Sunday, August 31, 2014

Skills Employers Wish You Had

Napoleon Dynamite: No, but who would? I don't even have any good skills.
Pedro: What do you mean?
Napoleon Dynamite: You know, like nunchuku skills, bow hunting skills, computer hacking skills... Girls only want boyfriends who have great skills.
Pedro: Aren't you pretty good at drawing, like animals and warriors and stuff?

In 2004, Napolean predicted the quandary that is our labor market today.  Okay, Napolean was in fact making a point about the type of boys a girl would want to couple with.  One that has plenty of skills to show off, like nunchuku skills, bow hunting skills,....  It's the same in the natural world with animals, if you believe in that sort of stuff (survival of the fittest) and are not super religious.  To each his own, right?

Yet in a way, Napolean was correct about one thing: skills count!  Just ask the hundreds of CEO's who have complained now for several years about the lack of skills college graduates have.  See article: Skills Employers Wish.. The chief complaints include graduates that need additional training once hired, lacking the skills necessary to simply do the job.  The skils employers want: communication (does not equal texting skills), time management (does not equal showing up to lecture just 5 minutes late), and ability to work with others in a team (does not equal playing wingman at a house party).

I'd categorize the three skills above as fundamental.  Everyone should "meet expectations" when it comes to communication, time management, and teamwork.  Yet there are skills far more valuable.  These skills will put you or your millennial child behind the handlebars of a sweet bike.

I was not surprised when I read this article last week: Grad studied Computer Science and no job.  Featured on the Washington Post, the article profiles a recent college grad that cannot find a job in this market.  The hook?  The profiled grad studied computer science!  Not English or Philosophy or Poli Sci.  It's an excellent case study on the importance of "employable" skills.  Very few, and I mean like only a handful, of colleges teach skills per se.  Most are a mirror of our high schools, where professors stand on stage lecturing theoretical and abstract concepts that are obsolete by the time students graduate.  It's not the situation with every major of course.  I'd like to think, as a former science major, that the lab skills students learn today are relevant and useful in the Biotech world.  Majored in Communications, Marketing, Business, or Finance?  Great.  You'll be in direct competition with thousands of grads because nowadays, almost everyone has a college degree.  The graduation rate is about 60%.  Check out: College degree the new HS diploma.

"Businesses aren’t looking for college grads, they’re looking for employees who can actually do things – like build iPhone apps, manage ad campaigns and write convincing marketing copy. I wish I’d been taught how to do those things in school, but my college had something different in mind."  Quote from I studied computer science...

We can harp about professors who lack real world experience or about our education system being broken and obsolete until we're blue in the face.  The fact remains, people need skills WITH a piece of paper in hand that says you jumped the necessary hoop.  From my wealthy contacts, business owners among them, I've learned that the following skills are what people need to be hired at a high paying job:

1) Numeracy.  Do you need to use a calculator to multiply double digit numbers?  You can forget about careers that involve deal making, real estate companies, investment firms, banking, and many others.  Time is of the essence when communicating with a client, and if the client is faster at coming up with numbers i.e., offers, and you can't respond in turn with a decision, you've just lost.

2) Sales.  When is the last time you convinced someone (other than a relative) to buy something from you?  Never you say.  Guess what, you are below the curve for what is needed today.  We live in a world where things are made and sold.  That is the nature of the work most Fortune 500 companies do.  Apple: creates a new product, and then has to sell it.  IBM, GE, Samsung, HP, all have a product line that has to get to the consumer and be sold.  But there doesn't have to be a product all the time.  Services.  You have a service to offer?  You need to sell it!  You need to sway people to release their hard earned money and use it for what you offer or what your company offers.  Selling is an indispensable skill!  You hate talking to people?  Are you afraid of rejection?  Get over it.

