Tag Archives: investing

HBCU Money™ Business Book Feature – The Bogleheads’ Guide to Investing


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The irreverent guide to investing, Boglehead style

The Boglehead’s Guide to Investing is a DIY handbook that espouses the sage investment wisdom of John C. Bogle. This witty and wonderful book offers contrarian advice that provides the first step on the road to investment success, illustrating how relying on typical “common sense” promoted by Wall Street is destined to leave you poorer. This updated edition includes new information on backdoor Roth IRAs and ETFs as mainstream buy and hold investments, estate taxes and gifting, plus changes to the laws regarding Traditional and Roth IRAs, and 401k and 403b retirement plans. With warnings and principles both precisely accurate and grandly counterintuitive, the Boglehead authors show how beating the market is a zero-sum game.

Investing can be simple, but it’s certainly not simplistic. Over the course of twenty years, the followers of John C. Bogle have evolved from a loose association of investors to a major force with the largest and most active non-commercial financial forum on the Internet. The Boglehead’s Guide to Investing brings that communication to you with comprehensive guidance to the investment prowess on display at Bogleheads.org. You’ll learn how to craft your own investment strategy using the Bogle-proven methods that have worked for thousands of investors, and how to:

  • Choose a sound financial lifestyle and diversify your portfolio
  • Start early, invest regularly, and know what you’re buying
  • Preserve your buying power, keeping costs and taxes low
  • Throw out the “good” advice promoted by Wall Street that leads to investment failure

Financial markets are essentially closed systems in which one’s gain garners another’s loss. Investors looking for a roadmap to successfully navigating these choppy waters long-term will find expert guidance, sound advice, and a little irreverent humor in The Boglehead’s Guide to Investing.

Buy Mediterranean Before Boardwalk: Real Estate Investment Lessons From Monopoly


Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth. – Robert Kiyosaki

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For all those who have played Monopoly at anytime in life there is one thing for certain, Boardwalk holds an allure that most players simply can not resist. Me and my former roommate would often play the game and on the first few trips around the board as players are snatching up everything they land on, it became apparent to me that I was getting cash poor quickly and so was she. There was no liquidity strategy for either of us. I decided to change my approach and the key to that approach was to not buy Park Place or Boardwalk unless I needed to defensively prevent her from obtaining a monopoly. Even if she had obtained one of the properties I may not buy the other depending on her cash position. A tip in Monopoly, keep your money under the table.

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The great sin of Monopoly and many beginner real estate investors is that they do not actually purview the reality of what they are starting with in relation to what they will potentially be buying during the game. Each Monopoly player starts with $1 500. Just a quick examination of why Boardwalk makes no sense for a period of time is that it cost $400 or almost 27 percent of your starting cash position. On each trip around the monopoly board there is a 2.5 percent chance you land on any one square. It would take your competition eight trips around the board before your property paid you back landing on it every single time just to get that money back. Now, let us say you get lucky and land Park Place as well, that is $750 or half your starting cash position to land the Ritz Carlton and Fifth Avenue equivalent. The problem is to get any true value out of them you need to develop them. To get them up to hotel level you first have to build four houses on each which are $200 a piece and then finally a hotel. You can not just build on one property in Monopoly. So if you put one on Boardwalk, then you have to put one on Park Place next. To get both properties up to hotel level it cost $2 000 or 10 trips around the board. In exchange, both properties now give you a 5 percent chance of landing rental income of $3 500. On the flip side, if you were to buy all five “cheap” properties of Mediterranean, Baltic, Oriental, Vermont, and Connecticut and develop them up to hotel level it would cost you $1 690 and give you a 12.5 percent chance for $2 400 in rental income. Again, think about where you are starting. In comparison, you gave up half your cash position to acquire Park Place and Boardwalk, and then need to circle the board at least seven more times to get to hotel level. Whereas for MBOVC properties, you can acquire and build all of them with your starting cash and one trip around the board. By the PPB owner’s sixth trip, you have had the potential of generating $14 400 in rental income at over twice the opportunity that they have, and in the process they will be potentially cash strapped. You on the other hand, just on passing go six times will have accumulated $1 200 in income, not including potential rental gains.

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So how does this play out in the real world? Many start up real estate investors are just not honest with themselves. They want to buy properties that endanger their cash position and not add to it. There are really two types of investment properties in real estate regardless of whether it is commercial or residential; they are cash flow or appreciation. Cash flow properties tend to be the MBOVC properties. They offer little in the way of appreciation, but kick off enormous amounts of cash. On the flip side, PPB are appreciation properties, meaning the cash flow on them will be tight (maybe negative), but over the long-term the property will rise appreciably in value. The problem with the latter for start up real estate investors is that nothing can go wrong. Razor thin margins (if any) means that maintenance and repairs are all coming out of your pocket instead of the properties revenues. In a cash flow property you are looking to keep it standing and functional as opposed to a Miss Universe competition. As such, even basic repairs and maintenance can be kept up with the revenues of the property because of the acute profit margins.

