Special People and Places: Daniel is heading to Rochester, NY

Special People and Places: Daniel is heading to Rochester, NY: The Two Sub-Bantam 2KM (1.24 Miles) Gold Medal Winners for the 2012 USATF Mid-Atlantic Association Junior Olympic Cross Country Champions...

Investing in Zeros

 
When I was in my early 30s, I came in contact with Zero Coupon Bonds. This type of bond known as Zeros pay interest only when they mature.  The advantage of this type of bond is that investors pay a relatively small sum for the bond when purchased.  At maturity, investors receive a large payback.  Zeros come in face values as low as $1,000. They are sold at large discounts of 50% to 80% of its face value, depending on how long you wait to collect the interest at maturity.

Let me give you an example. An investor could buy a $1,000 Zero Bond, yielding 7.5% that matures in 20 years. That bond would probably be purchased at $235. At maturity, the investor will receive $1,000. 

 Buy the bond with little money when she is born. At maturity 18 years later, use it to pay for her college education when she enters college.

The longer the term of the Zero, the less you the investor will have to pay now to buy a Zero.  Another advantage of the Zero is that it is easy to figure out how much the investor will have at maturity.

 If you do not receive interest on your bond every year, you cannot compound your interest in your account. The reason why I have a year to date 20.45% return as of Nov. 6, 2012 is because of compounding.

If the company files for bankruptcy, you may never see that interest.

Now let’s talk about the disadvantages. Taxes are a potential drawback if you purchase these bonds outside of your retirement account such as an IRA, 401K, Keogh,  Defined-Contribution Plan, or other retirement programs. Investors don’t actually receive interest on the Zero each year but the IRS still tax the interest as if you received it.  The problem, you are taking business risk meaning that you may never receive that interest.  What if the company goes out of business or defaults on its debt? The investor may never receive that interest but the investor paid taxes on it.  

Zeros are much more sensitive to interest rate changes than regular bonds.  This can be a curse if the investor does not hold the bond to maturity.  The investor may sell the bond at a loss.  But if rates fall, the investor may sell the bond at a substantial profit.

In my opinion, outside my retirement account, I would speculate using Zeros on the direction of interest rates. If I was just starting out in a retirement program, I would start by buying Zeros because they are cheap and safer than stock.

 If I have new born children, I would buy Zeros for their advance education after high school.

Investors can calculate how much they will expect to have when the Zero matures. 

Getting Your IRA and Other Projects Started With No Money

People who have been investing in income securities for 30 years in their IRA can buy ten to twenty thousand dollars in new securities every year. In this case, when they retire, they can withdraw $10,000 to $20,000 from their IRA to live on without touching their principal. They can also receive Social Security, and some of them a pension or two. But you notice, I said that they started 30 years ago meaning that they started around 35 years old or younger? Here is the trick. They did the following;

1.       Started their IRA or company matching 401K early in life

2.       Moved their 401K to their rollover IRA when they left their old employer  

3.       Saved money from every pay and moved it into their IRA or Company Matching 401K.

Why Should You Care?

As I go around talking to people about investing with an objective like retirement, children’s college, or the next car 10 years from now. I usually find out these important facts.

1.       They never have any money to invest

2.       They don’t know anything about it and don’t really care to learn

3.       They believe that some government grant is going to take care of it
 

No Money to Invest!

When I was 14 years old, I asked my father why working two jobs, (16 hours a day, Monday through Friday and twelve hours on Saturday) he never invested any of his money in Stocks and Bonds. His answer was, he did not want to lose it like people did in the stock market crash of 1929.  Instead he spent it all on who knows what. He died at age 57 because for 25 years, he worked himself to death. In the end, he died broke. He never wanted to talk about money or plans dealing with money. After all, this was not done in the “depression people’s” society. This mentality has been passed on in many families to this day. My father did not know anything about investments, did not care about learning about investments, and he thought that the government will provide whatever he needed in life outside of home,  job, and a car.
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He did not have to worry about retirement because he died at age 57. But he left behind a 13 year old son (my younger brother) who had financial needs. A wife who had financial needs. You ask; did he have insurance? Yes but that policy was taken out in the 1950s. He died in the late 1970s. Inflation over time will and did destroy his life insurance policy. So by not talking about financial planning to anyone, his family suffered after his death. This is common and most people do not think about these consequences because the crisis may not come up this weekend. The crisis hits 20 years from now. What was wrong with paying himself $25.00 per pay into a “rainy day fund” to pay for emergencies, education, or other future expenses? That was not the mentality of the “Depression people.” The mentality was make it and spend it! If you did not do that, something was wrong with you.
 

