeks.


I already showed you that making 10% or more per year is very easy with discounted corporate bonds. To do this, all it takes is time, a little strategy, making your objectives, and $60 every 15 day or two week pay from both of your paychecks for 10 years. I showed you how to do it with no strings attached. If you have the will, you will make the money!

Starting with $60 twice a month on January 1, 2011

End of 2011 investment, you will have $65,173.33 making 10% per year until January 1, 2050.
End of 2012 investment, you will have $59,248.48 making 10% per year until January 1, 2050.
End of 2013 investment, you will have $53,862.25 making 10% per year until January 1, 2050.
End of 2014 investment, you will have $48,965.69 making 10% per year until January 1, 2050.
End of 2015 investment, you will have $44,514.26 making 10% per year until January 1, 2050.
End of 2016 investment, you will have $40,467.51 making 10% per year until January 1, 2050.
End of 2017 investment, you will have $36,788.64 making 10% per year until January 1, 2050.
End of 2018 investment, you will have $33,444.22 making 10% per year until January 1, 2050.
End of 2019 investment, you will have $30403.84 making 10% per year until January 1, 2050.
End of 2020 investment, you will have $27,639.85 making 10% per year until January 1, 2050.


All 10 years total $440,508.07 in the year 2050.


You and your mate invest $60 each every 15 days or twice a month, it comes to $881,016.14!

Do you want to make money? Part 2

In the first part, I gave you two online brokers to use for your bond investments. We talked about how to look up bonds to buy in your account. We reviewed the rule of 72, when your investments will double its money and the rule of 115, when your investment will triple its money. The idea is to make as much money as you can, as safe as you can. In this blog, let’s go over a trade that I recently made from one of these websites.

I made a trade in my IRA account on June 22, 2010. The Trade Settlement Date was June 25, 2010. I bought ten (10) United Refinery Company Senior Notes with a coupon of 10.5%, maturing on Aug. 15, 2012. The company will pay me interest semi-annually on August 15 and February 15 until and including Aug. 15, 2012.

The bond can be called by the company on Aug. 15, 2010 at $1,000 per bond, giving a Yield to Maturity of 14.48%. I had bonds called early on me before. If this happens, I will cry all the way to the bank. If I want to know more about the call provisions, I can look this information up or call my online broker for more information.

Moody’s rates them as “B3” and Standard and Poor’s rates them as “B.” Both rating services rates United Refinery Company as noninvestment grade corporate bonds.

I paid $927.50 per bond meaning that my principal amount was $9,275.00 for all 10 bonds. I had to pay the bond seller $379.00 because the bonds accrue interest daily paying them from February 15, 2010 to the settlement date, June 25, 2010. I will get that money back on August 15, 2010 when I receive my first interest payment. Each payment will be $52.50 per bond or $525.00 for all 10 bonds.

My commission for this transaction was $10.95 and I had to have $9,665.12 in my IRA account for this transaction to take place. The following is what I expect to get out of my 26 month investment.

The year 2010 – Interest from seller, $379.17 plus $145.83 in additional interest.
The year 2011 – Interest of $525 in February and $525 in August.
The year 2012 – Interest of $525 in February and $525 in August plus $10,000 in bond principal.

I hope to make a total of $3,350 ($2,625 Interest + $725 in principal) from a $9,275 investment over 26 months. I expect to have a return of 36.12% from my original investment over 26 months.

The interest and Principal from this investment will be reinvested into future bond investments. I did not always have the money to invest in my IRA.

Next we will see how to create and build an IRA account for your retirement when you don’t want to work or can’t work any longer.

Do you want to make money? Part 1

I learned the basics of the investment business when I was growing up. No, they don’t teach this in most public schools or colleges. I hung out at brokerage firms with old retired steelworkers while my friends hung out in the streets. The old Steelworkers thought I was young and funny, a Black novelty among a bunch of old White men. They loved to tell me their investment secrets and I did not mind taking notes.

