The story of banking ….

Forget the “banks make money from thin air” assertions at the beginning of this video, but watch the cartoon rendition of the creation of the modern-day banking system for an understanding of how banks really work.

While it is true that the dollar is no longer backed by gold (in 1933, President Franklin D Roosevelt suspended the standard and revoked gold as universal legal tender for debts), just remember that each George Washington is still backed by “the full faith and credit of the United States government” … now that should be enough comfort for anybody 🙂

Take the money and run!

Which offer would you take?

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Watch this video – remember, these are real investors, preparing to invest their OWN MONEY if the right idea(s) comes along – then answer the poll (and, please make a comment if you can … it would be great to be able to share WHY you feel that way):

The Myth of Compounding Interest ….

einstein-compound-interest-rule-of-72Albert Einstein was wrong … the financial experts are wrong … and, we’re about to debunk perhaps the greatest – and, most misleading – of all finanical ‘truisms’ …

… and, you’ll be able to say that you read it here first 😉

You see, the cornerstone of almost all personal finance books and philosophies is the so-called ‘Power of Compounding Interest’ … if you need a primer, check out this little video that I ran last Sunday:

There is no disputing that compounding interest has immense power, but only when compared to so-called simple (or ‘flat’) interest; use the Rule of 72 (that Albert is writing on the blackboard) to see for yourself: simply divide any old interest rate into 72 to see how many years it will take to double your money …

… for example, at 10% interest, you would double your money in just over 7 years.


Neat, but useless …

You see, Luis gently reminded me of this blog’s “motto”:

Now, find out how you can make $7 million in 7 years … no scams, no schemes … just good old financial advice!

As Luis pointed out, we aren’t trying to double our money in 7 years … we’re trying to make $7 million in 7 years!

Unless you’ve already got $3.5 million in the bank, you simply won’t get there … and, if you do have $3.5 million in the bank, you’re not reading this blog, you’re reading the one about “How to get to $170 million in 7 years” 😉

You see, in order to work, compounding interest needs a key ingredient … one that we don’t have much of:


In order to produce a large outcome (say $7 million) – starting from a small base (say $50,000) – compounding needs BOTH a high compound growth rate and a lot of time.

For example, if you start a business that has the potential to deliver an annual compound growth rate of 50%, you still need to wait 13 years before you reach the magical $7 million.

If you choose a more ‘mundane’ investment, such as managed funds that might deliver a 9% return (after fees), you could wait 38 years and still barely crack your first million.

And, if you manage to save 30% of your salary (say, $50k starting salary, growing 3% per year) and invest it in those same managed funds, you should manage to crack the $1 million mark in ‘just’ 21 years, and you will be well on-track to write your own blog: “How I enslaved my way to $7 million in just 40 years”.

Compound interest isn’t a ‘force’, it’s an effect that occurs when you simply sit back and don’t do anything!

Do you think you should be handsomely rewarded for that? Do you seriously think that sitting on your hands will propel you into the top 1% of Net Worth in, say, the USA?

Or, is your goal simply to save your way to the biggest Number that you can achieve before you are retired? If so, compounding is an effect that you should study very closely.

But, this is a blog about how to get Rich(er) Quick(er); it’s for those with Large Numbers / Soon Dates …

…  to us, compounding interest is slavery … if this is your prime investing strategy you enslave yourself to a life of work and frugal living, running the risk that being able to truly live your Life’s Purpose will remain just a dream.



Many thanks to my new blogging friend, Kohti, for pointing me to an interesting new online game purporting to teach me all about money …

…. but – with all the greatest respect to the game’s authors – if I had played this game 7 years ago, I think I would have been depressed.

You see, it encourages you to create a character (mine was a 20-something year old, single male earning around $24k p.a.), and make some buying decisions:

– some mandatory (accommodation; clothes; car; computer; etc.), and

– some optional … I didn’t choose any of these at all.

I also had to choose a Big Dream and a time-frame to aim for; for some weird technical reason I couldn’t put in what I really (would have) wanted back then, so I chose a $4million retirement goal, aiming to achieve that in 7 years.

Now, I tried to make reasonable decisions and spend/save money as I felt that i would have back then, so when I was given a choice like this one:

Picture 1

… well, I mostly chose the zero-cost option (in this case, “stay at home and ride the bike”). On the plus side, whenever I was asked to “pay my bills” … I simply chose the sensible option and paid them all, giving them scant attention:

Picture 2

…. anyhow, that’s one example of the benefit of a frugal lifestyle: choose a low-cost lifestyle and you can at least sleep comfortably that you can easily pay you meager bills as/when they fall due 🙂

BTW: Rather than choose some set amount to invest (that would have required more thought), I simply transferred money to my Investment Account whenever I had a couple of thousand dollars saved up … no doubt, I would have achieved a slightly better outcome (better compounding) if I had transferred the money weekly rather than 4 or 5 times a year, but I am sure the effect would not have been huge.