The Government will take care of it!     

When my daughter Stephanie was a Senior in High School, I took her to a seminar on financing college. I wanted to see if they had an idea of how my daughter could finance her MBA without using her money. What I found out about the program was shocking to me. Most of the people in the room had children 16 years old and older. Many did not have a dime saved up. They were all looking for free money to send their children off to college. What further shocked me was that the people running the seminar had no knowledge of free college money except for what you can find from the school guidance counselor. You pay them to sit down with them and figure out the best school to go to so that the parent can pay their children’s way with the parent’s credit.   Here is the reason why we have young people walking around the street with debt of $100,000 or more but can’t find a job that pays them more than $35,000 per year. The parents are in debt and can no longer help them and the children can’t help themselves. Some can’t find a job after graduating from college.
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I just wanted to “mooch” off the government or get a state grants. But to my surprise, these so called grants to pay for college education are a myth. They are really college loans that must be paid back. So my investing for my daughters education starting when she was born paid for two of three college degrees. She elected to use the money for her MBA to buy a house. This is why she is in debt for $30,000 today. However, because of her three degrees and the financing of her two degrees, she makes enough money to easily pay off the $30,000 education debt.     

People of Color are at a disadvantage

Say nothing and no one will know that I am talking about you! After I wrote my first book on finance at age 25, I made friends with many well off people in industry. One man set me up with an interview with a National Brokerage Firm. The firm called me, telling me that one of their  largest customers wanted them to interview me for a brokerage position. But brokerage is not for me. I can’t sell things that I don’t believe in.
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I became friends with the CEO of Wilshire Oil of Texas. He was a Jewish immigrant born in Germany and placed in a NAZI death camp. He was liberated when the allies came in WW II. He and his family came to America and worked the oil fields in Texas. They formed an investment club with the objective of taking over the company by buying and voting their stock. It took a decade but they finally put people on the board then one day, they took over the board. He asked me why not do that with the people of color to give them employment and power in this corporate led world? 
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My answer: I have a hard time just getting people of color to focus on investments let alone using economic power to gain a place in the world. People of color are socialist because they never matured from having their masters care for them in colonial or slavery days (good or bad). They did not evolve trying to get away from their lords like people did in Europe after the dark ages. Therefore people of color are not capitalist.

I said all of that to say this!

If you are going to start your retirement program or any other program that needs to be funded such as children’s education or a new home, you do not need a large sum of money. All you need is to pay yourself first, $25 to $100 per pay will due. You will not be able to buy something with $25 but as time goes on, your small amount of money will grow into a large amount of money. My contribution to Stephanie’s account grew into enough money to buy bonds over time. These bonds where used to send her to college, $25 at a time.  
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You can take out a loan of say, $2,000 and place it in your IRA. Your interest paid to the bank is an expense taken off your taxes as part of doing business. This means that this interest money is tax deductible. You place the money into your IRA and buy bonds. The interest from the bonds is tax deferred. The contribution of $2,000 comes off your total annual income. So if you make for example, $40,000, you pay IRS taxes on $38,000. Now tell me, who can beat that?         

Investing in Ladders, a Defense Against Risk

I teach you things about making money in the financial markets that the big corporations don't want you to know about. I stand for financial justice and I can back that statement up with my own portfolio.

To Satisfy the People Who Want Me to Fail

Recently, I was giving a lecture on investing in bonds to a small group of people. Usually when I do that I get at least one person who wants to know about my failures. They just want to show people that I don’t know what I am talking about.

