Wealth Formula by Buck Joffrey

How do you measure your professional success?

Buck and Zulfe discuss the importance of teaching personal finance to children and share their experiences with their own kids. They emphasize the need to go beyond basic financial literacy and teach kids about debt, investing, and building wealth. They also discuss the power of compounding and the different ways to compound wealth. The conversation then shifts to the market update, with Zulfe highlighting the record highs in the equity markets and the decreasing bond yields. They also discuss the possibility of the Fed cutting rates and the potential impact on the economy. The conversation discusses the potential fall in interest rates and its impact on various asset classes. It emphasizes the opportunity to buy assets at discounted prices before rates decrease. The discussion also touches on the performance of gold, Bitcoin, and other speculative assets. The potential benefits of lower rates on equity markets, bond markets, and real estate are explored. 

My dad is a wise man. Like many teenagers, I didn’t always think he was. Growing up, he didn’t say much. He wasn’t the kind of dad who was keen to talk to me much about life. But when he did, I realized decades later, that he was usually right. I remember my dad buying a lot of real estate when I was a kid. Most of the houses and small multifamily units he bought looked pretty ugly to me. So I asked him how he chose his buildings. “Cash flow”, he told me.  I didn’t know what he was talking about and didn’t really care but years later the words “cash flow” became serious buzzwords as Robert Kiyosaki released Rich Dad Poor Dad. And, as it turns out, cash flow is indeed the most important element when it comes to buying real estate. Another time, I remember him asking me why I wanted to go to medical school. He said if I wanted to make money I should be doing real estate, not medicine. I was appalled that he would dissuade his own son from becoming a doctor. But in hindsight, I would also probably warn my kids against medical school as a path to financial prosperity in the future. Finally, I remember during the late 90s, when I was in medical school in Chicago, Alan Greenspan raised interest rates rapidly. My dad had a lot of floating debt and ended up losing a lot of money. He told me to beware of floating debt. And of course, he couldn’t be more right about that one considering what has happened to the real estate markets throughout the country over the past two years.  Looking back, I wish he had taught me more. But those were different times and parental relationships in immigrant families were quite different than the kind of relationship I have with my children today. However, I think that it is still the case that most parents undervalue teaching their children about personal finance. Perhaps it’s because they don’t know much about it themselves. Maybe it’s just not that much fun to talk about. Nevertheless, it is something that I think all of us parents should take a step back and consider what kind of financial education our children are getting at home and what we can do to help them be better equipped for the future. My guest today took that message seriously enough that he wrote a book on personal finance with his own daughters. Make sure to tune in to this week’s Wealth Formula Podcast as Alpesh Parmar takes us down his own journey of educating his own children on money matters.

The first step to stop trading time for money and start building wealth is to figure out how to pay less taxes. Here are two real estate strategies to save on taxes for W-2 employees.

