Be Wealthy & Smart

Today we're going to talk about something that's been bothering me. I call this episode simply "Investing". It's the truth about how money works. There's a lot of teaching about what people think makes you successful with money. But the reality is it's focusing on the wrong things! Before we get started with today's show, I'd like to thank today's sponsor, Jason Hartman of The Creating Wealth Podcast and invite you all to check out his latest episode with Dr. Bruce Weinstein, on Ethics, Ethical Intelligence, Wall Street and evaluating character. It's juicy stuff, people! http://bit.ly/wealthpod There's a lot of focus on obvious things like "spending less than you earn". I agree that will keep you from accumulating debt, but I also disagree that it's all you need to know to live a comfortable life or to become wealthy. One thing I learned from my family is investing is not an option. It's a requirement! My family had a belief that you spent wisely - you were careful with money - and also invested money into investments that would grow it. Whether stocks or real estate, we always somehow just knew investing on the side was not optional, it was required in order to grow your net worth and have more than enough for retirement. My parents worked hard in their spare time to create something of worth that would grow and amount to some significant wealth. All 5 of their children deeply internalized this belief and I believe that's why all 5 of us became millionaires. It wasn't from handouts, it was by imitating our parents' behavior and investing on the side - some in real estate, some in stocks. We all learned the importance of investing and owning assets that grew in value. It could also be that they taught us at a young age that we had to work for money. We didn't have an allowance. We worked in the yard or at the apartment building my parents invested in and were paid hourly. That's how we earned our allowance. It wasn't handed to us. The more hours we worked, the more money we made. We learned that lesson early. So when I see so much emphasis put on "spending less", "being frugal" or "living below your means", it makes me crazy because I know it's missing an important point. The point is to invest and grow your money. I don't care how much you save, it's rare that savings alone is going to give you the financial freedom you want. It is more likely that investing will do that for you. One of the things I learned about billionaires recently is their #1 priority is how to gain more control over their money. I don't think that's a coincidence that billionaires want more control over their money! I think that's how they got so rich, by taking control of their money. By watching over it, watering it, pulling weeds and making it grow. I love to tell the story about John D. Rockefeller starting out as a humble clerk who calculated his net worth every day! That's keeping your eye on it, that's keeping control of it and making sure it grows! Wealth is created by compounding at high rates in a money engine, not by being a tightwad…not by living in a 400 sq ft home, not by canceling cable. Don't get me wrong, that's fine if you are on a very tight budget and are having a hard time making ends meet, but if you are earning a good living, then you need to be investing in money engines that are going to grow and compound your money because getting your money working harder for you is the easiest path to wealth.