I have three bond accounts. I have one where I gamble in the junkiest of bonds, another I buy bonds that do not trade, and the largest account is my IRA.  For people who need to know about my failures, I talk about my gambling account. Over the past 5 years, I lost 60% of my investment. As you see, it does not pay to gamble. This account was created in 1983 to pass money to my grandchildren through my great great grandchildren, 100 years from now. So I can afford to gamble with that money. 

My bonds that I have that do not trade give high yields. I use that money to help finance the following years IRA Contribution.  

How have I Done Since 2009?

Now that we have the anti-success people out of the way, we can focus on what you have to do to be successful in corporate bond investing. After making my IRA contribution to my account, I buy my bond investments.

Since January 30, 2009, my account has increased in value 230.914%. That means that since January 30, 2009, my account has increased 5.248% per month or 0.1749% per day. From January 1, 2012 to Oct. 10, 2012, my IRA account increased in value 18.234%. That means so far this year, my IRA account has increased 1.8234% per month or 0.45585% per week. Most bank savings accounts are giving 0.45585% in a year. “Year to Date,” to Oct. 10, 2012, the Dow increased by 9.656%. From January 30, 2009, the Dow increased 68.401% or 1.555% per month. So I have continued to beat the Dow for the past 3 years. Some of you have been watching me beat the Dow since I started blogging in 2009. Experts will tell you that I cannot do that.

For the people who are in my Greedy Friends Investment Club, you have been educated in what you must do to buy corporate bonds. Now we are going to talk about managing your account over a 10 year period.

 

Using Ladders to Defend Against Risk

When portfolio managers talk about strategies for success, they will often refer to risk diversification and money management. These strategies separate those investors who are successful because of knowledge and skill from those who are merely lucky. Now, don't be mistaken, luck isn't a bad thing to have, but possessing foundational skills will ultimately lead to success. We are going to discuss the bond ladder strategy, a bond investing strategy that is based on a relatively simple concept that many investors (and professionals) fail to use or even understand.

A bond ladder is a strategy that attempts to minimize risks (inflation, interest rate, and business risks) associated with fixed-income securities while managing cash flows for the individual investor. Specifically, a bond ladder, which attempts to match cash flows with the demand for cash, is a multi-maturity investment strategy that diversifies bond holdings within a portfolio. It reduces the reinvestment risk associated with rolling over maturing bonds into similar fixed-income products all at once. It also helps manage the flow of money, ensuring a steady stream of cash flows throughout the year.



There are two main reasons to use the ladder approach. First, by staggering the maturity dates, you won't be locked into one particular bond for a long duration. A big problem with locking yourself into a bond for a long period of time is that you can't protect yourself from bull and bear bond markets. For example, if you invested your full $40,000 into one single bond with a yield of 5% for a term of 10 years, you wouldn't be able to capitalize on increasing or decreasing interest rates.



The second reason for using a bond ladder is that it provides investors with the ability to adjust cash flows according to their financial situation. For instance, going back to the $40,000 investment, you can guarantee a monthly income based upon the coupon payments from the laddered bonds by picking ones with different coupon dates.

This is important for people who want to build your IRA or any other account where you want to reinvest the interest into more bonds that will give more interest. By doing this, investors compound their interest every year.  

This is important for retired individuals because they depend on the cash flows from investments as a source of income. If you are not dependent on the income, by having steadily maturing bonds, you will have access to relatively liquid money. If you suddenly lose your job or unexpected expenses arise, then you will have a steady source of funds to use as required.
 

How Have I Used Ladders in my IRA?

I try to invest in bonds that are Standard and Poor’s BBB+ to BB-. I break my own rules. I have bonds in my IRA that range from BBB+ to CCC. Some bonds are not rated. One issue is in bankruptcy. This means that my IRA Portfolio is riskier (Business Risk) than the safest  junk bond Portfolio. 

2011(1)		0.00%

 Before the World Wide Web, I had to depend on my broker to give me a list of bonds that they had in their inventory. Since it was not in their interest to give me bonds that could give high interest and safety, they gave me access to bonds that were just staying ahead of bankruptcy. A&P was one such bond. In my IRA I had $2,000 worth and now they are worth $2.50. Here is the reason why I tell you not to use full brokerage firms. Use online firms with large Corporate Bond inventories.   

