Category Archives: Investing

Rich Dad, Poor Dad, Poor Con

Recently a good friend of mine made me a proposition that was too good to be true–she had signed up for a real estate investing class and as part of this, she received free enrollment to a three-day seminar on stock/commodity trading. Not only did she receive a free three day ticket to this educational event, she also was offered a free guest pass–and she was looking for someone who would be interested in attending with her.

Normally I wouldn’t be able to take work off to attend such an event, even if it was free, but my current situation on leave enables provided ample opportunity to join her. My thought process was–I want to learn more about stock trading and it will be a really good test run for going back to work, both for me (attending an all-day event and pumping throughout the day) and notably my husband and his father, who will be taking care of our son when I return to work.

What I didn’t do, that I normally would do, was research the event at all before attending. I mean, free is free, and I thought it would be interesting as I’ve never attended any financial education events. I thought maybe my friend had paid enough for this fancy real estate class that the additional programming would be of quality. And, if not, I would get to spend time with this friend who I never see, and maybe I’d still pick up a thing or two that I don’t already know.

The only thing she mentioned regarding who was running the event was that it was from Rich Dad, Poor Dad. I’ve never read the book, but I’ve heard of it, so sounded credible enough (for a free guest ticket.) What I didn’t know was that I was in for a rather brilliantly depressing seminar which surely conned many individuals out of $20k to $60k. It managed to be both highly educational (if you know nothing about the stock market and trading commodities) all while managing to make it sound like it’s both incredibly easy AND incredibly hard to make massive % gains in short turns using Puts and Calls and Covered Calls and Naked Puts and Options and the Futures Market and so on.

Now, as a “buy and hold” investor, I know better than to believe I can beat the market consistently enough in day trading to end out ahead. Perhaps their “mentors” they sell for a heck of a lot of money can help one learn the ins and outs of day trading and their strategies may be legit to some extent–but do you really need to spend $40,000 to hire a mentor and license their software to do them? Of course not.

But, there was indeed brilliance in their pitch. I watched the audience (well most of the audience) fall for it. The show (and I call it a show because it was that, not a class) was hosted by a clean cut, attractive 23 year old dressed wise for his age. He was good. At his job. He negged the audience and filled them with hopes and dreams at the same time. Every concept was taught in a way where it felt extremely complicated but also easy to grasp, if only there was more time. It was crazy how each subject and topic was thrown out in a way like we were going got get back to it later… but we never did. Questions were not welcomed. The few that were asked may have been plants. He moved so fast it was impossible to ask anything.

My friend was quick to scold me on how I wasn’t paying attention on the first day and that my comments were rude and negative (admittedly I was wondering what I got myself into and half paying attention, and I did sent her a slew of links to articles on why this educational brand is a scam that night) and I apologized to her for being so rude and made a valiant effort to be positive and engaged the remainder of the seminar.

The second day was a bit better, in the sense that I learned something–though I learned something in a way that made me want to hire someone to teach me how to do it better because clearly your can’t do this on your own (I wouldn’t hire them, but they certainly were working me as much as anyone else in the audience.) Luckily as a guest I was ignored, mostly. Those who were class attendees each received a free 15 minute meeting with their “advisors” to come up with a “trading plan” — which, from what I overheard, was just an opportunity to hard upsell everyone on their very expensive classes. Before these meetings, the attendees had to fill out a form which listed ALL of their financial information including their assets, salary, etc. It seemed their target was people who have $100k+ in their 401k/IRA, who want to get better returns from it–especially those who have old 401ks they never rolled over. (The whole series started out with a very, very brief talk about how mutual fund fees are horrible and ETFs are better, to plant that idea in everyone’s mind early–even though $40k for a class is some fee.)

I could see a lot of people were falling for it. “Don’t leave here without a trading plan,” they coached us. Everyone lit up each time the instructor told “someone’s” story of how they got rich. I sat biting my tongue, wondering how everyone would believe these stories that may very well be completely made up. (Then I remembered Trump is our president, and it made sense.)

During day 2, they also had everyone in the room go to a peer-to-peer lending site and figure out how much money they could borrow for what rate. The general idea was borrow other peoples money and invest it to make money. Red alarms went off in my head, but everyone else seemed cheerful to learn they could take out $20,000 for 20%. I cringed thinking how many of the P2P loans I’ve made over the years have defaulted. The “instructor” let us know, pointedly, that putting in our information to find out how much we could get at what rate would be a soft credit pull, and would not impact our credit score. He failed to go into what happens if we cannot repay the loan because we’re making risky trades.