3) Running a Business.  I'd hire a college grad that had working at MacDonald's on their resume over a college grad that has never worked a day in their life.  I cannot stress how important it is for people nowadays to have multiple experiences of working in different types of industries, doing various business component jobs.  As a high school administrator, I cannot tell you how many times I have heard well-intentioned parents say, "I just want him/her to focus on his schoolwork," as an excuse to keep Johnny on the path to an Ivy League school.  Their fears are probably justified.  Johnny will not keep his 4.3 G.P.A. up if he has a side job.  But Johnny one day will end up like this computer science grad, with no actual skills to promote himself!

4) Literacy.  Can you write?  Can you spell?  You don't have to be a best-selling author to get a job.  However, many job applications have a written portion.  If you can't spell, or if you struggle with basic sentence structure, you are at a huge disadvantage.  My suggestion:  Read some more.  Reading may be something you hate to do, but in our world, reading AND writing are like tying your shoe.  We just expect you to know how to do it.

There are certainly many other skills that are essential in today's workforce, but now I'd like to make a suggestion for parents of teenagers.  Do you want your son/daughter to be not only top of the class, but also real-world ready?  Let them get a job!  In fact, require that they do!  Just once in ten years as an administrator I have been told by a student about a business they were in and that they wanted to share with me.  This student was pitching his Network Marketing company to me and I was one amazed dude.  Here was a student learning about managing his own business, sales, communicating with an intimidating one at that, in high school!  Why can't we have more juniors and seniors learn valuable skills by doing Network Marketing?  There is no law against it.  They may not end up at the top of the line, making thousands of dollars a month, but hey the skills they'd learn would pay huge dividends after college.

So, parents, consider your teen much more than someone who has learned the rules of getting an "A" in class, much more than someone who can regurgitate information well, or take a test well.  Do your community and country a favor and instill the value of real-world skills in your offspring by pushing them out of the house and into a job!

Until Next Time!  For now I'm going to do whatever I feel like I wanna do.  Gosh!

Sunday, August 24, 2014

Rich-Uncles Brings the Crowd to Newport Beach

Saturday, 8-23-14, 17 Corporate Plaza, Newport Beach, CA...

It's 9:45 a.m. and I've just finished driving through a maze of streets starting from South Coast Plaza (Costa Mesa, CA) and ending in the parking lot of Rich-Uncles RU website headquarters.  I had to avoid the toll road, and I was using a new iPhone navigation app that of course mapped my drive utilizing the toll road!  First thought that hits me, I made it!  Second thought that comes to mind, I hope Jessica (my wife) doesn't break the bank at South Coast Plaza mall.  Mighty glad, therefore, that I was where I was, ready to expand my knowledge of investing in real estate, commercial RE to be exact.

I'm not alone, other investors are getting out of their vehicles and walking toward the building entrance.  We're greeted with a firm handshake and a kind, "welcome," by Rich-Uncles employee, Scott Miller.  Up to the second floor and to the reception desk we all go, where we meet the lovely, Taylor Cervantes, another Rich-Uncles employee.  Being a Rich-Uncles investor, I'd had several conversations with Taylor before, so it was nice to finally put a face to the name.  8.5 by 11's with arrows point the way to this room:

Co-Founders and "Rich-Uncles," Harold Hofer and Howie Makler start the presentation, introducing themselves to investors.  The room would be close to capacity minutes later with more investors trickling in.  It is a Saturday morning in So Cal after all.  Notice there are three founders on the television screen.  The third?  None other than CBRE Chairman, Ray Wirta!  We would soon all learn that Mr. Wirta is actually the "financial braun, and brains behind the operations" (quote--H. Hofer).

Now, with this post I could write with generality about the Rich-Uncles investment.  And I would, if I hadn't already done this.  So, if you are reading this post without having read the most popular post on my blog, I suggest you to stop reading here.  Please go to: Investing with Rich-Uncles.  Then come back!