2012(1)

0.82%

I have one bond that will mature in 2012 and it is .82% of my portfolio. This bond will be reinvested with my 2013 contribution, probably in bonds that mature in the early 2020s.

2013(1)

26.97%

In 2013, I will have one oil bond issue coming due. This issue is 26.97% of my portfolio and gives very high interest. I bought it at the bottom of the stock and bond market crash. They give interest of about 36%. This money will be reinvested in several different bond issues in the med 2020s.

2014(7)

43.93%

In 2014, I will have seven bond issues coming due. About 43.93% of my portfolio will come due that gives around 20% interest in total. This money will be reinvested over the 2020s.

2015(6)

16.55%

In 2015, six bond issues will come due, which is about 16.55% of my portfolio. This money will be reinvested in many issues that mature in the late 2020s.

2018(5)

10.18%

In 2018, I have five issues coming due. That is about 10.18% of my portfolio. This money will be invested in bonds of the 2020s.

2019(1)

1.05%

In 2019, I have one bond coming due. That is 1.05% of my portfolio. This money will be reinvested maturing in the year 2030.

   

 In Summary

This is how I have my bond investments ladders over the next 18 years. I started investing in my IRA in 1982, investing in a few bonds at a time. The thing you have to do every pay is pay yourself first and put that money in your IRA.  I started placing serious money into my IRA since 2005. By that time most of my other obligations were over.

In 2031, I will be 80 years old. Investing only part of my investment money each year will help protect me from inflation that will come as sure as the coming winter.

Part 3: Looking at Future Expenses

Your next step is to look at your spending patterns in retirement and future inflation.  You will have to save enough money to deal with both situations.  You must look at your present expenses to see how they will change over time. You must project what inflation will be at the time you plan to retire, say in 10 years. Plus you must figure out how inflation will act over the next 30 years. Your savings and investment rate must at least match that figure.  You must figure out if the money you saved will be enough to last until you die.

 

You can’t control inflation over a period of time but you can control your spending.  Your expenses will change as you grow older.  When you retire, you will spend less on work related things like daily transportation and work clothing. You will spend more on traveling, hobbies, or other things that you always wanted to do.

As you age, more of your budget will go toward medical expenses. I just heard recently that medical expenses are increasing by 4% per year.  Retired people may find that recording their expenses will alter future spending patterns.

Write down your monthly expenses that you have today. You may want to use a spread sheet on your computer.  Avoid getting stuck on the details and giving up because you don’t have exact records of your spending. If you don’t know the exact amount you pay for car insurance, for example, use a guesstimate until you can look it up. You can always revise your data. Don’t include things like college tuition or other onetime cost.  For things like utility spending, take a yearly figure then divide by 12 to give you an average monthly figure. You must do the same analysis on anyone that is dependent on you such as your spouse.         

Inflation in its simplest terms means that dollar for dollar your money will not buy as much next year. This means that inflation is a major factor in determining how much money you will need in retirement. Inflation means that you will need more money every year because prices for goods and services go up every year.  So if your money is not earning more money than the rate of inflation, you will lose part of your retirement future buying power.

Because we are starting to recover from the first Great Depression of this 21^st Century, I would say that inflation will average about 3.5% over the next 10 years. From 10 to 30 year in my opinion it will be 6% inflation.  In the 1930s, we lived with deflation where prices fell and goods and services became cheaper.  In 1980, inflation ran at as high as 13.5%. In 2002, inflation was only 1.6%. So as you can see, inflation can vary widely.

I would project your inflation cost for medical expenses at 4% per year. You should project that 20% of income will be spent on health care.  Medicare does not cover all your expenses in retirement.  For example, Medicare Part B (Doctor Bills) today cost $96 per month.    You still have to pay for dental, prescription drug, and eye care.

If you are thinking about retiring early, you may pay for your total health care yourself or in conjunction with an insurance plan.

If you need help in figuring out your future financial needs, talk to a Certified Financial Planner.  The Certified Financial Planner Board of Standards Web site lets you look up a certified financial planner near you. The organization also distributes a free “Financial Planning Resource Kit.” 1-888-237-6275

www.cfp.net/learn

The National Association of Personal Financial Advisors is an organization of fee only comprehensive financial professionals. 1-800-366-2732.

www.napfa.org

A Special Note for all my reader’s around the world!  