Learn why asset allocation models are broken, why and what to watch out for. Just want to mention our sponsor, Jason Hartman of the Creating Wealth Podcast, and it's a MUST listen for anyone who is looking to create additional revenue streams. His show is full of smart stuff and if you like this show, you'll love his too. http://bit.ly/wealthpod. Asset allocation is the backbone of investment firms. It's usually displayed by using pie charts with models of how much to invest in each slice to achieve a conservative, moderately conservative, moderate, moderately aggressive or aggressive mix of investments. The choices to put into the slices of the pie chart are things like small company stocks (roughly under $2 billion in market capitalization - price per share x number of shares), medium companies (mid-caps - $2 to $10 billion) and large companies ($10 billion+), International and bonds. The bonds can be divided into short-term (under 3 years), intermediate (3 to 10 years) or long-term (10+ years). Sometimes a sector fund or two are also added like technology, healthcare or real estate. Real estate has become a staple in the last 15 years because it has been a top performing sector. As I've mentioned on podcasts before, we are likely near a peak in bond prices because we are at low in yields, and yield and bond valuations move inversely. The coupon rate is the yield or interest rate the bond pays when issued. The higher interest rates move up, the lower the value of the bond goes. The lower the yield goes, the higher the value of the bond. When you look at past-performance, the track records look phenomenal because yields have been dropping for over 30 years! That's one heck of a bull market for bonds. As interest rates dropped, the performance of the bonds was fantastic because again, they move inversely to interest rate movements. Now that we're at the bottom for rates, what does that mean going forward? A strong headwind for bonds. Bonds issued at low yields will lose value when interest rates rise and new bonds with higher yields become available. Interest rates have to go up someday and usually move in 30 year cycles, so don't be fooled by investments that have a substantial portion of their money in bonds (like balanced funds which can be part stocks and part bonds, for example). The PAST looks great, but what will the future bring? Likely trouble for the bond portion of the fund. That's where looking only at past performance can hurt you. What happens when you sit down with most Financial Advisors? They show you great PAST PERFORMANCE numbers and encourage you to invest in a portfolio that has done well in the PAST. It has no relation to doing well going forward. In fact, in my podcast, Why NOT to Invest in 5 Star Funds, I proved that 5 star funds are actually worse performers going forward than 2 star funds. The difficult thing is there's no risk-free asset that yields a decent yield anymore. You used to be able to get a few percent in a Treasury, but no more unless you go out years on the yield curve, meaning take more risk of volatility by moving into a longer maturing bond. A 20 year bond will fluctuate in value a lot more than a 3 year bond. So if interest rates rise and you have long-term bonds, you could lose substantial amounts of money. So what can you do for asset allocation to avoid the low yields on bonds? You can mix in some other assets in place of bonds like large company stocks that pay dividends, REIT's, and other options. The purpose of this podcast isn't to explore all the alternatives, but to show you why past track records of bonds are tricky in asset allocation models and you need to be aware those great numbers of the last 30 years are not repeatable. Interest rates going from 18% in 1982 to roughly 0% today, means a dramatic decline in interest rates that boosted bonds cannot happen. The only thing we know is someday 0% rates will go up and that won't be positive for bonds. So be aware and don't be dazzled by past performance that's mathematically impossible to repeat going forward.

Learn whether to invest in hedge funds, what returns are possible and a special $1 offer for the Be Wealthy & Smart VIP Experience! Just want to mention our sponsor, Jason Hartman of the Creating Wealth Podcast, and it's a MUST listen for anyone who is looking to create additional revenue streams. His show is full of smart stuff and if you like this show, you'll love his too. http://bit.ly/wealthpod. Here is our listener question: Hi Linda, I hope you don't mind my sending you this e-mail about your podcast 090. I have listened to roughly 35 of your podcasts now and find them to be very informative. I especially liked 090 "why not to invest in 5-star rated mutual funds". It was a real eye opening segment that was constructed in a way that resonated with me. The "if, then" references were right on point. I am trying to build a personal knowledge database/decision matrix about investing and you are the starting point for me. My wife and I have 3 pensions/401K's between us as well as stock investments with large brokerage firms. Frankly we are tired of the roller coaster of performance fluctuation. Is it unrealistic to believe that we can do better than 5-8% annual return on our investments? I have a friend who runs a hedge fund that I could get into. Is this a good investment? What questions should I ask about the fund? Would the Hedge Fund topic be a good podcast topic for you to discuss? I think what you are offering is great. I am not sure which of your pay services/products may be right for us yet but we are still evaluating and when we understand more will make some decisions. Based on your recommendations I have purchased "how to make money in stocks" and IBD, also the "biology of belief". It is all great reference material. I am absolutely committed to mastering the skill sets needed to become proficient at investing. If you have a syllabus that best defines how to get there, other than what I am doing that would be great. Thank you for what you are doing for others. Ron Linda's response: Hi Ron, Thank you for your email! I'm glad you're investing in your education by reading books I've recommended and that you are starting with step #1 of the 6 steps to wealth: create a wealthy mindset. Hedge funds are for accredited investors with $300k of income or $1 mill net worth excluding their home. It can be lucrative if they have a good process and track record. You're going to want to ask what those are and how much leverage they use. It's not uncommon for hedge funds to use 300% leverage. The high point to low point in a hedge fund is called the "drawdown", that's the volatility of the fund. Because it's leveraged the volatility can be high, but most hedge funds try to minimize volatility while providing returns above the market indexes, aka "alpha". A hedge fund is for a sophisticated investor who can afford to lose their money. It is not a basic investment to start out with. If you're looking for where to start investing, I'd suggest you listen to my asset allocation podcast. If you're looking for education and guidance from me where to invest, there's the Be Wealthy & Smart VIP Experience. It's where I work with the members and provide live webinars with them monthly, source the most pertinent financial articles that show trends in the market and suggest exactly where to invest. In the VIP Experience, we have been investing in alternative investments which as an asset class are up over 42% year to date as opposed to about 6% for the stock market. You won't hear what I teach and the information I give you anywhere else. I'm very specific about what to do and you can always ask me questions at the end of the webinar, in our wealth building forum or our Facebook group. I serve up what to do with your investments on a silver platter! To join the VIP Experience go to www.lindapjones.com/joinvip and I've got a special offer just for listeners of this podcast - you can join for 30 days for $1 and then get a 50% savings off the regular price. The regular price on the website is $1997 but it you use the promo code "1dollar" at checkout, just for listeners of the podcast you can try it for $1 dollar for 30 days! After 30 days, you are charged one-time only $997 and then after 45 days from the purchase date you are sent a Wealth Journal where I share the "6 Steps to Wealth" I used to make my first $1 million. You have 30 days from the date of purchase as a 100% money back guarantee and once you pay $997 you have lifetime membership with no further charges. You pay once and never again, but have full membership and access to me and my webinars! Go to www.lindapjones.com/joinvip and enter promo code "1dollar".

