If you’re in Colorado, tune your dial to KRYD FM tomorrow morning (that’s May 22) @ 7.15 am when 7 Millionaires … In Training! hits the airwaves!!
If you listen in, you’ll find out that I have a face for radio and a voice to match … c’est la vie …
Take note that I said OR … I didn’t say AND …
In fact, most financial writers/bloggers/commentators take it as a ‘given’ that you will do exactly that: save a certain % of your salary and plonk it into your 401k to get the company match and have it invested in the restricted group of managed funds offered by your employer and/or 401k provider.
They’ll recommend that you dollar-cost-average your way into, say, a low-cost Index fund … and, you’ll be surprised to know that I agree and so does Warren Buffett:
What advice would you give to someone who is not a professional investor? Where should they put their money?
Well, if they’re not going to be an active investor – and very few should try to do that – then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They’re not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don’t buy all at one time.
But, if you want more (and, you probably should), then you have to move to Part B i.e. get “in the business of investing” …
That usually means one – or, for the rare genius, a combination of – four things:
1. Get in the business of running a business (that’s what Warren Buffett does … contrary to popular belief, he is primarily a business owner … he owns or controls 76 major businesses!)
2. Get in the business of learning about and selecting a FEW individual stocks (that’s what Warren Buffett does … he owns / has owned stock in Coca Cola, Kraft and many others)
3. Get in the business of learning about and actively investing in real-estate (that’s what the rehabbers, flippers, foreclosure experts, etc. do)
4. Get in the business of climbing/clawing/backstabbing your way to the very top of the corporate ladder (that’s what America’s Fortune 500 CEO’s do)
Usually, it means choosing just ONE of these as your main Making Money 201 path to income – at least, that’s what I did – then choosing a SAVING strategy to convert that income to passive assets to keep your wealth growing and fund your eventual retirement:
I was in a corporate job for nearly 10 years … after about 6 years, even though I was doing ‘very well’ (for my age, position, seniority, etc.) I realized that Option 4. wasn’t for me – I would never become a CEO of somebody else’s company.
I didn’t know much at all about either 2. or 3. but I did have a sudden urge for Option 1. – so that’s what I chose!
My first business was a bit of a ‘sleeper’ – it started its life as a very small (and new … I joined one year after inception) family business and grew fairly slowly. Because it was barely breaking even, I bought the family out and managed to get it to grow rapidly and substantially. I still keep it 15 years later, although, it has run very well without me for a number of years now.
I used the profits from that business (the nice little cash-cow that I turned it into) to fund a few start-ups, most of which I subsequently sold.
But, when all of these business were running, I SAVED a good proportion of the profits in various ‘savings’ vehicles: mainly real-estate and a little (at that time) in stocks … none in funds.
Why do I say ‘saved’?
Because I didn’t ‘actively invest’ in them … I wasn’t in the business of investing … I was simply in the habit of saving. I happened to select a non-standard mix of savings vehicles to put my money into (e.g. real-estate and stocks, rather than CD’s and Funds) … then I held on to them … and let time (and the markets) take care of the rest. Because I could put so much in, I eventually got so much out.
It was a Making Money 101 strategy.
My % returns from the businesses were spectacular … my % returns from my ‘savings’ were ordinary … yet, each played a critical part in my current financial success. Interestingly, my overall $ returns from both were excellent!
In the last few years, as I geared up for my ‘retirement’, I have revisited these options and moved away from business and to investing … because I gave myself so much exposure to both real-estate and stocks over the years, I have built up the skills in both to allow me (for some time, now) to actively (as well as passively) invest in both as a Making Money 301 wealth protection strategy.
But, if you want to become financially free, at a relatively young age, with a relatively decent passive income (you’ll have to plug in your own numbers), then you will need to find one of these four options that interests you, and hope that it delivers spectacular returns for you …
… for most people, Warren Buffet and I also agree that it’s unlikely that it will be in stocks, at least according to this little exerpt as reported by Soul Shelter (whose brother, Charles, attends Berkshire Hathaway events in Omaha each year) who relayed this anecdote from Buffett’s 2006 shareholders’ meeting”:
One shareholder asked a question along the lines of ‘how should I study investing in order to build wealth in my spare time?’
Buffett replied that, for most people, the bulk of their income is going to come from earning power in their chosen profession. Therefore, from the standpoint of building wealth, free time is better spent sharpening one’s professional skills rather than studying investing.
This statement applies directly to my Option 4.; it equally applies with a little modification to any of the other options (e.g. Option 1: … for some people, the bulk of their income is going to come from earning power in their chosen business. Therefore, from the standpoint of building wealth, free time is better spent sharpening one’s business skills rather than studying investing).
In other words, select where you will make your money, and focus all of your energy, research, and attention into that … focus!
Of course, if you’ve decided that your financial future lies in the business of investing then here’s what you should do:
Do not as Warren says … do as Warren does!
PS We were featured in the Q&A for the latest Carnival of Finance; visit it here: http://moneyandvalues.blogspot.com/2008/05/carnival-of-personal-finance-153-q.html