Hi my loyal readers around the world. I just finished making my final plans of my life. I will be retiring in a few short years and moving into my luxury retirement home. I will spend most of my time getting my seven year old grandson ready for the 2028 Olympics. I have no idea what my younger grandson is going to do. As of now, I would say it has something to do with electrical engineering because at 1 years old, he knew how to operate an IPad. But whatever it is, I will be around to lend assistance to his education.


My plans also involves my readers. I am starting an online stock club design to give my loyal readers as much as one million dollars, maybe more depending on when you start my plans. That money will be to remember me by.


Please read the blog below and follow my instructions if you want a chance to get one million dollars.

http://bondinvestments.blogspot.com/2012/06/how-would-you-like-to-have-over-one.html

The younger you are; 35 and below, the greater the chance of getting over one million dollars. If you are starting at 60 years old, chances are you will only make it to $100,000.



I started out at age 23 and spent a lot of time laid off and giving money away to my children for cars. I bought 3 homes. One home was paid off in full. The other I bought in a partnership paid in cash. All my cars since 1971 were the current year and I have not had a car note since 1983. I even gave two girlfriends a car each. That is why I don’t have a million dollars today. But if you become one of my “Greedy Friends” I am sure with my instructions, you can get that million.

Part 2: Know What Money You Can Count On

If you haven’t started taking inventory of your assets by age 50 then you better start ASAP. You are going to have to shine a light on what you have so you can find out how much you need to support yourself in retirement. Most people do not have a clear cut idea of how much money they have. That means it is hard for people to figure out how much money they can count on when they no longer work.
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I met one woman, who was out of work for two years and did not know that she had almost $4,000 in her 401k. Finding out what part of today’s money can go toward retirement simply means adding up the value of all your current assets. Assets are things that can be converted to cash.

These things include;

1. Assets that is very liquid such as cash, investments, savings bonds, CDs, Mutual Funds, and Whole Life Insurance policies.    
2. Assets that is not so liquid such as your house, car, jewelry, and art.

You do not want to count emergency money, children’s college money, or vacation money. You want to count money that you do not want to touch for at least ten years. Women face the very real possibility of spending part of their retirement years without the support of a husband. The loss of a spouse can sometime mean the loss or reduction of benefits that can place spouses in financial jeopardy.  Because of this spouses will need to focus on their financial resources as a single person as well as half of a couple. You must figure out what happens to your Social Security and to retirement benefits if your spouse dies or you divorce. Know what assets you can count on.

Check Social Security benefits documents, retirement plan documents, and Wills. Wills are important but they may not provide the protection desired. Depending on the way assets are titled or the terms of a Will, the money that a spouse believe they can count on may not be passed to the surviving spouse.
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How much is your home worth? In some cases, a reverse mortgage may be the answer to keeping your home while living off the equity.  

If you subtract how much you own on credit cards, Lines of Credit, car loans, and home loans from your total assets, you will have your Net Worth.  That is how much you have to spend today on your retirement.

A Special Note for all my reader’s around the world!  

Hi my loyal readers around the world. I just finished making my final plans of my life. I will be retiring in a few short years and moving into my luxury retirement home. I will spend most of my time getting my seven year old grandson ready for the 2028 Olympics. I have no idea what my younger grandson is going to do. As of now, I would say it has something to do with electrical engineering because at 1 years old, he knew how to operate an IPad. But whatever it is, I will be around to lend assistance to his education.


My plans also involves my readers. I am starting an online stock club design to give my loyal readers as much as one million dollars, maybe more depending on when you start my plans. That money will be to remember me by.


Please read the blog below and follow my instructions if you want a chance to get one million dollars.

http://bondinvestments.blogspot.com/2012/06/how-would-you-like-to-have-over-one.html

The younger you are; 35 and below, the greater the chance of getting over one million dollars. If you are starting at 60 years old, chances are you will only make it to $100,000.



