Tag Archives: 7million7years

Anatomy Of A Startup – Part I

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Not strictly about personal finance, but building a startup is one (highly risky) way of making $7 million in 7 years!

It also happens to be one of my twin passions (the other, obviously, being personal finance) … and, one of the key components of my Number was a $500k ‘startup fund’.

I realized – before I even made my 7m7y – that I wanted (amongst other things) to become a ‘venture capitalist’, but I was well aware of the 7-2-1 formula, which goes something like this; for every 10 startups that a VC funds:

7 will lose money (probably the VC’s entire investment)

2 will break-even (maybe even returning the VC’s initial investment, but not much more)

1 will make the other 9 ‘failures’ all worth while!

Based on these numbers, to invest in the ‘bricks and mortar’ world would be simply too expensive … especially if the 9 failures came before the 1 success (obviously, the VC doesn’t know which one will be successful or she would never invest in the other 9), but not so the online world.

It’s not a stretch to see that several – or, even 10 – (potential) Facebooks and Twitters could be created with a $500k investment pool and some smart, committed cofounders. If FaceBook was started with $1,800 (or so the movie implied), then $50k should buy a whole lot for one online business … and, $500k should be enough for all 10 that it might require to find that single, wonderful success story.

So, it seems that I am on the way having met with my two cofounders today. Unusually, I didn’t know them before hand …

But, I’m getting away with myself: this isn’t my first recent such startup (obviously, my older B&M businesses were also startups in their day, eventually being sold for tidy sums). In fact, I have two complete, functional Web 2.0 (whatever that may mean!) sites sitting on a shelf, gathering dust.

With both of those, I made the mistake of building Kevin Costner’s Field of Dreams (because, I already had the relationships with the right IT build team) and thought if they build it THEY – the right cofounders – would come. But, they didn’t 🙁

So, this time, I decided to find my cofounders first (marketing and operations) before funding the IT build. Pretty obvious really … not sure why I didn’t see it at the time. I guess it was the case of having too much money burning a hole in my pocket – and, burn it did!

So, this time, I patented the idea (another waste of money, but more to make sure I wasn’t infringing on anybody else’s turf), put up a couple of ‘stealth-mode’ placeholder sites, and set out to find The Team.

I realized that I needed people with experience in the online space; so I cast a search for “social marketer [my city]” (there’s a neat little tool you can use: google) and found a meetup group that happened to have a ‘mail all members’ facility … so, I joined and spammed all the members with a “looking for partners” message.

You don’t get anywhere in life by being conventional 😉

Today, the three cofounders met (me and the two I found by cold-calling for partners) and agreed that we’re moving ahead with my new idea …

Mr Krabs is alive and well!

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Eugene (Mr) Krabs is the Mr Scrooge of the modern age. Scrooge McDuck was there for a while, but the duck got bumped by the crab. Sorry, duck!

All of these misers got rich, not by being misers (I’m sure it helped … a little!) but, by having a business; Mr Krabs has a hamburger joint. Nice cashflow business that – perfect for providing the funds to invest in all sorts of stuff.

And, I bet he owns the building …

Mr Krabs has one other advantage over his predecessors: he reads personal finance blogs!

I know this, because “Eugene Krabs” left his secret formula for wealth in a seemingly innocuous comment on Free Money Finance’s blog:

I’ve boiled what I’ve read myself down to the following equation:

Wealth = Capital + Risk + Time

(To be clear, capital is the money you have right now to make more money with.)

Technically, any one of those factors can do it for you. For example, if you have a massive amount of capital, or if you take massive amounts of risk and beat the odds, or if you have a lot of time to build your wealth, then you can still become wealthy at the expense of the other two factors.

However, there are downsides to all of these individual factors.

Sensational stuff!

The formula itself needs a little tweaking, but ‘sensational’ nonetheless, for example it’s probably better written as:

Wealth = Capital x Risk x Time

Here’s how to make it work for you; if you are an:

– Ordinary person: do nothing … your wealth will not grow. In fact, it will decline in real terms, as inflation takes its toll. You can offset this, to a greater or lesser extent by cutting costs (including interest costs and living expenses). Whole legions of people swear by this approach.