The only problem with this sort of ‘frugal living’ style of wealth management?

It doesn’t come close to helping you achieve any sort of Life’s Purpose that involves not working and/or travel; here’s how I did, with 9 months to go before I wanted to ‘retire’:

Picture 3

You see, the problem with this game – and, all the books/blogs/financial advisers peddling this sort of nonsense – is that they tell you how to maximize your savings, but not how to achieve the real goal: which is to reach your Number by your Date … and, for most people that seems to mean Getting Rich(er) Quick(er).

The funny thing is that this game encourages you to seek a mentor … see the guy pictured in the circle? He’s the Richest Guy In Town and he’s there to help you (according to the game’s instructions) …

… except that he conveniently forgets to tell you any of the real ‘secrets’ as to how HE became so rich! As playing the game makes patently obvious, he sure didn’t get there by saving / investing his meager salary 😉

What the game is missing is a ‘start a business’ button; nor does it have an ‘invest in real-estate’ button … so, we have to rely on a risky maximum compound growth rate for our investments of 12.5% (and, I even had to survive a market crash!) or ‘safer’ returns much lower than that.

In other words, this game proves that it’s impossible to make $7million in 7 years (or even ‘just’ $4 million in 7 years) by following ‘standard financial advice’. Don’t believe me?! Then check this out:

Picture 6

Go ahead and try the game … it could save you a great many years of otherwise lost ‘investing time’ by showing you what NOT to do 😉

Poll: What Is Your Number?

What Is Your Number

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I’m not sure why I have never asked this question directly before, but I would dearly love ALL of my readers to take the 20 seconds that it would take to let us all know what Number you are aiming for (i.e. how much you need in order to stop work and finally live your life)?

Of course, no such poll would mean anything without also knowing when you want to finally stop work … so, please take another 12 seconds to make your selection below:

What Is Your Date

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… and, as always, the more comments that we get below, the more we’ll have to talk about when the results are published 🙂

How to become an expert in your chosen field!


Last week I suggested that a great way to compete against your larger, more established competition (particularly if you are a small business trying to sell products or services to larger businesses) is to become an expert in your chosen field.

Problem: Your LITTLE COMPANY cannot hope to be able to compete on even footing with the BIG CORPORATIONS you will most likely be facing off against.

Solution: You change the game: you make it about PEOPLE … better yet, you make each person at each corporation compete with YOU, rather than your company competing with theirs!

Implementation: You make being small/unique an advantage … YOU become the expert that your clients will want to come to for advice [read: products and services]. Forget the advertising, forget the telemarketing, forget the doors slammed in your face.

Becoming an expert is something that I am quite ‘expert’ in having done it 2.5 [twice and a bit] times already 🙂

So, let me tell you how I did it:

1. The first time that I became an expert was when I was working my first Big Corporate Job, straight out of college …

I was asked to work with a guy who was doing an assignment with one of the national banks to help them do some forecasting; at first I balked because the technique that he was using seemed rather technical, and I hate anything detailed/technical. As it turns out, this character flaw became one of my greatest assets.

You see, I came across a little-known-even-less-used Canadian technique that used simple rules-of-thumb to replace the laborious detailed calculations of the more commonly used method that I was busy – under quiet sufferance – learning.

What I found, though, were three things that really excited the clients:

i. The Canadian method could be explained easily to the business people who were making the decisions based on the forecasts, and

ii. The forecast results lent themselves to pretty graphs and pictures, again favored by the ‘business leaders’ over the detailed tables produced by the more common method,

iii. It had a fancy name (not dissimilar to the type of name in the graphic at the top of this page) with a cute acronym.

… oh, and two fantastic advantages for me:

a) Only I had the keys to this ‘new car’, and

b) it was quick and easy for me to both understand and implement.


Instant expert … not bad for a guy with a little over two years’ industry knowledge competing with guys who had been doing this stuff for 20 years.