The trick to making money in the market is to chase dividends and interest. It is not in chasing growth. I talked about that many times before. In the bond market, you want to do the following;

First, pick a brokerage firm that will not charge you a lot of money to buy your investments. That leaves out most full brokerage firms. They charge to hold your hand. If you follow my articles then you know, I don’t believe in hand holding. Two brokerage firms come to mind but they are not the only firms that fit the bill.

1) Zions Direct: https://www.zionsdirect.com/
2) Optionsxpress: http://www.optionsxpress.com/

Second, both these firms allow you to buy and sell stocks and bonds online. They have sections where you can look up investments based on interest (yield to Maturity). With stock, you want to look at the dividend yield. When you are ready to invest, bring up these websites and check them out. Look up bonds by yield or “Yield to Maturity”. Use the “Rule of 72” to figure out when your investment will double.

My investment doubles in (n) years = 72 / original investment yield in percentage.
72 / 8% = 9 years.

“Rule of 115” gives you when your investment will triple.

My investment triples in (n) years = 115 / original investment yield in percentage.
115 / 8% = 14.375 years.

Third, pick your bonds based on the following criteria.

1) The amount of money that you have to invest per transaction.
2) The credit rating of the company from “Standard and Poor’s”(S&P) or Moody’s. That is provided for you in the website. With discounted corporate bonds, I like S&P ratings starting with “BBB” to a low “B”.
3) The amount of “Yield to Maturity” that you want.

I stay away from Real Estate and Gambling Industry bonds. Outside of these two industries, I don’t care what the company does to make money.

This is how I double my money in 6 years and triple my money in 9.6 years. These are the better years, doubling in 3 years. In the bad years doubling in 8 years.

It is this simple. It is not rocket science.

Sucker!!!

Mary Williams Walsh reported in the New York Times On August 8, 2006, that in 2003, a whistle-blower forced San Diego to reveal that it had been shortchanging its city workers’ pension fund for years, setting off a wave of lawsuits, investigations and eventually criminal indictments. The mayor ended up resigning under a cloud. With the city’s books a shambles, San Diego remains barred from raising money by selling bonds. Cut off from a vital source of cash, it has fallen behind on its maintenance of streets, storm drains and public buildings. Potholes are proliferating and beaches are closed because of sewage spills. This sounds like the problems that Harrisburg, Pa. is having with its finances. Only in Harrisburg, law enforcement is asleep at their post and the voters had to take things into their own hands.

Ms. Walsh also reported that retirees are still being paid, but a portion of their benefits is in doubt because of continuing legal challenges. And the city still has to figure out how to close the $1.4 billion shortfall in its pension fund.

The State of Pennsylvania has the same large shortfall in its pension fund according to AFSCME Council 13 who represents Pennsylvania State employees. They also went on to tell its members recently that Pennsylvania teachers have the same problem with their pension fund. The New York Times went on to say that New Jersey, Illinois, Colorado, along with several other states and local governments have the same problem as San Diego did, but without the crippling scandal — at least not yet. By one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds.

http://latrobefinancialmanagement.com/Research/Pensions/Public%20Pension%20Plans%20Face%20Billions%20in.pdf

Click on the above link and read the full New York Times Story. They wrote this in 2006. Now with the 2008 – 2009 Bear Market and the spring 2010 Correction, the problem is much worse.

As I said before, you have to pay attention to your pension fund and how it is run. You also have to run your own IRA instead of using mutual funds. The Dow is down “Year to Date” 2.79%. Fund managers only try to do as well as the Dow. I am having the worst time in the market then I had in a long time. I am up “Year to Date” 17.68%. That is down from my peak on April 27, 2010 of 20.73%. I am crying all the way to the bank!