– Reasonable person: limit your risk, and offset your limited capital by applying Time … lots of it (provided you are happy to work for 40+ years, don’t get sick or lose your job, etc., etc.), and pay yourself first to increase your capital by roughly 10% each year.

– Extraordinary person: you also make a 10% improvement, because that’s reasonable, achievable, sensible … but, you don’t make a 10% improvement in just one area, you do it – as Eugene Krabs suggests – across all three!

Look at what happens if you apply one unit of Capital, one unit of Risk, and one unit of Time: you gain one unit of Wealth.

But, what happens if you increase your:

1. Capital by 10% – let’s say by starting a business on the side and applying at least 50% of it’s net income to your investment capital?

2. Risk by 10% – let’s say by moving from investing in Mutual Funds to individual stocks (if you buy/hold one, you buy/hold the other)?

3. Time by 10% – let’s say you allow yourself 10% more time to get there?

Nobody would be too scared by making a 10% improvement in one are; so, what’s so hard about making it in three areas at the same time? If you do, you end up with 1.1 units of each of: Capital, Risk, and Time: 1.1 x 1.1 x 1.1 = 1.33 …

… your wealth doesn’t increase by just 10%, it increases by 33%.

Of course, you want to REDUCE time, not increase it, so play with a simple annual compound growth rate calculator and see what happens if you:

i) Double your Capital (increase your savings; reinvest 100% of your side business earnings; grow your side-business even more)

ii) Double your Risk (buy/sell your stocks; buy/rehab real-estate; start a ‘real’ business)

iii) Halve your Time

2 x 2 x 0.5 = 2 … how’s a 100% increase in your wealth suit you?

BTW: for the mathematicians out there, this simplistic formula is nonsense; for example, as your wealth increases over time, any ‘spare’ wealth (i.e. that you don’t spend) increases your Capital (thus compounding either/both until your Capital converges to your Wealth … but, never quite meets it), whereas Time is linear (as long as we don’t approach the Speed of Light), and Risk is certainly neither linear nor compounded.

But, that’s not important right now … 😉

Are you still relying on your mother?

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At what age is it appropriate to take financial responsibility for your own life? Before college? During college? After college?

When is it appropriate to grow up, financially?

To help us explore this issue, here is a question that I received by e-mail from RichKidSmartKid:

I’m 29 presently in my first year of college where I used money from my inheritance that I had invested, sold and used to pay for college. I’m soon going to be broke and wont have an income and will be relying on my mother to help me financially though school.

I want to bounce back from this financial hell and increase my networth. Possibly even made some money by the time I complete univeristy. I was wondering what advice do you have?

Sounds like her name is where RKSK wants to be rather than where she is. It looks like she had money, but now it’s gone, and would like some again!

Look, with $6k cash and going to college, the reality is that she is still probably $6.5k better off than most college kids, so here is my advice:

1. Talk to other college kids and see how they do (or intend to) get by – it’s amazing how much you can learn by listening to what other people have to say – then do the opposite 😉

2. Read this post, it’s probably my best advice for college-age kids:

http://7million7years.com/2008/08/22/start-the-next-facebook/

Now, this doesn’t directly apply to RichKidSmartKid who is 29 – but, only in 1st year (good on her for finally thinking about her education, though) – but I have an issue with college kids calling themselves ‘kids’:

In most countries (other than those in the privileged west), by the time you reach college age you would be an adult, long married, with plentiful hungry children and a crop in the field.

In those countries, RichKidSmartKid would have been considered a self-supporting adult a LONG time ago!

Maybe it’s time to start thinking like one now?

Why climb Mt Everest?

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Thanks to all of those who entered my SECOND $700 in 7 Days Giveaway; you still have a couple of hours to sneak in and submit your entry for what looks like a better than 1 in 30 chance to win the first prize of $350 in cash … that’s like $10 just for filling in a 2 second form!

