This video is way too basic for my readers [AJC: if it isn’t, please stop reading now! 😉 ] …

… BUT, it’s a great video to show to the children in your family.

Let me know what you think?

Lots of people trusted this man with their money, but more on that later …

First, I want to tell you about The Finance Buff who wants to offer you personal finance advice … he also wants to know how much you’re prepared to pay, claiming that there’s an under-serviced market here for inexpensive, unbiased personal finance advice:

Usually an under-served market exists when there is a big gap between what customers are willing to pay and what it costs to produce what they want. I suspect that’s the case in the financial advice market.

[But,] I’m willing to help others with their personal finance questions. I don’t necessarily have to make much money from it (my full-time job covers my living expenses), but I do want to at least cover my cost of regulatory compliance and liability insurance.

With most things, you pay peanuts and you get monkeys …

… and, that may be the case here:

I am not a financial advisor. I do have personal opinions, sometimes strong, ignorant, or biased. Everything you read here on this blog is the author’s personal opinion, not financial advice. I am by no means an expert on anything. I don’t intend to mislead, but my facts, figures, and calculations can be incomplete, inaccurate or plain wrong.

Of course, that’s just his legal disclaimer … because, after reading the quality of The Finance Buff’s blog, that may not be the case at all … it could indeed be quality financial advice at a bargain price! 🙂

On the other hand, looking for a top-of-the-town advisor and paying the commensurate high price may not get you the kind of quality financial advice that you would expect, either.

Alberto Vilar [pictured above], 68, co-founder of Amerindo Investment Advisers, faces up to 20 years in jail after being found guilty on all 12 counts of fraud and money-laundering against him. Hailed as heroes by their clients, they made fortunes for themselves in management fees. [But,] their fortunes plummeted at the same time as the dot-com bubble burst. They were arrested in May 2005 after a client, heiress Lily Cates, claimed they had stolen $5 million from her.

Price [does not equal] Quality when it comes to personal financial advice.

For that reason, I don’t recommend that you put your money into the hands of any advisor; in fact, I recommend that you do not seek a personal financial advisor at all … rather, you should look for a personal financial mentor.

There is a difference:

ad⋅vis⋅er

–noun
1. one who gives advice.
2. Education. a teacher responsible for advising students on academic matters.
3. a fortuneteller.

men⋅tor

–noun
1. a wise and trusted counselor or teacher.
2. an influential senior sponsor or supporter.

Would you rather trust your financial future to the book-learned “fortuneteller” who will promise to give you a bucket-load of fish …

… or, would you rather trust it to yourself, with the support of the self-made “wise and trusted counselor” who will teach you to fish?

[ AJC: There is another difference: a true mentor won’t ask you to pay for anything more than a lunch or two 😉 ]

Whether you are looking for an advisor, or a mentor, or you don’t care which because you think the difference is moot, after satisfying yourself of their integrity and character, here is what I would look for:

1. If I know my Number and Date, then I would look for a mentor who has made 10 times as much in about half the time, and

2. Doing exactly what it is that I need to do in order to achieve my required annual compound growth rate.

Choosing an advisor and/or mentor by asking these typical ‘financial advisor double-speak’ questions can’t do you any good; you see:

They can’t be aligned with the way you think … instead, they need to be aligned with the way you want to think.

I’m having a hard time finding advisors and mentors who can move me to Making Money 301 (protecting my wealth) … now do you see why?

… 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: http://www.taloudellinenriippumattomuus.com/ 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): http://keskustelu.kauppalehti.fi/5/i/keskustelu/thread.jspa?threadID=137213&start=15&tstart=0 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:

http://7million7years.com/2008/02/04/how-much-to-spend-on-a-house/ http://7million7years.com/2008/02/04/how-much-to-spend-on-a-house/

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.

Flexo at Consumerism Commentary says that the Wikipedia entry on “passive income” is WRONG.

Flexo is right!

Wikipedia says:

Passive income is a rent received on a regular basis, with little effort required to maintain it.

OK, that’s pretty obviously incorrect, so let’s adjust this slightly to say: “Passive income is any income received on a regular basis, with little effort required to maintain it”.

Better?

Yep! It does sound a little better – aside from the repetitive tautology 😉 – so, let’s see a little more of the Wikipedia entry:

Some examples of passive income are:

• Earnings from a business that does not require direct involvement from the owner or merchant;
• Rental from property;
• Royalties from publishing a book or from licensing a patent or other form of intellectual property;
• Earnings from internet advertisements on websites;
• Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;
• Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;
• Pensions.^{[dubious – discuss]}

I love the little ^{[dubious – discuss]} attached to the last one …

… it should be attached to all of them!

You see, whilst I have also been guilty of (mis)using the term “passive income”, at least I know fantasy from reality; let’s start by reexamining the Wikipedia list:

1. Earnings from a business that does not require direct involvement from the owner or merchant;

Q: If you put the owner of such a business in one corner of a room with Santa Claus, The Easter Bunny, and the Tooth Fairy sitting in the other three corners, and you put a bucket of gold in the middle, who would be the first to get to the gold?

A: No one, because there is NO SUCH THING as Santa Claus, The Easter Bunny, the Tooth Fairy … or, a business that does not require direct involvement from the owner!

2. Rental from property;

This is great, especially if you have (i) a flawless property manager, and (ii) NO taxes, vacancies, repairs, maintenance, mortgage payments, refinancings, etc., etc.

3. Royalties from publishing a book or from licensing a patent or other form of intellectual property;

Agree; totally ‘passive’ … that is, AFTER the book writing, editing, deadlines, interviews, and book signings … and, BEFORE the next book writing, editing, deadlines, interviews, and book signings.

4. Earnings from internet advertisements on websites;

Please! Exactly HOW do you ‘passively attract’ readers to your site to get the ‘earnings from internet advertisements on websites’?!

5. Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;

Asked: “Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service”
And, Answered: “that must be renewed on a regular basis in order to continue receiving its benefits” … we addressed this exact issue for (another) Scott, not so long ago!

6. Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income;

Now, this is interesting – if it is indeed true that in “the United States, portfolio income is considered a different type of income than passive income” – because (at least, to me), dividend and interest income is one of the MOST PASSIVE of all of the items on this list … interest rate changes, market crashes, poor earnings reports, and other reasons that a Board may reduce or eliminate the dividend, aside.

7. Pensions.

Strange that whomever reviewed this entry felt this one to be ‘dubious’ … ‘old style’ pensions (like government ‘lifetime pensions’, and the ones that are sending the car companies broke) seem to be the most passive of all of these!

If you disagree, please drop me a comment (below) then try and go on an extended vacation and NOT: (a) answer your cell phone, or (b) check your e-mails, or (c) worry about your [insert “passive income” source of choice] 😉