Learn the characteristics of a successful entrepreneur, why passion isn't enough and what you must do to thrive as an entrepreneur. Just want to mention our sponsor, Jason Hartman of the Creating Wealth Podcast, and it's a MUST listen for anyone who is looking to create additional revenue streams. His show is full of smart stuff and if you like this show, you'll love his too. http://bit.ly/wealthpod. Interview with Jason Myers, Co-founder and CEO of CXO Collective, part 2.

Learn the characteristics of a successful entrepreneur, why passion isn't enough and what you must do to thrive as an entrepreneur. Interview with Jason Myers, Co-founder and CEO of CXO Collective. Just want to mention our sponsor, Jason Hartman of the Creating Wealth Podcast, and it's a MUST listen for anyone who is looking to create additional revenue streams. His show is full of smart stuff and if you like this show, you'll love his too. http://bit.ly/wealthpod.

Learn how much home equity Americans have, how many Americans own their home free and clear and if it impacts your wealth. Recently a friend told me she'd rather rent than buy a home. Is it still a good idea to own a home? Listen to Be Wealthy &Smart podcast #137: "Should I own a house or rent?" Ever wonder how much equity most people have? According to the Urban Institute, it's a little over $150k. Not only do you have to come up with a 20% downpayment (not always), but you're also paying into principal each month. The forced savings is powerful, even if the home doesn't appreciate. Americans over age 60 hold 52% of all home equity; under 50 hold 23%; and those under 40 owned 17%. Of 73 million homeowners, 46 million have some debt on the home and 27 million have it paid off. Homeowners tend to have more wealth in areas where real estate has increased more. Makes sense, since it's most peoples' largest asset. Read podcast reviews.

