The Ten Roads to Riches

I think I have read most of the personal finance books worth reading that can be found at our little local library. However, I am always on the lookout for anything new that comes through the door. When I found The Ten Roads to Riches written by Ken Fisher on the recent arrivals shelf, I gave it the once over. To tell the truth I was suspicious. Ken Fisher runs an investment service that is heavily advertised on TV and the Internet. I suspected it would be a thinly disguised sales pitch, but it looked interesting enough to make it home with me.

I was pleasantly surprised to discover it was actually a well written, humorous exploration of nine different ways to become seriously wealthy and one way to financial freedom that was unlikely to make you a member of the Forbes 400, but highly likely to allow you to live a comfortable retirement and leave a legacy to your children. The author includes not only stories about those who have succeeded, but tales of failure that ended up in bankruptcy court or jail.

"Don't you know that a man being rich is like a girl being pretty? You wouldn't marry a girl just because she's pretty, but my goodness, doesn't it help?"
Marilyn Monroe

Thus, the author begins his chapter on how to marry money. Not only is Cinderella looking for a well healed prince charming, but men, like John McCain and John Kerry, can play at that game as well as the gals. It turns out that in today's world, both men and women are calculating the financial condition of potential mates as an important component to increase the potential for future marital bliss. With a sometimes-wry sense of humor that can become a bit tongue in cheek, the author explores the complexity of state divorce laws and the importance of prenuptial agreements, especially in community property states. As in every chapter, the author supplies a short bibliography of recommended texts on the subject. From my knowledge of books that appear on these lists that I have actual read, the bibliographies alone are probably worth the price of a used copy of this book. He ends all his chapters with a brief guide summarizing the contents of that chapter. He begins The Guide to Marrying well with, "Jane Austen told us it is a truth universally acknowledged that a single man in possession of a good fortune must be in need of a wife." Then lists some must dos, like working (or playing) in places where you are most likely to come in contact with rich singles and don't do anything stupid that will land you on the short end of the stick in divorce court.

In the chapter on Inventing Income, using creativity to earn money, the author explores a number of topics, including one that is of interest to me, Writing for Dollars. As a writer, the author recommends choosing another vocation if you want to become wealthy. Even if you grab the brass ring and make the New York Times Bestseller List, as he did, you will not earn enough to become wealthy. His most successful book generated $400,000 in royalties, enough to fund a very comfortable lifestyle for a year or two, but hardly enough to become a billionaire. Taking two examples of spectacularly successful authors, Stephen King and JK Rowling, Fisher sadly concludes that unless your deathless prose can be converted into a two hour movie, it is unlikely you will ever earn enough at your craft to become rich. If you must write, Fisher suggests that you always think, lunch boxes and action figures. A cheap lunch box sells for $5.00. The same box painted with the images of Harry Potter and his magical world can go for $25.00. Every time one of these items is sold, JK gets to dip her beak. That, Fisher concludes is where one can find riches in writing.

The final chapter, The Road More Traveled, covers pretty much the same topics as this blog and a host of classic texts on the subject. Although, the author would recommend keeping a much higher percentage of my liquid net worth in stocks and mutual funds than the amount that would allow me to sleep soundly at night, but if you want to retire with a couple of million in the bank (no-at your broker or his investment service) this is an option that is available to many Americans.

His summary Guide to Saving and Investing:

1)Get a decent job paying a good wage
2) Figure out how much you want/need to achieve your goal
3) Calculate what you need to save each month
4) Now save
5) Make your money work

Of course, the chapter itself explores all these topics in detail that pretty easy to understand. Even when the math might seem a bit obscure to those who didn't have four years of math in high school, the author does a pretty good job of explaining what the formulas actually mean.

All in all, a fun entertaining book that contains enough nuggets of wisdom and paths for the curious to explore, to more than justify the time I spent reading it. I might even buy a copy-if I can get it cheap.