Who do you think got the ‘big bucks’? 😉

2. The second time that I became an ‘expert’ – this time in a totally different field – was when I got the idea to start my second business (the one that I eventually sold: employing well over 100 people, with operations in Australia, New Zealand, the USA and with consulting contracts all over the world) …

The first thing that I realized was that if I came up with the idea in Australia, it must exist in other parts of the world, since I’m really not that bright 🙂

And, if it exists in other parts of the world, then where more likely than the USA?

So, I scheduled a reconnaissance mission to the States and happened on the head office of the oldest – and, most respected – such company in Philadelphia … and, the owner welcomed me with open arms!

So, not only did I walk away with a business plan and operational model, but I had some key statistics for the USA market that would help me examine the business need in Australia, when I got back.

The first thing that I did – now, this is the real advantage of a college education [AJC: which, you now don’t need, because you just need to hire a smart college intern and tell her to do everything for you that I write in the next paragraph] – was to:

a) Reproduce the Market Intelligence report for the Australian market: even though I didn’t know anything about the business that I was getting into, neither did anybody else in Australia because I was the first. But, I didn’t need to know anything, because I just found somebody who did and copied them [AJC: of course, in your market, you may need to hire such a person, or go overseas and model an existing business as I did, or … any ideas from our readers?]

b) So, all I had to do was find some key industry stats and ‘guesstimates’ (hey, if I didn’t have an exact answer … nobody else did either!) and crunch the report with Australian numbers and dollars. This turned out to be easier than I thought.

c) Then I wrote a neat little Press Release – this was before they became known as Media Releases – [AJC: want to know how to write a press release? Try google, again!], and

d) Sent it out – along with a copy of my 6-page report – to some media guys whom I thought might be interested … this was easy: I just bought a few ‘trade’ magazines in the subject areas that I was interested in and found the right guys in the table of contents page … you could, of course, buy a media guide that lists all of that stuff, if you like [hint: google].

Then I waited, hoping for a tiny mention that I could refer to in business correspondence e.g. “Adrian’s Little Corporation – as featured in You Gotta be Joking Monthly – invites you to ….” to give me that hint of credibility.

Now, a little luck comes in handy, because I received a phone call from the first guy that I sent it to – who wrote for Australia’s equivalent of Forbe’s magazine – who told me that he was interested in my report, asked me a few questions, then asked when I’d be available for photographs.


Now I’m thinking a little thumbnail, and a quote!

Well, I was blown over when a few weeks later the magazine hit the newsstands and I saw that I had received a full page write-up – plus big photo – full of “Cartwood, Australia’s leading expert says ….”

Instant expert … again!

Now, I’m not suggesting that my phones rang off the hook; in fact, they didn’t ring at all …. but, this was not a sales/marketing exercise, it was a credibility -building exercise.

As a result of this simple process, two great things happened:

i) I asked for (and the magazine was kind enough to send me) a box of overruns: extra copies of the magazine that they may normally pulp – and, if they didn’t want to give them to me, well, what was a couple of hundred bucks to buy as many as I could lay my hands on? I used these as ‘business cards’ to give potential prospects, either to get – or, to kick-off the first meeting; these were highly effective ‘credibility builders’! I also ordered a whole stack of reprints of the article, which I used as my main ‘marketing brochure’ for years. Double the credibility, half the cost of a slick brochure 😉

ii) This is where luck steps in (everything prior to this positions you to make your own luck): a lady who runs a college-certified ‘for profit’ course recognized (from the photo in the magazine) me at a trade show and asked me to develop a one day course on the subject area of that article. I was paid $1,000 a day (plus travel expenses) to put myself in front of a captive audience of my best possible sales prospects … and, from this very course came my first 5 clients.

[AJC: Imagine being paid to sell your own product to clients who pay to hear your ‘pitch’!? Now, this is probably a subject for another post, but people ask: “why did you teach your secrets to clients?”. The answer is simple” you can teach people all you like, but the real secret is in the implementation … people would much rather BUY than DO. I have found that the more you give away, the more that comes back to you]

BTW: Now, do you see how important it is to try and polish your ‘public speaking’ skills as much as you are able?

3. Finally, it was a pleasure to be able to embark on the process of reinventing myself as an expert in a third field, this time one in which I actually had put in the ‘hard yards’ to learn as much about through personal experience before becoming ‘the expert’ rather than after 🙂

Of course, I’m talking about what I’m doing now: personal finance … specifically, how to get rich(er) quick(er), a subject in which I (humbly!) think I am expert in and one of very few, if not the only speaker of any genuine credibility, having achieved what I teach about before writing the books and getting the fat speaking contract.