Capital Invested Vs. Risk to Capital

We talked a little about investing and taking risk. With the “Big Hiccup” that happened in the stock market from May 3 to May 7, some people lost everything that they made “year to date.” Other people, like me lost very little ground for the week. It comes down to the type of investment strategy that you created for your portfolio. You may say that you have no investment strategy, you just buy what someone tells you or you just buy what sounds good. What you don’t realize is that you create an investment strategy whether you want to or not. The strategy created allows you to “benefit or not” in up markets and allows you to get “messed up,” accepting the risk in bad markets.

Ninety-five percent of my portfolio is in junk bonds. About 4% is in stock and “Closed End” Bond Mutual Funds, and about 1% is in cash. The 1% means that I am fully invested in something all the time. When new money comes into my account from interest or dividends, the money is reinvested back usually into other junk bonds. I purchase some stocks or sometimes but rarely “Closed End” Bond Mutual Funds. They also give dividends. These dividends are reinvested into Junk Bonds. This is how I maximize my profits over the years and minimize my risk to capital and inflation. Depending on how much risk I want to take, I may invest in Junk Bonds with less than 4 years maturity (little capital, inflation, interest rate, and market risk) or Junk Bonds with a maturity greater than 4 years (more capital, inflation, interest rate, and market risk). The further you go out on maturity, the more inflation, interest rate, capital, and market risk you take.

Bonds must be paid according to the bond indenture. If they don’t pay, the bond trustee will force the company into Chapter 11 bankruptcy. Since bonds get paid before stock in bankruptcy they are safer than stock.

Some people will buy 95% stock, stock or bond mutual funds, 4% or less individual bonds, and have very little cash. These people maximize their profit potential but also maximize their risk to capital. They do well in bull markets but get “killed” in bear markets. In mix markets they go no place with very little return for their risk taking.

So you think that having 95% in cash is a better idea than stocks or bonds? Here you will minimize profits but you will maximize risk due to inflation. If inflation is running 4% per year and you only receive 3% interest in CDs, high investment grade bonds, or in your bank account, you will lose 1% to inflation every year. If you would buy a “KFW Frankfurt/Main 1.125% of 02/24/2012” Corporate Bonds for $999.87, you would make 1.132% per year interest and get $1,000 on 02/24/2012. This bond is rated “AAA.” You can’t get any better than that. With inflation running at 2%, you would lose .875% in purchasing power per year.

I can remember working for $390 per month. With that, I bought a new car and a house with money left over. Today that will not pay my utilities or most people’s rent. This is what inflation will do to you. But you will minimize your risk to capital. Too bad, your capital will not buy much for you in the future. This is why you have to make your capital grow using investments for the long term.

IRAs Vs. The Company or Government Plans

When I started working for a living 40 years ago, companies and governments gave very good retirement plans to employees. That was the time when you started working for a government or company and 45 years later you retired from that company or government. That practice stopped in the 1980s when the heads of companies started shipping our jobs to other countries. But the City, County, State, and Federal Governments still had good retirement plans. However, next came the downsizing of governments because we had less people making good money. So the big taxes were not rolling in to maintain governments. The politicians started doing away with retirement programs.

Today, more and more companies and governments are turning to programs design to have employees save for retirement with an outside investment or mutual fund company. No longer will the employer give matching funds to the employee. This is the big pay cut that many people have taken without knowing it.

Not only have employees taken a big pay cut but they also have switched from a guaranteed retirement account to a self directed retirement account that is not insured in most cases. Employers introduced employees to Investment Advisors who represent banks, investment firms, or insurance companies. They act as advisors but really represent the interest of their firm. In reality, they act as “bookie” for the employee. With the “bookie” come various hidden fees for the advisor, the mutual funds, and the firm they represents. The “bookie” gets paid no matter if the employee makes money or not.

This is why employees must consider using such plans or go outside their employer and set up IRA plans where you the investing employee can buy individual stocks and bonds, directing your own investment strategy. The overall idea is to cut down on fees that you pay to firms and make the most money off your money. This is what you must weight when deciding to use your employer’s plan or your own plan. You need time to build up enough money to live on once you retire. Reducing expenses and starting early is the only way to do that for most people.