What do you do when you’re not happy with the way things are? That’s a question I have been asking myself a lot lately. In my case, I’m talking about life outside of business and real estate. You see, I’ve been divorced for a few years now and I have still not really rebuilt my life since then. When I have my kids, it all makes sense. It’s about being with them. Last weekend we played four square, badminton and threw around a baseball. I’m pretty sure I had more fun than they did. But when I’m not with them, I sometimes feel like I live in a 7500-square-foot luxury jail. You see, I work from home and really don’t have any reason to leave the house. Every morning I work out. Maybe I go on a hike or I lift weights secretly hoping that bigger muscles will solve my social problems. Sure I have some friends but most of them are married and busy with their own families. The dating scene in Santa Barbara has been remarkably bad and so… I’m still single. The bottom line is that my social life needs a facelift. I’ve been thinking about this a lot lately. I don’t know about you, but I spent so much of my life engineering a successful career and virtually no time working on my life outside of it. A lot of guys get away with that and let their wives handle the social stuff. Well, I don’t have one of those so I have to fix the problem myself. Somehow. But how? It occurred to me the other day that I should start looking at my social life the same way I look at business. What did I do to become successful in my professional life? Thinking back, I kept seeing a similar pattern. I would decide what I want to do and somehow make it happen by physical movement—even if it didn’t make sense. Somehow, that movement itself seemed to make it happen. Let me tell you a story to illustrate. As you know, I was a neurosurgery resident for about a year and a half at the University of Michigan before I decided I was done with that kind of lifestyle and quit the program. It was the dead of winter in Ann Arbor and I suddenly found myself without direction. I decided to do some rotations on some of the other surgical specialty teams at the hospital and ultimately decided to move from Neurosurgery to a specialty called Otolaryngology-Head and Neck surgery—basically head and neck surgery of everything except the brain and spinal cord. To be clear, I wasn’t passionate about this new speciality. I decided to do it because the hours just seemed better and it seemed like most of the professors had pretty good lifestyles. Now, I just had to figure out how I was going to get myself a residency position. This was a difficult task. I was looking for a second-year position in a program somewhere in the country where someone had, for whatever reason, left a vacancy for me. Most programs only had 2-3 residents per year to begin with. It’s a small specialty. I didn’t have a clear place to start, so I decided just to put myself out there and see what would happen. I chose the top 10 programs in the country and wrote letters (not emails) to their chairmen. One of those programs was the University of California, San Francisco (UCSF). In case you don’t know, UCSF is one of the top hospitals in the world. For me, getting a spot at UCSF would be like hitting the lottery. Beyond the reputation of the hospital, my sister lived in San Francisco and I really loved the idea of moving there. I had had enough of being in a small college town in the Midwest. So I sent those letters out. A week later, I was sitting in the hospital library looking at programs on the internet when it occurred to me that I had no reason to be in Michigan anymore. I had an impulse to drop everything and fly to San Francisco. So I turned my internet search over to orbitz.com and looked up the next flight to San Francisco. It was leaving in 3 hours from Columbus—just enough time for me to drive there. So I went home, grabbed my stuff and headed to the airport. I landed in San Francisco just a few hours later. And, when the plane was taxiing, I turned on my phone and was shocked to see a text message from Dr.David Eisele, then Chairman of the Head and Neck Surgery Department at UCSF. In response to my letter, he was inviting me to interview for an unexpected vacancy in his program. I went to see him the next day and he offered me the job. Now you can call that coincidence, but the chances of all this happening randomly seem ridiculously small to me. I felt like somehow, I had willed this to happen by putting those letters in the mail and by physically moving myself to San Francisco. And if this story sounds crazy to you, I’ve got a lot more where that came from. Ask me about them next time you see me. I don’t know how to explain these stories, but I’ve got a lot of them. So my challenge now is trying to use this same kind of energy to give myself a social life! It’s a lot harder than professional stuff but maybe it will work. I’ll let you know how it goes lol. In the meantime, the reason I brought up this stuff is because the first time I met Lane Kawaoka was at a meeting that I went to that ultimately led me to podcast. That was almost a decade ago. Since then, Lane launched his own successful podcast. I mentored him when he was younger and I’ve learned quite a bit from him as well. On this week’s Wealth Formula Podcast, Lane and I reminisce on the old days and talk about the current state of the investment world. I hope you enjoy the discussion. 12:38 Lessons from the Years 23:15 Investing Outside of Multifamily 29:59 The Construction Space 35:31 The Wealth Elevator

Does it really?

In this weekly update, Buck and Zulfe discuss liability insurance, the economy, and money market funds. They highlight the importance of reviewing and updating insurance policies, the impact of consumer confidence on the economy, and the rising prices in the residential home market. They also explain the difference between money market funds and money market accounts, and the potential risks and returns associated with each.

Oh man…we are getting really sexy with topics on this show! On this week’s episode of Wealth Formula Podcast, we are going to talk about liability insurance: malpractice insurance, property insurance—all that kind of stuff. I know this doesn’t sound exciting, but do you know the five different parts of an insurance policy and what part is generally the one that will screw you over? I didn’t think so. Here’s my suggestion. Grab your property insurance policy and follow along with the show. I haven’t read mine and you probably haven’t read yours either. But this is stuff you need to know a little bit about because if you have to change something or get a new policy, now’s the time to do it. Liability insurance is your first line of asset protection so make sure you have a grasp on it. This show will give you a nice place to start and it’s actually pretty interesting. 04:06 Insurance 101 05:22 The 5 Main Parts of Insurance 10:29 How to Look for the Right Insurance Policy 13:19 How to Deal with Claim Adjuster 17:35 What Should You Be Asking When Buying Insurance 20:27 Why Property Insurance is Skyrocketing

This week’s guest on Wealth Formula Podcast is Mark Skousen. He is the producer of FreedomFest which has become an extremely popular annual gathering every year that deals with not only money but other lifestyle topics as well. What is freedom anyway? To me, It’s the ability to choose what you want to do with your life. Indeed, freedom is the ultimate prize in life and can only be achieved through financial independence. That is not to say that you can’t be happy without being rich. You absolutely can. Maybe you have a job that you love and a life that you don’t want to change. If that’s the case, congratulations. But happy does not mean free. What if someday you start hating your job and want to make a big change in your life? Could you afford to follow a dream without being concerned about money? Most professionals can’t. That’s why high-paid W2 jobs are often called “golden handcuffs”.  How do you break free from the golden handcuffs? Well, one of the key variables of the mathematical Wealth Formula is that you deploy capital quickly so that you can start changing the balance of power between you and your money. Eventually, you want your money to work for you more than you work for it. But achieving financial freedom isn’t easy. It involves not following the herd and not giving up. You see, no one has ever gotten rich from a simple portfolio of stocks, bonds and mutual funds.  Sure they may grow your money a bit and provide some security in the future. But you simply cannot change your socioeconomic status this way. Getting rich involves taking bigger risks. I have made my money through business ownership and real estate. Have I lost money along the way? You bet I have. But have I made more money investing in real estate and business over the last 15 years than I would have following the herd? Yes…by a mile. To be clear, I am not giving you financial advice. Personal finance is personal. I just want to open your eyes and see the trajectory you are on and recognize whether or not it will get you where you want to be. In the immortal words of former NFL coach Bruce Aryans, “No risk it, no biscuit. Now, make sure you tune into this week’s podcast with FreedomFest producer and “America’s economist”, Mark Skousen. Show Notes: 08:07 Why are the Numbers not Matching Our Anxiety? 09:54 GDP vs Growth Output 14:32 10% Inflation? 18:00 Implications of the Presidential Election 26:12 The Indicators to Look Out For 30:55 FreedomFest