If you refer friends, you will be in the running to win the second ($150), third ($50), and fourth prizes of ($50) CASH as well … right now, I’ll be struggling to give all of those prizes away, so that’s a pretty good hint. But, since you’re late to the party, you’ll have to find the entry form yourself. HINT: xxxx 😉
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I wasn’t spanked by my readers nearly as much as I expected for sharing my happiness with my mansion purchase (actually, two mansions: one in US and one in Aus), then again the purpose wasn’t to brag but to counter the idea that spending is bad.

In fact, spending is only bad out of context … $7 million in 7 years kind of context … when not spending would be even more absurd.

Anyhow, Josh did pull me up:

What’s the point? Maybe I’m missing something. Maybe it’s because my assets are in the 7-figure range and not the 8-figure range. But why spend $X Million on a home?

I live debt-free in a home that cost $300K. I could have bought a $2M+ home, but it seems so impersonal, pretentious, and secluded. I want people to come over and feel comfortable drinking beer with their feet up on the coffee table, or to let their kiddos run around carefree after coming inside on a rainy day. Even now, some people feel uncomfortable in my house because it is “so nice” for the area in which we live.

Well, why do people climb Mt Everest? What’s the point?

Because (a) it’s there, and (b) they can!

So, I have a very simple rule on spending that has kept me in good stead – through poorer and richer:

I spend money when it doesn’t make sense NOT to!

I became rich because I wanted to travel spiritually (that’s free); mentally (that costs me in time and ‘venture’ capital); and physically (that much traveling costs me a LOT of time/money: hey, I retired at 49 so I WANT to travel Business Class and stay in at least 3/4/5-star hotels).

So I set out to make my $7 million in 7 years to allow me to begin the life that I wanted to live (without needing to work) and was fortunate enough to succeed …

… and, one of the side benefits of that financial success is that I have plenty of cash for cars and houses, and vacations and bling. And, for charitable gifts and deeds 🙂

I write this blog because I wish the same for all of you …

AJC.

PS a big house doesn’t need to be pretentious; ours is homely and welcoming and people love it because they get to hang with us, play tennis, watch movies, and swim 🙂

What’s the best financial move that you’ve made?

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Michael asks What was the best financial move you’ve made so far? and then tells this story about his car:

I’ve concluded my best financial move to date has been my decision to keep cars for very long periods of time. I drove my first car for over seven years before it died. My second car just passed 100,000 miles this last weekend and is over nine years old.  So, here I am in my late thirties and I’m still on my second car.

Having no car payment during 9 of the last 14 years has allowed me to spend more in other areas of my life where I value such spending while still permitting me to save substantially for my future.

What an excellent question!

I’ll tell you my best financial move, then perhaps you can share yours?

I have a few ‘best financial move’ candidates (including moving to the USA, selling out just before the Great Recession, and others that I will tell you about some other time), but I can pin my ‘best’ financial move – not my biggest, but my best from a pure financial strategy point of view – down to one:

My accountant talked me into buying my own building (I had a small’ish call center operation but was renting office space at the time).

Making the purchase was very tight, financially, as the business wasn’t making a lot of money (there was a bit of juggling to come up with the cash for the deposit and making the monthly payments!). I really sweated as I was making the bids at the onsite auction (that’s how most properties are sold in my home town).

[AJC: Property valuation technique # 1: Q: How did I know how much to pay? A: I didn’t! But, I did know who I was bidding against (very important to know who your ‘opposition’ is) … a property developer. Logic told me that he would not buy for more that true current value, because it would be reasonable to expect him to buy-rehab-sell or buy-rebuild-sell. If – on the other hand – I intended to buy/use/hold, then it stands to reason that I could afford to pay AT LEAST as much as him. So, I just kept bidding until he stopped, and ended up paying just $1,000 more than his highest bid.]

To backtrack a little, I had already decided that I would buy prime real-estate in prime location, instead of buying a cheap building in an industrial area (typical for call centers, to keep costs low).

So, instead of spending, say $500k or so on a cheap industrial-area building, that’s how I found myself spending $1.35 mill up front at that auction and another $500k (100% financed) on the rehab and fitout, once I closed on the deal.