So what are MBOVC properties? It is all relative to your own starting cash position. Things you should keep in mind are how much is your current income, financing options, down payments, estimated repairs and ongoing maintenance, and taxes. In essence, these are properties that will not strain your cash position and have high profit margins. If you can purchase and repair the property and still have a 100 percent profit margin, then that is the bulls eye. Often these are properties that have Section 8 potential or Class D multifamily properties. The latter are usually in low-income and working class areas where tenants have higher eviction rates, more likely to pay rent in cash/money order, and where maintaining a quality standard of the property will not be costly.

Given the rise of renters in the United States with credit still very tight for potential home buyers’, there is a sweet spot available for investors who can offer affordable housing, especially among millennials saddled with student loan debt. Les Christie of CNN Money reports, “The median rent for all types of rental homes hit $1,350 a month in March (2014), up from a median of $1,285 a month 12 months ago, Trulia reported.” You may have to search smaller towns with growing demographics or areas of the big city that are hidden gems, but still offer an affordable purchase option. Thinking outside of the box of where you purchase your rental properties is key. It may be in a small town in Arkansas, but wherever it is be sure you do your homework and not be afraid to take on a project.

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Cash is king, as my entrepreneurship teacher Charles Reed would always say and without it you are out of oxygen in business. In Monopoly, I would often buy the red, yellow, and green properties, but would not build on them unless someone landed on my MBOVC properties. This allowed me to grow and keep my cash position sound in case I had landed on someone else’s property. These lessons are the same I am applying to my rental property portfolio. Maybe one day I will own or build a Boardwalk property like the NYC Sony Building (pictured above) where a triplex in the building is on the market for a record $150 million and probably would fetch easily $800 000 to $1 million per month in rental income. Monopoly, it is just a game, but take heed to its lessons and you may just win in real life.

 

HBCU Money™ Business Book Feature – The Little Book of Common Sense Investing


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Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. Common sense tells us—and history confirms—that the simplest and most efficient investment strategy is to buy and hold all of the nation’s publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns.

To learn how to make index investing work for you, there’s no better mentor than legendary mutual fund industry veteran John C. Bogle. Over the course of his long career, Bogle—founder of the Vanguard Group and creator of the world’s first index mutual fund—has relied primarily on index investing to help Vanguard’s clients build substantial wealth. Now, with The Little Book of Common Sense Investing, he wants to help you do the same.

Filled with in-depth insights and practical advice, The Little Book of Common Sense Investing will show you how to incorporate this proven investment strategy into your portfolio. It will also change the very way you think about investing. Successful investing is not easy. (It requires discipline and patience.) But it is simple. For it’s all about common sense.

With The Little Book of Common Sense Investing as your guide, you’ll discover how to make investing a winner’s game:

  • Why business reality—dividend yields and earnings growth—is more important than market expectations
  • How to overcome the powerful impact of investment costs, taxes, and inflation
  • How the magic of compounding returns is overwhelmed by the tyranny of compounding costs
  • What expert investors and brilliant academics—from Warren Buffett and Benjamin Graham to Paul Samuelson and Burton Malkiel—have to say about index investing
  • And much more

You’ll also find warnings about investment fads and fashions, including the recent stampede into exchange traded funds and the rise of indexing gimmickry. The real formula for investment success is to own the entire market, while significantly minimizing the costs of financial intermediation. That’s what index investing is all about. And that’s what this book is all about.

HBCU Money™ Business Book Feature – The New Coffeehouse Investor: How to Build Wealth & Ignore Wall Street


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In 1998, Bill Schultheis wrote a simple investment book for people who felt overwhelmed by the bull market. He had discovered that when you simplify your investment decisions, you end up getting better returns. As a bonus, you gain more time for family, friends, and other pursuits.

A decade later, through good times and bad, this philosophy has been proven to tower above the daily chatter of Wall Street. And the revised and expanded edition of his book is more valuable than ever.

In a conversational style, Schultheis explains why we should stop thinking about cool stocks, hot mutual funds, trends in interest rates, and predictions for the economy. Stop trying to beat the stock market average; just remember three simple principles:

• Don’t put all your eggs in one basket
• There’s no such thing as a free lunch
• Save for a rainy day

The New Coffeehouse Investor will help readers get their finances in shape quickly and painlessly.

HBCU Money™ B-School: Types of Brokerage Accounts


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By Investor.gov & Securities Exchange Commission

A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased. In a cash account, you are not allowed to borrow funds from your broker to pay for transactions in the account.

A margin account is a type of brokerage account in which your brokerage firm can lend you money to buy securities, with the securities in your portfolio serving as collateral for the loan. As with any other loan, you will incur interest costs when you buy securities on margin.

There are risks involved in purchasing securities on margin. For example, if you buy on margin and the value of your securities declines, your brokerage firm can require you to deposit cash or securities to your account immediately. It can also sell any of the securities in your account to cover any shortfall, without informing you in advance. The brokerage firm decides which of your securities to sell. Even if the brokerage firm notifies you that you have a certain number of days to cover the shortfall, it still may sell your securities before then. A brokerage firm may at any time change the threshold at which customers are subject to a margin call.