Women in households across the US manage $5 trillion! More than half of women with investible assets of $1 million think their financial advisor doesn't understand them, according to a 2014 study by the Center for Talent Innovation, a NY think tank. A study by National Bureau of Economic Research in 2011 found that FA's ask women fewer questions than men in the initial meeting and 40% are likely to tell women than men that they must first transfer their portfolio to the advisor's firm before receiving any advice. It goes along with what I've been told…that FA's don't speak to the woman, even if she's the breadwinner, they look at the man the whole time, don't ask her goals, etc. According to Wells Fargo, the median retirement balance in women's accounts is $500k vs. $700k for men. On average, women drop out of the workforce for 11 years to care for children. That amounts to $224k lost in lifetime earnings and SS benefits, according to AARP. Less than 25% of advisors are women, with no change in a decade. By 2054, $40 trillion in wealth will be passed on, much of that falling into womens' hands according to the Center for Talent Innovation. Seventy (70%) percent of women leave their financial advisor after their husband's death. Women with $1 million in investible assets 45% were deemed financially literate, but only 30% said they felt confident in their knowledge vs. 39% of men deemed financially literate and 34% of men felt confident. Men were more interested in performance and investment choices and women were more interested in services, charitable giving, tax management, & long-term care. I want to encourage women to learn through the podcast. Share with your friends. Financial literacy is important.

Learn why independent researcher Steve St. Angelo of SRSrocco report believes there is a coming shortage of silver. See charts at www.lindapjones.com/srsrocco

Learn why a 30 year mortgage can be better than a 15 year mortgage when investing in real estate. Here is our listener question this week: Hi Linda, You talk about using leverage to purchase rental properties as well as making an extra payment each year to pay down the mortgage quicker. I have a rental property that currently has a 15 yr note at 4% and we are paying approximately $360 per month out of pocket to cover the mortgage (incl. taxes, insurance, and PMI). We refinanced about 4 years ago into the 15yr in order to reduce our interest rate and pay down the principle faster since we were underwater at the time. Now we are back in the black and were considering refinancing into a 30yr mortgage (which would also be at 4%) in order to increase our cash flow and invest the savings each month either in the market or save it toward a down payment on another property. Our payment would go from $1260 to $760. I wanted to hear your thoughts on this plan. We currently receive $900 per month in rent, which is slightly above market value, so I would not expect rent to go up for a few years. Thanks so much. Love the show. I love this question! This is why I don't like 15 year mortgages! 1). All debt is not bad 2). Debt will enhance your return. Example: $100,000 cash vs. 10% down 3). A 30 mortgage will shift your cash from from negative to positive cash flow 4). You can still pay off your 30 year mortgage early by making extra principal payments. 5). You control the payoff, not the bank. 6). Pay extra to get rid of PMI payment. Need to get to 20% equity. Can pre-pay, get a new appraisal, refi, or remodel. 7). $1260 current payment - $760 new payment = $500 per month less, which would cover the $360 negative cash flow. Why not? Then: $900 rent - $760 payment = $140 positive cash flow All this talk that debt is evil is bunk! Debt is your friend in real estate. It's called leverage and helps you get higher compounding rates.

Learn what asset is near the top of its cycle and which asset is near the bottom of its cycle. What asset is in a bubble? Bonds - IOU's that pay the investor interest. Interest rates move in 30 year cycles. Near the low in interest rates. It's a process. In Europe, some countries have negative interest rates (NIRP - Negative Interest Rate Policy). Investors pay to own sovereign bonds. Fear of losing money or default and want a guarantee. What asset is near the bottom? Silver. You can see cycles in the chart. Go to my website to see it: www.lindapjones.com/silver Chart shows cycles and the MACD. Shows the moving averages or calculations that show the trends and help you see the direction of movement and when it is turning into the opposite direction. Also can see it is peaking here, short term. Waves of energy flow through everything, even investments. You can see the cycles of the energy waves in this financial chart of the price of silver, which is our #1 holding and the #1 performing investment year-to-date, up 42%! Turning into the down part of the cycle now before it moves higher. We have a clear indication silver is about to move lower. It's normal to have regular corrections in the price before it moves higher. Don't be scared when silver moves lower, it's expected right now. There's a lot more on the upside for silver long-term, so I'm not getting caught up with short-term trading because the greater risk is that you could be out of it and miss it when it finally blasts upward. So hang in there. Don't be a buyer here, that time will come again in the next month. If you want to know what to buy and what NOT to buy to take advantage of silver, that's what the BWS VIP Experience is for. Go to www.lindapjones.com/joinvip