Why?

Well, I saw two major benefits:

1. It was a show-case building that I thought would be my ‘shop front’ for our ‘Fortune 500’-type corporate clients, making them think we were bigger (therefore better/safer to deal with than our opposition) than we really were, and

2. I guessed that it would have great resale or redevelopment value down the line.

As things would turn out, this was one of those rare occasions when I was right … on both fronts!

Our business grew substantially in that building with many a deal completed in our own board room.

[AJC: Once the Internet era arrived circa 2000, we created a fully web-enabled system – way ahead of its time – at which point it became advantageous for us to make our sales at our clients own premises. Once they saw the drop-dead gorgeous – by 2000 standards – web-enabled charts and graphs, they virtually signed our standard contract on the spot! Our office could have been in a garbage dump then, and it would no longer have mattered. Oh, good times … good times!]

In doing so, I avoided 5 years of rent, reduced my taxes by $500k (because of the rehab), paid down about $500k of the principal, and eventually sold the  building for $2.4 million.

Once business picked up (again, partly because of the marketing / credibility benefits of such a professionally fitted out building in such a prime location) I barely noticed the payments, and probably would simply have raised my personal spending had some of the profits not gone into the mortgage and rehab repayments.

Instead, after 5 years of mostly tax-deductible ‘forced savings’ I walked away with what felt like an extra $1.5 million in my pocket. Not my grandest move, as things would turn out, but certainly my (financially) most astute …

… I encourage every business owner to do the same!

So, what’s your best – not necessarily your grandest – financial move?

Beating the ‘more’ bug!

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Do you have the ‘more’ bug?

I certainly do, and I think that most of us do … in fact, I’m so sure of it, because I see hundreds of blogs and books solely aimed at eradicating the disease with drastic remedies such as self-flagellating frugality and anorexic debt diets.

Kind of reminds me of how we used to treat ourselves with blood-letting, hole-in-head-drilling, and leeching – actually, all still legitimate remedies in a tiny minority of real-world cases – because we didn’t know any better.

In those days, a ‘real’ doctor, prescribing a drug that they had discovered would have been seen as a heretic or master of the ‘black arts’ (Louis Pasteur, anybody?).

But, I’m getting ahead of myself … first, here’s how Scott (a doctor, plenty of disposable income, so he’s a prime candidate) describes the symptoms:

I think a big dragon that we all face is that human nature of wanting more. We all seem to do it to some degree or another. We’ll live in a 150k-200k house(which was probably an amazing home to our grandparents standards) and while there, we imagine that million dollar pad. Once we get that, we need a 5 million dollar one, etc..etc..and our number continues to climb with the chronic discontent and needing more.

As Scott says, it’s not such much a ‘bug’ as a human condition: to always want more.

To get a little metaphysical: if you were the Ultimate Higher Power and you wanted to design an environment with endless conflict (all the way up from a personal level to a global level), you would fill it with little creatures that you ‘program’ to always want ‘more’. And, you would give them the tools (opposable thumbs, a modicum of intelligence, and inventiveness) to ensure that they create an endless stream of upscaled ‘stuff’ to constantly fuel that desire.

What Eternal fun! 😉

Assuming that the ‘more’ bug is curable … or at least manageable … how do you deal with this seemingly insatiable desire for ‘more’?

Well, if it really is a disease or condition, then I’m not sure how easy it is to switch off the ‘more’ switch; maybe a 12 Step Program for Wants (might be a great online/offline business here for any psychologists who have a side interest in personal finance)?

But, if it is real – and, manageable – then another strategy might be to build in gradual spending/lifestyle increases into your budget. Allow the ‘disease’, but control it …

For example, I drive a BMW M3 Convertible (in Australia, this is a USD$200k car, due to low volumes, importation costs, and exorbitant luxury vehicle taxes) but I really WANT a Ferrari ($500k++).

