I must apologize—I have an enormous backlog of questions (everything from tax liens to what to do with gold in IRAs to whether the HAA supports self-directed IRAs to how to buy ammunition to petrodollars to the fiscal cliff to how do we export inflation to primary dealers and market makers to what do I think about Porter Stansberry’s latest presentation to how to open up foreign bank accounts to how much of your portfolio should be in gold to my opinion of the CAN SLIM investing method to my opinion of the FDIC Investor Match Program to whether Nicaragua is a good place to invest in property to whether the Palm Beach Letter is worth subscribing to…and many, many more!)
I won’t be able to answer all of those in one day, unfortunately, (although I am working on it!) but I am slowly working through them and either emailing you back directly or covering your questions here on the “global” QnA. Thanks so much for your patience! I truly appreciate it. I am in the process of hiring a Kung Fu assistant (hooray!) to help me in other areas so I will have more time to devote to writing articles and answering your questions—my two top priorities! I hope that will help tremendously in the next few weeks…thanks for your patience!
Thank you so much, and onto this week’s questions!
First, Travis asks,
I have a question for those of us just starting out on our quest for financial independence. Just to give you some insight into my fortunate, and certainly not taken for granted, situation: I’ve just turned 23 years old. I graduated in May 2011 from a Big Ten school with an engineering degree. I have a well paying job as a manager (newly promoted from a trainee) with a large company. And, the most fortunate part of all, I have no debt to speak of. I’ve been reading a lot of newsletters I’m sure you’re familiar with (Whiskey and Gunpowder, The Daily Reckoning, Notes From the Field, Casey Daily Dispatch, and of course KFF), but I get the impression that the target audience for those has considerably more to invest than I do at the moment. That being said, my question is this:
What would be the best use of a small amount of initial capital ($10-$15K) to start on the way towards financial independence? What would you do in my position?
Any advice is greatly appreciated. I know you get a ton of email, and I have plenty of time to learn and get my shit together, so definitely no rush! But I’m certainly looking forward to hearing from you. Thanks for all the work you do to help us newbies. The site is great and I always look forward to reading your new articles.
P.S. If you’re ever in the Minneapolis neighborhood, be sure to drop me a line. It would be great to meet you in person, and drinks are on me!
Thank you Travis! I will absolutely take you up on those drinks in the future!
So, I’m sure you already know that I have to put in my huge disclaimer because I am not licensed to give personal advice (honestly, it’s illegal because I am not a registered investment advisor, nor do I want to be, and I don’t want the SEC or some other federal agency pounding on my door!)
Also, I don’t know enough about you as a person to give you much detail…your risk profile, whether or not you have an entrepreneurial bent, what types of things excite you and interest you in life, how much time you’d like to spend on your investing, whether or not you already have an emergency fund, etc.
But that said, here is a bit of advice:
First of all, congratulations on your graduation and go Big 10! (I’m a University of Michigan grad, myself)
And congratulations on landing a decent, paying, management job from a large company—that is wonderful, and unfortunately very unique in this economy. And especially congratulations on having no debt—that is outstanding!
Don’t sell yourself short…you would be amazed at what the “typical” investor or newsletter reader has available to invest. I happen to know a lot of people who would love to have a spare $10,000 – $15,000 to invest.
You are in the ideal position—still young, no debt, decent (maybe even great?) job, and money to invest! And you are smart enough to know that you should get started now and not just waste it all away on crap, so hats off to you!
I am familiar with all of the newsletters you mention (you can read my Confessions of a Newsletter Junkie article for grins if you like…) and I’ve actually met all of those editors in person at one time or another and they are all great, and all of them will have an opinion for you on what you should do with your $10,000 – $15,000. (And many/most of those opinions will differ from each other!)
The very best thing you should do is to take a step back and really think about what YOU want your life to look like in the next 5, 10, even 20 and beyond years, because that will dictate the best way for you to deploy your $10,000 – $15,000.
Do not underestimate this—it is crucial! You honestly don’t want someone like me telling you to “put a down payment on a rental property!” or “buy $10,000 worth of dividend-paying stocks and keep $5,000 in cash!” or “buy $5000 worth of gold and $5000 worth of silver and $5000 worth of US Treasuries!” or “Buy the S&P500 and open up a Roth IRA and spread the rest out amongst a basket of foreign currencies!” or “don’t do anything unless you have an emergency fund!” or …
I completely understand where you are coming from—the opportunities are endless, and everyone wants someone to just tell them what they should do (and it’s fine to seek out advice and pros and cons—don’t get me wrong), but at the end of the day it is YOUR beautiful life and you should decide how YOU want to spend it.