I started out at age 23 and spent a lot of time laid off and giving money away to my children for cars. I bought 3 homes. One home was paid off in full. The other I bought in a partnership paid in cash. All my cars since 1971 were the current year and I have not had a car note since 1983. I even gave two girlfriends a car each. That is why I don’t have a million dollars today. But if you become one of my “Greedy Friends” I am sure with my instructions, you can get that million.

Part 1: Back in the Day

 
Workers working on a B-17 Flying Fortress at the Boeing aircraft plant in Seattle, Washington. 

I can remember a time when people started working for an employer at age18. They worked for that employer until they reached 65. The company rewarded them for their service with a gold watch, a guaranteed pension, and health insurance for life. For many Americans at that time, they relied on the employer provided pensions and Social Security benefits. But things have changed. It is not going to be your parents’ retirement program anymore.  Retiring in this new century is a mystery. Today many workers will need to rely on their own work-related and personal savings plus Social Security benefits.  These savings have to last longer because Americans are living longer, into their eighties and nineties. A longer life will also mean more medical care, some of which will not be covered by the federal Medicare Program.    

Most people don’t know that the whole retirement scene has changed and many American workers have no clue that they are about to walk into a life with no income to live on in relation to their needs. They will also find out that their local, state, and federal government will not be in a position to help them. 

According to a 2007 survey by the Employee Benefit Research Institute (EBRI) suggest that only 43% of Americans have tried to calculate how much they need to save for retirement.  I am writing this to you so that you do not stay up until 3:00 AM worrying about how you are going to afford to retire. I am going to tell you how to plan for retirement.  The earlier in life you start, the better off you will be at age 62 and beyond.

You should be putting away money for your retirement as soon as you start working. Most people cannot put money away for retirement until they have their home, car, and children’s college fund started. OK, I can relate to that.  But by age 50 you should be placing retirement planning as your number one priority.

Your time line will look something like this;

1. At age 50, you will begin catching up with retirement contributions. People over 50 can add an extra amount to 401(k) and other retirement accounts.

2. At age 59.5, No more tax penalties on early withdrawals from retirement accounts. Leaving money in your account means that you have more time for your retirement money to grow.

3. At age 62, this is the minimum age to receive Social Security benefits. If you can delay getting these benefits then you can receive bigger monthly benefit later in life.

4. At age 65, you are eligible for Medicare.

5. At age 66, you are eligible for full Social Security benefits if born between 1943 and 1954.

6. At age 70.5, you must start taking minimum withdraws from most retirement accounts. If not, you may be charged a heavy tax penalty.      

According to statistics, the average American male can count on living past 65 years old for another 16 years. For woman, living after 65 year old, they last another 19 years.

You start by trying to figure out your financial future. 51% of people who tried to figure out their financial future ended up changing their retirement savings plans.

This is the beginning of a 3 part series on how to prepare for retirement. You may want to take notes because I am going to give you information so that you can do personal research into your own retirement situation.

A Special Note for all my reader’s around the world!  

Hi my loyal readers around the world. I just finished making my final plans of my life. I will be retiring in a few short years and moving into my luxury retirement home. I will spend most of my time getting my seven year old grandson ready for the 2028 Olympics. I have no idea what my younger grandson is going to do. As of now, I would say it has something to do with electrical engineering because at 1 years old, he knew how to operate an IPad. But whatever it is, I will be around to lend assistance to his education.


My plans also involves my readers. I am starting an online stock club design to give my loyal readers as much as one million dollars, maybe more depending on when you start my plans. That money will be to remember me by.


Please read the blog below and follow my instructions if you want a chance to get one million dollars.
http://bondinvestments.blogspot.com/2012/06/how-would-you-like-to-have-over-one.html
The younger you are; 35 and below, the greater the chance of getting over one million dollars. If you are starting at 60 years old, chances are you will only make it to $100,000.



I started out at age 23 and spent a lot of time laid off and giving money away to my children for cars. I bought 3 homes. One home was paid off in full. The other I bought in a partnership paid in cash. All my cars since 1971 were the current year and I have not had a car note since 1983. I even gave two girlfriends a car each. That is why I don’t have a million dollars today. But if you become one of my “Greedy Friends” I am sure with my instructions, you can get that million.