So, I have given myself a target:

Develop and/or cash out (for a certain amount over purchase price) on my development sites and I ‘reward’ myself with the Ferrari (not as simple as that: I will also need a day-to-day car, so figure a $150k Audi S6 or Maserati Quattroporte, in addition to the Ferrari … repeat every 5 to 8 years). I think that some of the Sudden Money strategies that I posted about recently are ideal for managing this.

Another way to deal with this was suggested by Robert Kiyosaki: he said that he, too, wanted a Ferrari. His wife said that he could only buy one if he generated the income to cover it. So, he bought a self-storage business and used the income to fund the payments on the car … I’m OK with this: even though he’s funding the car, rather than paying cash, the capital is in an income-producing asset – one that really should increase in value over time.

And, it’s not a ‘real’ business, in that it won’t need a lot of ‘hands on’ management … of course, it’s not a real passive investment either. Other candidates could be automated / no staff car-washes; ‘coin’ laundries (the new kind that use cards instead of cash); and, some of the absentee-owner franchises.

[AJC: Just be warned, you probably can’t tax-deduct much – if any – of the vehicle payments. Contrary to what the financial spruikers and shysters will tell you, the IRS is not stupid: why do you need a Ferrari to help the self-storage business / car-wash / coin-laundry produce an income?!]

But, now that Scott mentions it, I do have a hankering for an island ;)

Fitting another square peg into a round hole …

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I need your help on a small project that I am working on! I have a new FaceBook Page for Top Secret Startup Project # 4 and need 25 people to “like” the page in order to get a proper URL. Would you PLEASE take exactly 10 seconds to visit that page by CLICKING HERE and click the “like” button.

I might even send one of you (by random selection) a surprise gift (HINT: think ‘apple’ and think ‘card’) AND you will be amongst the first to know what I’m up to over the next few weeks! Now, back to today’s post …
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Philip Brewer is the first to break ranks … that makes him a pioneer!

He’s the first personal finance writer to question the validity of the 4% Rule; I’ll let him do what he does best … explain:

There’s a rule of thumb that’s pretty well known to retirement planners: the 4% rule. It states that if you spend 4% of your capital in your first year of retirement, you can go on spending that much — and even adjust it for inflation — and you won’t run out of money before you die. That rule is starting to look kind of iffy.

The rule is just an observation: Over the past hundred years you could have followed the 4% rule starting in any year and you wouldn’t have run out of money. That’s been true because the return to capital has been pretty high, and because downturns have been pretty short.

So, that’s the genesis of the 4% Rule … basically an assumption that if inflation runs at 3%, you can get at least 7% return on your investment (the difference being the amount you can spend: 4%). But, most investments haven’t ‘returned’ 7% – or anywhere near that – for quite some time, as Philip explains:

Stock investors saw some price appreciation in the 1990s, but there’s been no appreciation since then. In fact, your stock portfolio is probably down over the past decade, even with reinvested dividends.

… and bonds and cash haven’t fared much better, certainly not enough to keep up with inflation and provide spending money for a retiree!

The problem is we’re trying to fit a square peg into a round hole:

Square Peg

Bonds, cash, and stocks are all capital investments (my term); they are designed to hold (preferably, appreciate) the capital that you put in.

You create ‘income’ from these investments: (a) from their (relatively speaking) meager dividends, and/or (b) by selling down your portfolio as needed. The 4% Rule says that the amount that you need to selll down SHOULD be offset by the increase in value of what you have left even after accounting for inflation.

The problem is in the ‘SHOULD’ word: this should all work, but as Philip points out, there are times when it doesn’t …

Round Hole

When you are retired you shouldn’t spend capital unless you print the stuff … or, at least, have an unlimited supply.

You don’t want capital, when you are retired, you really want income.

Specifically, you want a certain amount of income – and, you want regular pay increases (at least enough to keep up with inflation) – just like when you were working.

But, you want it:

a. without needing to work, and

b. without running the risk of being ‘fired’ (i.e. having your retirement income run out).

Other than some nebulous (perhaps, for you, well-defined) need to leave some of your hard-earned, precious, irreplaceable, capital behind for charity, your cat, and/or the next generation, you really don’t – shouldn’t – care very much about it, except for its ability to provide that much needed income.

