I am reading Young Wealth. It was almost free because of Humble Bundle so I believe it will be a worthy investment. Here are my notes.
Counter intuitively thinking. The First lesson in the book was to think counter intuitively. An example such as losing a lot of money because stocks have fallen means it is a good time to invest.
Wealth Is A Mind State
The next lesson was that Wealth is a state of mind. This means with bad habits, even if you win the lotto, you will likely be out of money again soon.
5 Traits of Wealth Building
1. Focus on the process. This means you do not focus on the goal. You want to focus on instead the steps needing to achieve the goal.
2. Prioritize productivity. The meaning of this is that time is money.
3. Emphasize continuous learning. Be scholarly, things change very often.
4. Nurture your relationships. I assume this is the importance of networking. Humans also need social interactions or they go crazy (citation needed).
5. Put yourself in the seat. Take control. Unfortunately, rarely, do opportunities just fall into your lap.
There are three time-tested ways to master wealth: the stock market, entrepreneurship, and real estate.
There are two ways you can hope to see your home increase in value: market appreciation and forced appreciation.
Market appreciation is great for the long-term wealth-builder. Also called Natural appreciation.
Forced appreciation is the intentional uptick of value due to renovations and additions to the property made by the owner.
With Rental properties you have to figure out what you want your profit to be after paying for principal, interest, taxes, and insurance (PITI)
House flipping popular but it takes a lot of resources already to do it successfully.
Real Estate Investment Trusts (REITs). Real estate investment trusts are a great alternative for those who are not ready to purchase a home or use an income property for cash flow.
The function of a REIT in your portfolio is to provide passive income, since they offer above-average dividends. By law, a real estate investment trust must distribute a staggering 90 percent of its taxable earnings to its shareholders in the form of dividends. That requirement means that you’ll receive a portion of the billion-dollar operations earnings on a frequent basis.
Understanding and Managing Your Risks
When investing Ignore the Herd
At minimum, your portfolio should consist of three types of investments: stocks, exchange-traded funds, and bonds or income funds.
Before investing Stock in Company answer the questions
What Does the Company Do?
Does the company Make Money?
What’s the company’s competitive advantage?
How much of the stock do the company executives own? Great indicator on their faith they have in the company over the long haul.
Does the stock diversify your portfolio? Different industries, locations, and risk levels mitigates the systematic risks of investing in the stock Market.
If you don’t want to go to the trouble of picking and investing in individual stocks, you can choose to invest in exchange-traded, funds, a relatively new vehicles that has gained popularity because of its low cost and high efficiency. I need to Google this.
Bonds. bonds are great investments that provide fixed passive income. They have historically been sold as a risk averse way for investors to earn interest on their principal. bonds allow investors to help finance a company’s operations with the expectations that the bondholder will be repaid a fixed amount at the defined interest rate and returned the principal amount at a date called the maturity date. you let a company borrow your money and they pay you back, with interest.
They can be hard to choose from and come with risks. Interest rates relative to the current interest rate environment can be an indicator of how risky the bond is and the likelihood of the company you are investing in will default. The higher the interest rate on an individual bond, the higher the risk of losing your principal. Bonds with such high yields/ high risks are called junk bonds.
If interest rates rises, your principal amount declines and changes the value of your bond. You should focus on bonds with high ratings and intermediate maturity dates to mitigate the risk of bond price changing drastically. Bonds also face inflation risks. Life will continually get more expensive, will your fixed rate of return keep up? That is why over-weighting bonds in your portfolio can limit its grow potential over time.
Annuities Versus Tax-Free Bonds. Do not buy them. Instead choose tax-free bonds.