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Automatic wealth The 6 steps to financial independence - Masreson M.

Masreson M. Automatic wealth The 6 steps to financial independence - Wiley & sons , 2005. - 291 p.
ISBN 0-471-71027
Download (direct link): automaticwealththesixstepsto2005.pdf
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What percentage of your retirement portfolio should be in bonds? If you have enough money to live well off a yield of, say, 4.5 percent or 5 percent after taxes, you can have most of your money in bonds. My closest financial adviser has all his retirement funds in bonds.
Chances are, you will need to earn a higher return. If that’s the case, I recommend allocating between 40 percent and 50 percent of your funds to bonds.
3. Managed rental real estate. Rental real estate can offer some very impressive rates of return—depending on how you measure them. A $75,000 investment in a triplex 10 years ago in my
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hometown in South Florida would be worth about $300,000 today. With a net rental yield of about $20,000 a year (after property taxes, upkeep, and management fees), that investment is earning either 27 percent or 7.5 percent, depending on whether you calculate from the original investment or the appreciated value.
In a case like this, you might be better off selling the property and investing the money in bonds. If you could get a 5 percent return and were in the highest tax bracket, your effective yield would be 7.5 percent or better. (These are very rough calculations. I’m not taking into account depreciation, continuing appreciation, other write-offs, etc.) But most of the real estate deals I bought 7 to 15 years ago are producing rental yields of between 10 percent and 15 percent of their current (admittedly conservative) estimated value. That higher yield, combined with the continuing appreciation of the property, is why I recommend a 20 percent to 40 percent commitment to managed rental real estate.
4. Emergency cash and gold. As I said earlier, we all need to have some cash tucked away in a safe-deposit box, just in case. I keep a sum that’s equal to about three months’ worth of spending. I also think it’s sensible to have between 2 percent and 5 percent of your investable net worth in gold.
5. “Play” money. Retirement is supposed to be fun. And some fun—not the best kind of fun, but some fun—costs money. I’m not talking about money that you spend on golf and vacations. Your general retirement funds are supposed to take care of that. I’m talking about the fun of trying new businesses, converting your passions or hobbies into profit centers, and adding choice pieces to your collections. If you are good (and lucky), you’ll have fun and make some money with this part of your Stage Four portfolio. But if you don’t make money, that’s okay.
WHY YOU SHOULDN’T COMPLETELY RETIRE EVEN WHEN YOU CAN AFFORD TO
I belong to a book club with eight other very successful businessmen in their mid-50s. We had just read Viktor Frankl’s famous book, Man’s
256 AUTOMATIC WEALTH
SearchforMeaning (Washington Square Press, 1971), and at our monthly dinner meeting, were recounting small stories of our own experiences.
In the second half of the book, Frankl said that chasing money and power are deviant aspects of a more important and fundamental yearning: finding meaning in life. Although pursuing money and power could be all-consuming while you are doing it, the moment you experience the achievement of a specific goal (say, financial independence), you are likely to have a feeling of gladness . . . followed by a period of sadness. The sad feeling is the vacuum created between the hope that money and power can provide meaning and the realization, after achieving them, that they can’t.
Of course, this doesn’t deny the usefulness of money or the practical benefits of financial independence. When you are wealthy, you can
• Wake up when you want to
• Go to bed when you wish
• Live anywhere
• Associate with whom you please
• Work as little or as much as you want to
• Never have to worry about paying bills
• Make modest financial mistakes without suffering
Becoming financially independent is a worthy, sensible goal. But what Viktor Frankl suggested—and what the nine of us were discussing—is that a life of financial independence would be relatively unful-filling if we didn’t also have other, more important, goals.
One of the guys, a recently retired corporate attorney, said that he wants to spend a good part of his future helping people in the Third World develop small businesses. Another one—a wholesale clothing manufacturer—wants to sponsor local theatrical groups. Our sponsor, a direct-mail catalog pro, wants to promote reading through a series of books he is writing on the subject.
“Giving something back” was the most common refrain of our conversation—and I noticed that this idea was coupled with the enthusiasm that is evident anytime people think that what they are doing (or are about to do) has meaning.
I’ve talked about this important psychological phenomenon many times and in many contexts in Early to Rise—that having a purpose in
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life gives you direction and drive. The purpose you aim for at any given time is a function of everything else that life has provided you with at that moment. As Viktor Frankl said, there is no best purpose in life, just as there is no best way to swing a tennis racket. If you can recognize that you are always free to choose your purpose (even if it is merely to suffer nobly), and if you can devote yourself enthusiastically to that purpose, your life will have meaning, your heart will be full, and your mind will be light and energized.
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