Because! There Will Be a Tomorrow

Not too long ago, I was pitching the Charitable Remainder Trust (CRT) to a close friend whom I thought might benefit from understanding such a tax avoidance option. In simple terms, the money in your 401(k) has never felt the icy breath of the tax man. The initial deposits from your paycheck, matching money from your employer, interest, dividends, and capital gains have all been growing in a tax free greenhouse. They will remain tax free until you begin to withdraw these funds. Then you will be taxed at whatever rate is appropriate, given your income in retirement. In my particular case, I don't intend to use these funds unless it becomes absolutely necessary. Instead, I plan on allowing the CRT that will contain these funds to start after my death. Then until my wife passes away, she will draw 5% per year from these funds. After her death, my heir will draw 5% per year for the next twenty years. Then all remaining funds, and there should be plenty in the CRT managers are even halfway prudent, will go, tax free, to the charities specified by me. In summary, I hope to leave my wife with an increase to the guaranteed portion of her income in my absence, plan for the retirement of someone from the next generation, and still be a blessing in this unhappy world, long after I have left it.

My friend chuckled, observing that I must know a lot about the future. I assured him that I didn't have a clue about the future, but it was my duty to prepare for the future to the best of my abilities, given the information that I currently possess. He bought that argument and the conversation passed on to other subjects.

Tomorrow will come, if not for you, for someone whom you love.

Which brings us to the wild gyrations of a stock market that lost over 10% of its value in a just a few days, then started climbing again as if that was nothing unusual. The market will go up. The market will go down. The problem is I don't know what is going to happen or when it is going to happen. If I knew these things, I would be placing a large bet on next year's Super Bowl, on the day when I knew I would be getting the best odds.

There are signs that have proven meaningful over more than a century, like the Shiller PE Ratio.

Current Shiller PE Ratio: 33.06 +0.01 (0.03%)

4:00 pm EST, Fri Feb 16
Mean: 16.83
Median: 16.15
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)

Today, that historic index is in nosebleed territory, screaming that the market is overvalued. At the end of the day, buying shares in a company is nothing more than buying shares in an imaginary future. Will Coca Cola still be selling bottled sugar water or some other nonalcoholic beverages in tomorrow's thirsty world? Will they still be paying their shareholders a respectable dividend? Do you want a piece of that action? What are you willing to pay to play in that game?

What is different today? The world's central banks from the Federal Reserve, to the European Central Bank, to the People's Bank of China have been dumping unprecedented amounts of funny money into the world economy. All that money has to go somewhere, so why not the stock market and real estate? In London, there are whole neighborhoods of highly desirable houses that are mostly empty. They have been purchased by foreign syndicates and shell companies as an investment. Not many people who actually work in London could afford to live in one of these houses, so they sit there, unused, but going up in value. Insanity! But if you are an older Englishman who has owned and lived in one of these houses for a long time, you will be enjoying a luxurious retirement in the suburbs after you sell your home. One man mentioned in this report, traded his small apartment in London for a large farm in the countryside. He was an amoral stockbroker, who didn't much like the man he had become or the life he was living. Now, he earns his daily bread writing about the machinations of dubious characters who live and work in the London financial district.

Because we don't know what the future will hold, it is very important to have a contract with yourself. My contract tells me I should hold about half my money in shares of conservative dividend paying companies and low cost stock or hybrid mutual funds. I should never invest too much in any one company (5%?), or sector (15%?). I have been burned by holding too much in energy stocks when the price of oil took a nosedive. I have also learned that I should stay away from technology stocks, as I tend to fall in love with the technology, rather than the business plan and management of the company producing the technology.

If I am true to my contract, my net worth will increase slowly when the market is headed up, but when it goes down 40%, as it did in 2008, my net worth only drops 20%, and I will have free cash to buy undervalued shares, when everyone else is selling, terrified they will lose everything. This seems to be the best plan I can come up with for a couple still in the early years of retirement with our lifestyle, guaranteed income (pension and Social Security), and investments. Am I right? Who knows? I don't know what the future will hold, I can only make prudent, educated guesses based on the best information I can find.

The rest of it, like the life and death of your humble blogger, lies in the hands of God.