So, why try and cajole capital-appreciating assets to do the work of your former employer, when there are perfectly good investments out there specifically manufactured for the sole purpose of:

1. At least maintaining their own value (ideally, after inflation), and

2. Providing you with an income, indexed for inflation, for your life or the life of the asset (whichever comes first).

A few such assets immediately spring to mind … each with their own pros/cons (which we can explore in the comments and/or future posts):

1. Real-estate: it tends to increase in value according to inflation; it tends to provide semi-reliable income that increases (again) with inflation,

2. Inflation-indexed annuities: you give up claim on the capital in return for a guaranteed (well, as long as AIG or its like stays in business) income that increases with inflation,

3. Treasury Inflation-Protected Bonds (some Municipal MUNI’s also do much the same): These guarantee that your capital will increase with inflation, and you can ladder them cleverly to provide some semblance of a (albeit low) income stream that increases with inflation.

Of all of these – and, in retirement – I like 100%-owned (i.e. paid for by cash) real-estate the best; what do you recommend?

There’s something about Todd …

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Poor Todd, where I don’t fear to tread, Todd (now) refuses to go:

Everybody hates Todd Henderson.

In case you haven’t heard, he’s the University of Chicago law professor who unwisely blogged about his financial woes in a post headlined “We Are the Super Rich.”

Mr. Henderson and his wife, an oncologist, make more than $250,000 a year, and apparently they’re struggling to get by. If President Barack Obama gets his wicked way, and tax rates rise for those earning more than $250,000 a year, Mr. Henderson says it will mean real sacrifice in his family.

It’s too easy to pelt Mr. Henderson with rotten eggs, as so many have now done. (He yanked the post, but way too late–and on the Internet, one’s blunders never die.)

Never, ever, ever again blog about how hard it is to live on $300,000 or $350,000 a year at a time when one middle-aged man in four can’t find a full-time job, and one in five can’t find any job at all.

Yeah, I understand that Mr Todd was whinging to people much worse off than him.

But, I’m not afraid to speak my mind – when it comes to money – after all, ever heard of “teach a man to fish …”?

Early retirement in the extreme …

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Jacob and I are really the bookends for early retirement: he says that he has retired on $6k per year (a budget of $500 p.m.), and I am retired on $250k per year (around $20k p.m.).

I know I’m happy, and I’m pretty sure that Jacob is happy, too.

Now, there are some non apples-for-apples comparisons, here:

– Jacob has a spouse who works; my spouse does not work but has thought about working

[AJC: one of the problems with being ‘rich’ is that it’s embarrassing to take a part-time admin. job that pays $13k per year, driving there in 10 years salary worth of car and driving home to 461 years worth of house! I told her that it might be better if she just donated her time to the charity that wanted to hire her]

– Jacob has no children; I have two

– Jacob’s net worth is higher than the typical American’s … so is mine!

Wealth is defined as being able to live comfortably on the passive proceeds of your investments; clearly, both Jacob and I can do that according to our individual assessments of ‘comfort’, so we are both wealthy.

Moreover, our wealth and retirement strategies are not for the masses … but, the lessons learned can be!

However – and, this is a big ‘however’ – I simply don’t believe that ‘extreme’ early retirement strategies really work for any, but a small minority of families. There will simply be too much financial pressure – some generated directly, and some indirectly (yes, peer pressure is real) from the children:

– Food: you may be happy eating home-cooked meals. Your kids will want sushi and sodas with their friends.

– Clothing: you may be happy with last-season Gap and TJ Maxx. Your kids will want this season Abercrombie and Ed Hardy.

– Education: you may be happy on $500 p.m., but how much college will that buy? Your kids will resent having to buy their own, so that you can do nothing.

– Health: your kids will be at the doctor every day … for everything from a runny nose to broken bones to removal of superfluous bits (foreskins, adenoids, tonsils, and appendix … and, that’s just in healthy children!). They won’t ask to go … every time they so much as sneeze, you’ll be dragging them there in a panic!

– Cars/phones/bling/going out/travel: see ‘college’, above!