Risk was talked about only as something you have when you are sitting on the sidelines, not actively trading the market. My friend loved the seminar, and felt she learned a lot. We left day two with her telling me she is going to keep reminding me to “get insurance” on my stocks. That, of course, is because they did a very good job of scaring us all into thinking if we don’t own covered calls on our stock, we’re taking on too much risk. But, they failed to mention how covered calls cut our gains, and how the market over time goes up… so far.

My major issue with all of the ideas was that taxes were not mentioned at all. So even if you “won” more often than lost, you would be paying income taxes on gains and not able to deduct losses if you buy same stock within 30 days. When I mentioned this to my friend she didn’t want to hear it, She was so enamored with their show she could not imagine these folks were telling lies or that taxes should even be considered.

The big, big takeaway and fear mongering centered on the upcoming market crash. They showed the tech bubble and the housing bubble and now the bubble of capital being injected into the markets. The discussion on the economy centered on how money used to be backed by gold and now it’s backed by nothing. This means, supposedly, the market will crash, and it’s important to be trading not the up of the market, but its ebbs and flows. Making money when it goes up, down, and even sideways.

Sounds good.

But then the logic started to fall apart. Their risk formulas, which I think are actually somewhat legit, still seem more risky then they implied. Basically you look at a stock’s trailing volatility and do a basic formula to figure out how much it might go up, if it’s starting to go up, and how much you’re willing to risk on this bet. So, you’re willing to risk $1 to make $9… a good bet. I’m still a little fuzzy on how they come up with their odds (and how charting really works since past performance rarely predicts future gains or losses of a stock), but maybe there’s something to it. If you can take less risk for more gains… as they put it in their illustration of a coin toss… as long as you win 60% of the time, you win. You’re the casino. If you can do better than 60%, you can win big.

Ok, sounds… great… but if that’s the case, why aren’t there a billion stories on the internet of people who took their class and are now bazillionaires? Why are they spending time teaching this class in the first place when they can all be enjoying the lavish lifestyle sure-bet, rapid investing provides them?

The “instructor,” and his directors behind the curtains, clearly knew this was a question that would come up and gave him a quick answer… he is wealthy, for sure, but he is still acquiring wealth and to do this he wants to be around all of these smart people all the time, which he has access to as an instructor (and we can have access to if we spend $60,000++ for a mentorship!) Hey, seems like a reasonable enough answer (not really, but then again, was anything reasonable enough in this “class?”)

Well, as PT Barnum reportedly said, “There’s a sucker born every minute.” This organization clearly knows it. I’m sure they aren’t looking for people like myself to attend these seminars, but they get plenty of takers anyway for their slick con business. It’s amazing these types of programs are legal, all under the guise of education.

 

So My Employer Over Contributed to My 401k – Now What?

Although I had the idea last year to contribute enough for my 2017 401k to obtain the match my company provides, I decided against it since I didn’t want to mess anything up w/ my taxes.

Fast forward a few months and I notice something strange when my Fidelity 401k shows a contribution on Jan 2. This clearly came out of my final 2017 paycheck. I looked at my paycheck and confirmed this — my employer made my contribution in 2017, even though I told them not to start contributing to 2018. Continue reading

Taxable Portfolio Update: $267,538

As my portfolio increases, I’ve stopped paying enough attention to how it’s actually performing. My current taxable portfolio ($267.5k) is detailed below. I have about the same amount in my retirement portfolio, which I’ll cover in another post.

Note, a few stocks are listed twice because I’ve purchased them in two different accounts.  My taxable stock accounts include FolioFirst (formerly Loyal3), Robinhood, Sharebuilder and Vanguard. Continue reading

Annuities are FUCKED UP… aren’t they?

As the resident personal financial advisor for my family (despite that I have no idea what I’m talking about half the time), I’ve jumped into understanding my parent’s financial situation (the good the bad and the ugly) as I will have to help my mother manage her finances for the rest of her her life once my father is gone. He may live longer than her but she is relatively healthy right now and he has terminal cancer, so it’s likely I will be the only person able to really help ensure her quality of life since she understands zilch about money.

My parents are doing ok financially – not great – not as good as they should be doing given how much my father earned throughout his life — but they overspent and now they’re left with about $300k in retirement funds and $400k in real estate, give or take a few hundred thousand since I can’t get a straight answer from my father (who unfortunately doesn’t like to talk about this stuff because his go-to answer about any important financial question longer than a few years out int he future is ‘i’ll be dead then’). Continue reading

Are 401k Accounts a Scam?

I’m no financial expert, but I try to follow the basic principles of investing and retirement savings in order to hopefully not be dirt poor in old age. One of these principles has been to consistently max out my 401(k) each year, which I’ve done faithfully now for many years, ever since I finally had access to a retirement account at work. As soon as as started making too much money for a Roth IRA, I socked away $18k a year in my 401k… and now, between all my pre- and post-tax retirement accounts, I have about $235k locked away, compounding over time.