Since this one is a work in progress, and more of a vague directional feeling than a solid strategy, I will outline for you roughly the steps as I think they may unfold:

Step 1: Write a blog (a) to get my ideas into the market, give them some ‘air’, and see what works from a literary sense, and (b) get some sort of audience/exposure,

Step 2: If I am lucky, get noticed by some producer, publisher, news or magazine editor and be given the type of opportunity that gets my message out to a large national/global audience,

Step 3: Write a book and (a) find an agent/publisher or (b) self-publish

Step 4: See Step 2!

Step 5: Write another book

Step 6: See Step 4!

Step 7: See Step 5!

If I needed the money, I might organize my own speaking engagements and spend more time wooing the ‘traditional media’, instead of relying on Step 2. But, I don’t so I won’t 🙂

And, if I am ‘unlucky’, I’ll keep going with Steps 1., 3., 5., and 7. for as long as you and I keep enjoying it!

7 miljoonaa 7 vuotta


… that’s just my way of saying hei [hello] to my Finnish readers!

It seems that I have a few because I’ve been tracing some backlinks to my blog and found this one: which (thanks to Google translate) asks if I am one mg/ml of the investors?

Now, this is a very clever way [AJC: if you understand metric measures, such as ‘milligrams’ and ‘milliliters’!] of challenging us to decide if we are the ‘one in a thousand’ investors who can actually make money trading in the stock market [AJC: presumably, this is a Finnish blog focusing on trading stocks?] … in fact, in this article the author is specifically discussing Day Traders; now, day trading is something that I have never attempted!

Probably for good reason …

The author cites a Taiwanese study that found that (after costs) only 0.16% (or 1.6 per thousand) of Day Traders actually made a profit!

So, why do the other 99.84% do it?

Well the author says (or quotes, I’m not sure which):

While day traders undoubtedly realize that other day traders lose money, stories of successful day traders may circulate in non-representative proportions, thus giving the impression that success is more frequent that it is. Heavy day traders, who earn gross profits but net losses, may not fully consider trading costs when assessing their own ability.

Now, this is very interesting because you could insert almost ANY speculative activity (e.g. flipping real-estate, investing in gold and futures, FOREX, options, stock trading, speculative business ventures, etc., etc.) in place of the words “Day Trader” and I think you will be able to draw the same conclusions:

1. The vast majority of speculators lose money,

2. Of those that do make money, most of those will realize that they, too, are actually operating at a loss if they take into account the true costs of their time, money, operating expenses, etc.,

3. However, the ‘losers’ keep chasing their losses because of the VERY FEW real success stories (and, the plenty of fake/scam/exaggerated ‘success’ stories) that become too well publicized and glorified.

For our other Finnish readers, I should probably also acknowledge references to this blog on another personal finance site (actually, a forum): for an interesting discussion about what to do when your mortgage is finally paid off; it seems that one of the readers has been tracking my ‘rules’ on this subject:

And the capital not used optimally if the housing is free of debt. Harvat yrityksetkään toimivat kokonaan ilman velkaa. Few firms are not entirely without debt. Tällä kaverilla on kaksi hyvää sijoitussääntöä: This guy has two good investment rule:

1) Asunnossa kiinni olevan oman pääoman osuuden tulisi olla < 20% net worthistä 1) The apartment attached to the capital base should be <20% of Net Worth
2) Kaiken muun kulutustavaran (auto, huonekalut ym.) osuus net worthistä on oltava < 5% 2) All other consumer goods (car, furniture, etc.) accounted for net Worth must be <5%

Nämä takaavat sen että >75% omaisuudesta on jossain tuottavassa käytössä, kuten vaikka osakesalkussa tai sijoitusasunnoissa. These will ensure that> 75% of the property is a productive use, such as even though the stock portfolio or investment homes.

Minulla täyttyvät molemmat ehdot, mitenkäs muilla palstalaisilla? I have met both conditions, palstalaisilla How did the other? En edes laske autoa ym. pikkusälää mukaan henkilökohtaisen taseeni loppusummaan. I do not even calculate a car, etc. small stuff “personal taseeni the final sum.

Thanks for a great summary, Jni, Google Translate isn’t perfect, but I’m sure my readers will get the gist 🙂

BTW for those who haven’t worked it out yet, 7 miljoonaa 7 vuotta is how you would say 7 million 7 years in Finland.

A primer on compounding interest …

If you want to understand the difference between ‘simple’ interest and ‘compounding’ interest – and, if you want to understand why it makes a difference as to how often you compound that interest – then watch this video (until the presenter starts writing with a blue pen … from that point on, only watch if you are a mathematician) …