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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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Thatís a good thingóbeing free to think about other things, not just money-related issues. But youíll decide for yourself once you become wealthy.
In this last chapter of the book, Iím going to do three things:
1. Iím going to explain the logic behind my investment philosophy.
2. Iím going to give you four model investment portfoliosóto give you an idea of how your investment mix should change as
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you progress toward and ultimately achieve financial independence.
3. Iím going to explain why, after you achieve financial independence, you shouldnít entirely retire. Iíll tell you why retirement doesnít work for most peopleóbut how to make it work for you.
STOCKS AND BONDS VERSUS REAL ESTATE AND ENTREPRENEURSHIP
Since a big part of my e-zine Early to Rise (earlytorise.com) is devoted to entrepreneurship, many first-time readers mistakenly believe that I favor taking risks. Long-time readers know better than that.
I am and always have been a very conservative investor. As someone who started out with nothing and earned my money by working hard for it, Iím very uncomfortable seeing it disappear.
In one of Donald Trumpís booksóI think it was Think Like a Billionaireóhe recommended a somewhat commonplace rule about investing. To determine what percentage of your investment portfolio should be in stocks, he said, subtract your age from 100. If you are, for example, 30 years old, you should have 70 percent of your invested assets in equities (stocks) and 30 percent in debt instruments (bonds). If you are 60 years old, you should have 40 percent in stocks and 60 percent in bonds.
This is not bad adviceóif you believe, as most financial advisers do, that there are only two ways to invest: in stocks and in bonds.
The reasoning behind this rule is simple: The younger you are, the more risk you should be willing to take (stocks being more risky than bonds). I can understand the sense in that stanceóespecially for people who have a single income and whose only hope of financial independence is investing their savings for 40 or 50 years. But as I said at the beginning of this book, I donít have anything to say to people who have that much time to get richófirst, because they are so few and far between, and second, because they donít need my advice.
Early to Rise and Automatic Wealth are for people who want to get wealthy in 7 to 15 years. And the only way to do thatóas Iíve attempted to prove in the preceding pagesóis to (1) achieve a radically higher
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income than you have right now and (2) invest a sizable portion of that extra income into at least one side business and/or local real estate.
A side business, if it is successful, can give you returns of 20 percent to 100 percent per year. Real estate, prudently purchased, can give you 15 percent to 25 percent, or more. If you invest in both a side business and local real estate, youíll quickly lose your appetite for gambling on stocks.
The reason is simple: Successful stock investing is very, very difficult. First, you have to have an intricate, insiderís understanding of the business you are buying. Next, you have to be able to know its market well enough to project future earnings. Third, you have to be able to correctly guess Wall Streetís future thoughts and feelings about that company. And finally, you have to be able to divine investor confidence.
Thatís not to say that stock investing canít be made to work. In any 10-year period, there are at least several investment advisers whose track records exceed, by far, the market average. Still, those advisers are the exceptions. If you have normal or bad luck (as I have), youíll end up on the losing side of the equation.
Thatís why Iíve always been very reluctant to commit a large portion of my wealth to stocks. Since the bulk of my money is tied up in small businesses and real estate, I donít feel inclined to. Iíd rather put most of my nonactive money into risk-free and relatively risk-free investments.
To put it another way, I look at investing more broadly than most financial advisers do. I like stocks and bonds, but I like real estate and entrepreneurship even better. If I had to rate each on a risk/reward basis, this is how it would look:
Reasonable Profit Potential per Year in a 7- to 10-Year Period
Stocks:
Bonds:
Side Business: Rental real estate (mortgaged):
Range: 4% to 15% Range: 2.5% to 6% Range: 25% to 100% Range: 15% to 50%
Target: 12%
Target: 5% (nontaxable) Target: 30%
Target: 25%
What about risk? On a scale of 1 to 10, with 1 being the least risky and 10 being the most, hereís how Iíd rate these four investment alternatives:
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Stocks: 8 Bonds: 2 Side business: 6 Real estate: 3
These are not scientifically determined assessments. They are better than that. They are the numeric equivalents of what my gut tells me. After 30 years of investing (and being in the investment publishing industry), I believe Iíve done and seen enough to know.
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