Thoughts on Sunday podcast on internet business investing: Seems like a platform really suited for people with e-commerce expertise I wouldn’t know how to evaluate or run an Internet business Investing under a manager who knows what they’re doing might make sense, but we’d need to see the track record I tend to think this is an area where you need to have operating expertise to be successful, even as a passive investor Latest on the economy and markets: When we spoke last week, we had just received the latest job openings report which showed some continued slowdown in the job market with decreasing (but still positive) job openings. Since then, another labor market statistic, came in a bit hotter than expected in terms of payrolls added in the month of May So we’re seeing some mixed data on the labor front as well as mixed data on various inflation measures Generally speaking the economy, inflation and labor markets are cooling. But it’s not a necessarily smooth ride; there’s volatility as can be expected Implications: Chairman Powell will do a press conference Wednesday The focus will all be on his messaging related to outlook as we head into the 2nd half of 2024 Most economists have been assuming 2 or 3 rate cuts in 2024; so there will be a focus on Powell’s messaging The FED is likely to keep steady on the Fed Funds Rate in the months ahead The FED is currently in its two-day FOMC meeting which is being held over Tues and Wed of this week Overall, the trading markets have been stable over the past week: Equity markets are up 1%-2% since last week depending on which indices you look at, S&P, Nasdaq, Dow… The 10-year bond yield ticked up about 10 basis points in that time Gold and Bitcoin are down a bit off their highs One thing to note about the performance of the stock market this year is that strong positive performance has been very narrow But if we look at which type of companies have fueled that gain, it’s all based on the very large cap stocks like Apple, Alphabet, Microsoft, Amazon, NVIDIA, META-  the companies with market capitalization in excess of $1 Trillion In fact, those companies have gained about 40% in price YTD, while all other companies together (that are below $1 trillion market cap) have pretty much traded flat on the year.  The real end game with AI is unleashing productivity for companies and therefore driving profitability For example, the S&P 500 is up about 13% year to date in 2024 On the one hand, this is not reassuring since it’s so concentrated and it seems most companies are not doing all that well On the other hand, it could be the case that the $1 Trillion companies are benefiting most right now from AI-driven earnings growth and that will spread across a much broader universe of companies in the coming months and years What I continue to like in this investment environment is real estate Buyers are able to negotiate better purchase prices, especially in situations where the seller is distressed If inflation gets to a point where the Fed starts cutting rates, real estate prices will go up If inflation remains an issue, well you want to own hard assets with leverage I am optimistic about the equity markets over the longer term, because I think the US economy will continue to grow and we have the potential for AI to drive profitability over the next several years In the short term, with rates uncertainty and elections upcoming, it will probably be somewhat volatile in the public markets New product to discuss: Mutual Funds versus ETF (Exchange Traded Funds) Both are investment fund structures available to investors Most EFTs are passive and pegged to the performance of a particular index Most Mutual Funds are actively managed by fund managers; can also be passive, indexed funds Passive versus active management is a strategic choice.  If you’ve ever heard of the theory of a monkey throwing darts having a good chance of beating the stock picks of a professional stock fund manager, there is good evidence to support this… David Swenson, the guy who is responsible for the Yale Endowment’s consistent and stellar performance for multiple decades, is passionate about his view that investors avoid active management strategies for the public stock market.  He has done tons of research showing how active management does not beat passive investing in any consisted manner. Trading: ETFs trade like stocks in the secondary market.  You can buy and sell them throughout the day and their price changes constantly reflecting the immediate market price. Mutual funds can only be bought and sold at the end of each trading day.   Fees: ETFs usually have materially lower fees to investors Mutual funds have larger fees and can include upfront fees when you buy, ongoing management fees when you own the mutual fund, and exit fees when you sell.  Often these vary depending on what class of mutual fund shares you purchase and how big your investment amount is.  Minimum investments ETFs don’t have minimum investment amounts.  Like stocks of companies Mutual funds typically require a minimum investment of $3k or more Tax efficiency: ETFs are more tax efficient; they are managed to minimize capital gains events – they rarely pay out capital gains Mutual fund managers, on the other hand, sell securities to handle redemptions or asset reallocation and generate capital gains for shareholders – even those with unrealized losses Overall, investors are better off with ETFs; especially when they are investing in passive strategies