It is SO IMPORTANT for you to sit down and dream a little bit and decide what you want in your life!
I recommend going through these exercises, step by step:
White Belt: Know Where You’re Going (Vision & Commitment)
- Financial Independence: Earn Your White Belt (Create your vision for financial independence)
- Financial Independence: Kung Fu Girl’s Vision Example
- Financial Independence: Turn Your Vision Into SMART Goals
- White Belt Test: Are You Committed?
Yellow Belt: Know Where You’re Starting From (Order from Chaos)
- The Most Important Financial Statement You’ll Ever Read
- Is Your Financial Life a Mess?
- Channel Your Inner Kung Fu: 5 Steps to Clutter-Free Finances
Orange Belt: Survey the Battlefield (Introduction to Investing)
We will be diving in here shortly! This is the all-important “survey of the investment landscape”, also known as “there is more to investing than the U.S. stock market”.
In this belt level you will learn about all of your investment options—cash and good ways to store it, stocks, bonds, commodities, precious metals, currencies, real estate, and businesses.
This belt-level is FUN because I will introduce you to the big wide world of investing (much like the ol’ Wide World of Sports!).
My apologies for not having 15 – 20 articles on this already…I have written several, but they are somewhat scattered on the site and not organized clearly like the white and yellow belts are. I do think this will help you, because you will be able to choose the type of investing that will work best for YOU and make YOU the happiest.
Please stay tuned…
I hope this makes sense…I can of course give you the standard “compound interest and time value of money are on your side!” answer (and it’s true, they ARE, and you should definitely take advantage of that!), but in all honesty the very best thing you can do is to spend some time deciding what YOU want out of life, and out of your investing.
Next, Ron asks (actually he asked twice, sorry Ron!),
I would like to know what you think of the following.
One, because it seems that no one is really talking about it.
Two, they seem to be afraid of really telling one big thing that this will do not only to the U. S., but most of the world.
It’s 3D printers.
They are portable factories that everyone can have and most will have in their offices and homes. It has already started in 2012 and will be as common as a screwdriver in Uncle Henry homeowner’s garage as the next 3 or 4 years roll in.
You will be able to print just about everything that you would want. An engineer has already printed an AR-15 rifle that shoots just as well as one
manufactured the old way. Took him only 20 minutes to print it out.
I’ll tell you why the media or other sources are not talking about this.
I predict that the impact on jobs will be really bad, with the jobless masses storming the barricades.
So I would like you to think about this and let me know what you think and predict?
Oh, I found out that the Military is using 20 ft. long trucks with 3D Printers inside over in the war areas. The Government paid $2.5 million for each one of them.
I’m looking forward to your answer. Thanks!
Also what do you think about 3D-printing? I have made about 1,300% on my money since I started trading the 3D-printing manufacturers way back when this had just started and coming on forward.
Only thing I know for sure is the dark side of 3D-printing.
It’s that great sucking sound of jobs just going away in U.S., because of 3D-printing and as the years go by with 3D-printing getting in every where.
China knows that their goose is cooked and they cannot let that get started in their country. They have to have jobs for a little over 800 million people or it’s civil war there or just war in general.
Anyway I think that you write the best newsletter that I have read in a long while. Keep up the good work.
Thank you Ron, and YES, I’m so sorry, you asked me about 3-D printing a few articles ago and I’ve been so buried I haven’t replied yet. First of all, congratulations for making 1300% (!!!) on your money! Let me know if you’d ever like to write a guest post on that!
I do like 3-D printing, but I have to be honest with you– I do not know *that* much about it– it’s not my area of expertise. I believe it’s the wave of the future, but I haven’t personally investigated any 3-D printing companies and looked at their balance sheets (although I did see several working 3-D printers at the recent Maker Faire and found them to be AMAZING).
So, I believe in the technology whole-heartedly, but I haven’t sorted out the investment opportunities yet. I will look into it….although right now I am heavily investigating tax liens and peer to peer lending (in my “free” time!).
I have read a few fascinating articles on this lately, though, that you might be interested in:
One from BusinessWeek on how 3-D printers have already entered the retail market and how you can buy one to sit on your desktop and make amazing things…these are great proof-of-concepts for designers:
One from Wired Magazine last month on printable guns:
I am serious about that guest post—if you have personally invested in this space and have some insight and boots on the ground battle stories to share I would love to hear from you. It’s a fascinating area, and there DO seem to be a lot of mergers and acquisitions taking place, which sometimes make for fun and lucrative speculations.
