A millionaire thinks quite differently. A million dollars to a millionaire is a chance to earn 10% gain – which is $100,000. In the millionaire’s mind, the first year’s gains pay off the debt, and you get to keep the million in principal to earn another $100,000 the following year. If that were your sole “income,” then you would live off of the $100,000 annual gains, keep the principal in tact, and your job would be to figure out how to earn 10% annual gains, while keeping the risk factor to a minimum.
Below are 10 easy steps to do just that.
- Tithe to yourself first – not the bill collector. Your 401K, IRA, Health Savings Account and other “retirement” plans are your chance to start living a rich life now. Increased assets provide you with all sorts of freedom, including lower interest rates on loans, better credit profiles and more. This money is also protected from your own tendency to throw it down the drain of bills and retail therapy and from the liens of anyone whom you owe money to. Banksters and bill collectors are not going to take up a collection to keep you housed and fed if you lose your job, so don’t short-change yourself. You have an obligation to yourself and your family first, even now, even if you are underwater on a mortgage or have credit card debt. I’m not saying to ignore your bills. I’m saying to focus on your fiscal health, so that you are in better shape to generate income, increase your assets, reduce your spending, negotiate better terms and pay off any debt you might have, without draining your own life blood.
- Keep a percent equal to your age SAFE. If you were 50 during the Great Recession and you kept a percentage equal to your age safe, plus 20%, your maximum losses would have been 15%. Unfortunately, too many retirees lost half, and are now back at work as a result. Not losing is winning in a recession. Stocks and bond funds are not safe, and many bonds are vulnerable these days (think Greece), particularly those where the underlying corporation or municipality is carrying too much debt.
- Diversify your stock holdings. Read You Vs. Wall Street, particularly page 92, to see an example of an easy-as-a-pie-chart nest egg strategy that has worked in bull and bear markets for more than 12 years now — through the Dot Com Recession and the Great Recession and the bull runs in between. Select just 10 diversified funds and you can easily see and capture your gains each year. Six of the 10 funds should be diversified by size and style and four funds should be hot industries for that year. Be sure to avoid the Bailouts to maximize your returns!
- Diversify your assets. Be an and person. Own your own home and stocks and bonds and a little gold and then start thinking about other low maintenance, low risk, cash positive, hard assets that can earn a 10% annual gain. Now might be a great time to purchase income property, or a car wash, or a dry cleaners, or a mini-mall with some essential, recession-proof service, like a grocery store, anchoring it.
- Never loan money to relatives or friends. You don’t want to be the bank of the family and you certainly aren’t in a position to evaluate these “loans” based upon merit or the probability that the loan will be repaid. Look at your spending in the harsh light of reality. It might be charity (so give the money). It might be fun or educational (so spend the money, if you wish). But it’s rarely a loan or an investment that will pay you back – even if you are promised equity in a startup with the potential to become the next GroupOn.
- Startups are fun or charity – but not nest egg investments. If you are an actor/waiter or a singer/secretary or an author/executive, you might wish to invest (spend) every spare dime on your CDs, self-published books or actor reels. If you lost a job, you might have taken a seminar telling you how easy it is to self-publish a book and start your own consulting business. The truth is that most startups fail. If they make it to cash positive, that’s great, but in the meantime, you’re going to spend a lot of time and money. On the other hand, no matter what your passion project is (and why not have a passion project!), if you invest 10% of your income in a tax-protected retirement account, and that 10% earns a 10% gain, you’ll have more money than you earn in seven years and your money will make more money than you do, within 25 years. That kind of wise investing will generate a whole lot more money to film that American Idol video, or to fund your own book tour, or to take a year off to audition for toothpaste commercials.
- Never let relatives or friends manage or invest your money. According to a 2006 FINRA.org study on investment fraud, 70 percent of victims made an investment based primarily on advice from relative or friend. Interview your money managers as if your life depends upon it because your lifestyle does. There are 12 questions to use when interviewing your financial partner candidates in You Vs. Wall Street.
- Underweight distressed industries and overweight hot industries. AIG, GM, Bank of America, JP Morgan and Citigroup were all part of the Dow Jones Industrial Average, meaning that the former leading blue chip index was really the bailout index. Not surprisingly, the DJIA earned less than half as much as NASDAQ since 2009, with gains of 30%, compared to NASDAQ’s 60%. Meanwhile, countries rich in natural resources, like Australia and Latin America, have doubled in share prices since 2009.
- Rebalance at least once a year. Rebalancing once a year means that you’ll always have enough safe, can capture your gains (increasing your net asset value), can determine which industries are hottest for the year and which industries, countries and companies to avoid, like banking, Greece and Japanese nuclear power plants. Doing this meant that you would have captured most of the Dot Com gains you made in 2000 – before the crash wiped most investors out. You would be rich in real estate gains in 2006 – before the crash. And high on clean energy gains in 2007 (when clean energy was the top industry on Wall Street) – before the crash.
- Trust no one. Verify everything. Your bank: Bailed out. Some brokerages: Bankrupt. Others: bailed out. The “experts” failed, with few exceptions. The only experience that counts these days is a PhD is in results. You must check the fiscal health and fine print of any bank, annuity, brokerage account, etc. that you sign up for. Some brokerages are now offering FDIC-insured money market accounts – a good thing.
If you inherit a million and still have a thousand-aire mindset and lifestyle, you’ll be broke in just a few years. If you start out with a few thousand and you follow these golden rules, you’ll create prosperity and abundance and the life of your dreams.
About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street. She is a repeat guest on Fox News, CNBC, ABC-TV and a contributor to HuffingtonPost.com, Forbes.com, Sohu.com and BestEverYou.com. As a philanthropist, she has helped to raise more than two million for Los Angeles public schools and financial literacy. Follow her on Facebook.com/NWPace and onYouTube.com/NataliePaceDOTCOM. For more information please visit NataliePace.com.