Of course, you could bring your children up like BF:

He too, is a minimalist, but his parents (well, his father) trained him to be like that from young.

When they were kids, they weren’t poor in the sense that they were living paycheque to paycheque. They had money, they had savings, but they never spent it.

BF joked that to his parents, Money = No Object(s)!

No Television: “It’s all crap on there. Sorry kids. No TV. It’s not reality, and if you want to watch TV, you go over to your cousin’s place. But it’s crap. The radio is better. And free.”

Then from not having a TV they avoided buying:

  • TV accessories
  • A couch to sit in to watch TV
  • A VCR or DVR to record things on TV or to watch videos on the TV
  • …anything the commercials were selling

No Telephone: “Why do we need a telephone for? If you want to talk to somebody, just go over and see them.”

Then from not having a telephone:

  • No phone bills
  • No actual phone to purchase
  • No long distance calls

So what did they spend their money on? Food. And utilities to cook food. That’s it.

No extra clothes, toys, or anything I ever took for granted as a kid. Not even soccer club fees or lessons, because that would mean that you’d have to buy a soccer ball and a uniform.

… you could – and, it might even be character building for both you and your children – but, I wouldn’t count on your future familial happiness 😉

Avoid wiggly-line investments!

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UPDATE: We have a winner in my $700 in 7 Days Giveaway … yep, ‘barbaramontgom’ (with 6 points) was chosen by random drawing (see below) and wins the entire $700 Cash!!!!!! Barbara just needs to send me an e-mail ajc [at] 7million7years [dot] com to claim her $700 cash prize (less any PayPal fees)!

Bet you wished that you had entered 😉

Special thanks to Steve and Trisha who tied at the top of the leader board … if you send me an e-mail with your name/mailing address I will send each of you a $60 Apple Gift Card! Thanks to all of the others who entered and promoted the contest like crazy!

LAST CHANCE to enter my free contest: CONTEST OVER: in just ONE more today, I am giving away $700 cash to one lucky reader (drawn at random) as part of my $700 in 7 Days No Strings Attached promotion. It’s free to enter simply by clicking here.

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CNNMoney fields a question from a reader who’s scared that her money will run out before she does:

Question: I recently had to take early retirement at age 57 because of back problems. I’m now looking for a safe place to invest my retirement money where I’ll have no risk losing it. Any suggestions? — Donald H., Morris, Alabama

Yes, I have a suggestion: don’t post your questions to a financial ‘expert’ who still works for a living!

If you do, you’ll get answers like:

Answer: If the threat of losing principal were the only financial risk you had to protect yourself against in retirement, then finding a safe haven for your money would be pretty simple. You could plow your entire nest egg into Treasury bills or spread it among FDIC-insured savings accounts and CDs (taking care to stay within the FDIC coverage limits).

But while doing this would insure that you would never lose a cent of your money, it would also insure that your retirement stash earned a pretty measly return.

Good, so far … so, no cash. Got it!

What should she do instead (?):

If you want to have a decent shot at your retirement savings lasting as long as you do, you also want to invest in a way that has at least some potential for long-term growth.

[Keep some in cash and the] rest of your savings you want to keep in a diversified portfolio of stock and bond funds. Again, there’s no single correct mix. Typically, though, someone just entering retirement might have 50% or so of his or her portfolio in stocks and the rest in bonds.

Zowie!

Question: If you are aiming to retire, why do you want long-term growth?!

Answer: Because, you expect to lose some significant proportion of your capital to:

– Spending too much,

– Inflation,

– Market downturns.

In other words, the expert recommends to invest in a ‘wiggly line’ investment, hoping that the upswings outweigh all the downswings + spending after inflation is taken into account.

How well has that been working out for the past, oh, 20 years?

So, can you think of an investment that tends to grow with inflation, and provides income that also tends to grow with inflation?

Well those treasury-protected bonds certainly have principal that keeps up with inflation, but the returns are so low that income will become a real problem.

But, what about real-estate?

It’s where ‘the rich’ have kept the bulk of their retirement savings since time immemorial … I wonder why? 😉