Let me know…and sorry I can’t add much more to this discussion—just not my area of expertise (although yes I think they are SO COOL and loved seeing them in person at the Maker Faire!).
Next, Kim asks,
One of your guys (Casey, Sovereignty man, investor dude… I can’t remember which one) says now is the time to get into real estate. Hummm… great idea if I had the cash. So, for the little people that feel real estate is out of reach, what do we do?
I’m going to stick with “actual” real estate here and not give you the “check out REIT’s” answer, because REITs, yes, are one way to invest in real estate, but they are a different animal and not what I believe you are asking about in your question.
There are several things you can do as “the little guy” to invest in real estate.
1. Find partners
It is not as hard as you think to find partners who would love to invest with you.
Frankly, I would personally love it if someone did the majority of the legwork for me and found one or a few cashflow-positive properties to invest in. I would gladly contribute capital to that effort (assuming the due diligence worked out).
There are many ways you can partner with others to buy and rent out real estate…you are truly only limited by your imagination.
2. Get connected
This should probably be step one—find a local real estate investing group and/or some online groups and get connected with other likeminded investors! You will learn SO much by networking with others. One that I like and have gotten value from in the past is a Canadian site called RevNYou. It’s a husband and wife team who personally invest in real estate and give you “the real deal”, just like I do here on Kung Fu Finance.
3. Look in lower cost areas
Depending on where you live, you might easily be able to afford a property in another area of the country, where the average home prices are lower than in your local area. Just be sure to do your research on that location (real estate is extremely local) and make sure the economy is growing there, or at least stable, that there are a lot of jobs, people moving INTO the area, etc.
I could go on, but that should get you started…it IS possible, but you need to be a little creative and be willing to exchange your time and energy for other people’s capital.
Also, I have a question on QE3 and the stock market. Okay…. why does the market jump and go up if they announce a stimulus package? Is a stimulus package (QE3) bad? So why would it go up? and the stock market going up is really big investors spending, not the little people that need to spend to make the economy turn. Right???
Great questions! Yes, QE3 (or “Quantitative Easing, take 3”) typically does make the stock market (and frankly right now, most of the other markets!) go up when it’s announced, unless it’s already “priced in” to the market. This is because QE basically means “copious amounts of money printing” and when you flood the market with more dollars, that pushes prices up.
(You can think of this like the Bay Area housing example—houses here in Palo Alto where I live are no more “beautiful” or spectacular than in any other city in the U.S., and yet prices are astronomical because there are so many more dollars here chasing the same quantity of housing).
That’s not a perfect example, but it’s close. Gold tends to go up when more QE is announced, too, because investors know that the more dollars are printed and created out of thin air, the less each dollar is worth.
(I described inflation in this article: http://www.kungfufinance.com/what-happened-to-your-money-part-2/ and in several others.)
On whether a stimulus package is “bad”, that all depends on your point of view.
Obviously Ben Bernanke thinks it’s wonderful, as do many “prime time” economists. They worry that if they do not flood the market with dollars our economic growth will stall and throw us into a depression (I would argue we are already in one, but that’s a subject for another article!).
Rational, thinking people however can see the flaw in this argument—when does it ever make sense to answer a problem of “too much debt” with…..MORE debt?!
That just does not logically compute!
So that is why many people think that stimulus packages are “bad”. (I am obviously in this camp, but as this is a “think for yourself, grasshopper” website I encourage you to read about it and form your own conclusions)
And yes, as for the stock market going up due to big investors spending versus the little guy, you have that exactly correct (which is yet another reason why I believe these stimulus packages are “bad”—they do NOT do much to help “the little guy”).
Unfortunately the most recent statistic I can find is from 2005, which says that retail investors (aka “the little guy”) owned 26% of equities. (And the individual investor exodus from the stock market has been huge since then—$136 billion for the 13 months ending in July 2012).
Additionally, High Frequency Trading accounts for more than 70% of all trading activity (and that is conducted by “big guys”—hedge funds, pension funds, etc.)…so yes, the stock market “moves” primarily due to the big guys, and the big guys own the vast majority of the wealth of the stock market.
Thank you for your most excellent questions and I will continue to plow through them in the weeks to come!
Have a fantastic weekend!
To your financial success,
— Kung Fu Girl
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