However, after reading more propaganda on 401k investing, I started to suspect something fishy is up. Most of the anti 401k content focuses on issues with high fees — which, indeed, are a big problem with 401ks. But, really, the most suspicious piece of messaging out there on the benefits of the 401k is that you don’t have to pay taxes now so you get the “benefit” of paying them later. Continue reading

crowdfunding

How to Become an Accredited Investor

There are many benefits to being an “accredited investor,” primarily centered around being able to invest in securities not registered with financial authorities. In other words, the government blocks non-wealthy folks from making “high risk / high reward” investments. Is this fair? Shouldn’t I be allowed to invest my money in any investment if I earned that money?

While investments open only to accredited investors are high risk, there are many other investment types open to any income level which are extremely high risk. Even investing in one individual public stock – which anyone can do – is nearly the equivalent of putting all of one’s money on red in Vegas. Continue reading

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Current Investment Portfolio ($323k)

Some of you have emailed asking, so here is an overview of my current portfolio:

STOCKS – now @ $144,385 (2016 goal = $200k … which may be a stretch!)

  • $18402 – AAPL
  • $8665 – AMZN
  • $1891 – DIS
  • $1130 – FTR
  • $2783 – GE
  • $649 – GOOG
  • $20408 – IHI
  • $7315 – JNJ
  • $7862 – MCD
  • $6951 – SBUX
  • $2935 – VOO
  • $8178 – VZ
  • $33392 – VGHCX
  • $13690 – VMGMX
  • $5634 – Loyal3 Account (multi-stock)
  • $4500 – Robinhood Account (multi-stock)

RETIREMENT (mostly pre-tax) – now @ ~ $154,824 (2016 goal = $190k)

  • $9172 – DVY
  • $1487 – GLD
  • $2898 – XRT
  • $3088 – AMZN
  • $2199 – GOOGL
  • $2299 – NFLX
  • $347 – TEL
  • $2106 – VTI
  • $4658 – VFWIX
  • $12867 – VEMAX
  • $21943 – VIGAX
  • $16169 – VTIAX
  • $31170 – VTSAX
  • $12612 – VDADX
  • $5078 – VDIGX
  • $10928 – VSGAX
  • $15803 – 401k to rollover

OTHER ($24,164)

  • $6464 – 529 plan
  • $873 – Prosper
  • $427 – Lending Club
  • $16.4k – stock options that will likely be worth $0 in 2016

How I Increased My Networth 13% in 2015

Last year I increased by net worth from $309,894 in January of 2015 to $352,066 in January of 2016 (increase of $42,112 or 13% YoY increase.) This is not accounting for the last week of declines, which may or may not hinder 2016 growth. With a total net worth of $352k to start this year, I’m focused on my goal of hitting $400k by the end of 2016. Although this isn’t my original goal of $500k by the end of 2016, I think $400k is still a very aggressive and challenging goal for this year.

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In 2015, my stock portfolio increased from $144k to $171k. My retirement portfolio increased from $152k to $171k. Thus, the year concluded with approximately $342k in active investments (mostly stocks.) This is why when the market dips my portfolio significantly decreases. Since I have a substantial amount of funds in the stock market I tend to wait now a bit before putting large sums into play beyond what is already invested.

Goals for 2016:

Stocks: $200k, including $15k additional in Vanguard admiral healthcare fund, which has a $50k minimum. This would = $29k in net new investment, or ~$2.5k per month. If the market drops lower than monthly investments will have to increase to make up the difference.

  • $1250 / month — Vanguard Healthcare Fund (to get to $50k admiral minimum)
  • $400 / month — loyal3 fee-free partial stock investing
  • $850 / month — Vanguard fund TBD to get to $10k admiral (might reinvest in the dividend growth fund I sold for losses after a month or so. We’ll see.)

Retirement: $190k (max out 401k and IRA for 2016 — $23.5k additional investment, or $2k per month)

  • $18k = 401k max
  • $5.5k = vanguard IRA (post tax)

Cash: $10k – I’d like to close out the year with a $10k emergency fund.

This = a total monthly investment of approximately $4.5k per month, up to $6.5k if the market drops further. $6.5k is fairly impossible w/ my general monthly expenses plus the wedding, so I think the $4.5k goal (esp with some of it in pre-tax dollars) is a reasonable objective. If the market sucks this year then I probably won’t get to $400k, but I’ll still be buying discount stocks which will hopefully go up at some point in the next 10 years to make up for any losses.

If I can do this then and maintain my job I should be able to close the year out with $400k net worth. This would be a very exciting achievement for this year, as I’d still be on target to hit $500k prior to 35 (2018.)