I'm going to instead highlight why the Nexregen REIT ("Rich-Uncles" is just the brand name) is leaps and bounds above the competition in the equity REIT industry.  For starters, in the case of crowd funding entities, how many out there, Realtymogul included, are inviting the "crowd" to their corporate offices?  How many REITs out there are willing to educate the little guy, not with hard to believe claims, or with a sales pitch that leaves you nervous, wondering if you're going to make it out of the place intact (not parting ways with your wallet/purse).  I reiterate: How many REITs out there...don't charge an admission fee to hear industry experts, leaders, not one, but TWO millionaires, talk to you about an asset class, insert their product seamlessly and not shove it in your face?  I'll tell you how many.  Zero!  Only one, Nexregen.

Howie Makler asks: Why do people prefer to put their money in a bank and not invest with it?

An audience member responds: Because it is safe!

Makler: You're right.  It is a 100% safe guarantee that it will lose value over time.

Howie was alluding to the erosive qualities of inflation.  He'd later explain how money in a bank isn't really safe at all, not with inflation eating up purchasing power.  Instead he'd suggest to Think Like a Rich-Uncle, and buy an asset that's going to at minimum track the rate of inflation or even better, beat it.  The asset is of course, real estate.

Howie later said: We're not suggesting that all of your money should be in real estate.  But one cannot dismiss the many positive virtues that make real estate attractive, including being a hedge against inflation.

What separates Rich-Uncles from other public REITs?

Sure, you could go after better yields in the stock market, buying publicly traded REITs.  The shares of these REITs fluctuate daily with buyers and sellers, including high frequency trading machines, and gi-normous institutions, executing orders.  These share prices increase and decrease with no actual change to the value of the underlying real estate.  What's to become of you when the Bernanke and Yellen party ends, and interest rates begin to rise, shocking the market and sending all currently buoyed stocks  down?  I'll tell will sink!  The Nexregen REIT is public, requiring governmental permitting and audited financial statements, but it is NOT coupled to the stock market.

Moreover, unlike many REITs that offer a better yield (Rich-Uncles yields a 7.5% annual return), Nexregen isn't going to do this at the expense of a steady and safe(r) dividend stream.  The quarterly dividend investors get, a quarter of 7.5, is not as an outcome of playing with investor money, as many REITs do, leveraging as much of "other people's money" as possible.  Makler added: Sure, we can increase our profit by increasing our risk, but that is not our motto.  We look to protect the integrity of the income stream by buying properties with an LTV (Loan to Value) capped at 40% because that's what our shareholders are counting on.  Are you kidding me?  Here's fiduciary duty at its best.  For a second I could almost see a glowing halo above Howie's head.  It was truly sincere.  Harold Hofer is actually the architect behind the strategy of leveraging well below industry norms to safeguard investors.  Like many of us, he's been burned in the past during boom periods, and it won't happen again on his watch!  Besides, the current model of bypassing risk to reward the managers is not only unfair to investors, but just plain unethical, and alas with many (other) REITs this, go for the gusto, strategy is alive and well.

What about other crowd funding platforms, like Realtymogul?  What separates Nexregen from an investment on this platform?  Simple, with Nexregen, you get three Rich-Uncles: Ray, Harold, and Howie.  Hofer added: With other crowd funding entities, you put your money into an investment that you've read up on and you hope that it works out as stated.  There's numerous deals to look at, with many different players.  All of this adds to a variability in terms of results.  With us, you get three proven experts with over 25 years of experience implementing a single strategy.

The strategy:  The Nexregen REIT purchases single standing commercial buildings and leases them to well known creditworthy companies (like Del Taco and Chase bank) utilizing a Triple Net (NNN) lease.  A triple net lease reverses the liability and expenses associated with owning commercial real estate by having the tenant pay all taxes and insurance, utilities, and maintenance.  Someone in the audience asks: How do you get tenants to agree to a triple net lease?  Hofer replies: In shopping centers, this is actually the norm, and any other type of lease is actually rare. We like this kind of specific asset.

Nice.  So a triple net lease maximize returns for a landlord and in turn improves the yield on an investment.  What's good for the company is good for the shareholders.  Another nuance I learned is that the large institutions aren't as interested in single standing commercial RE buildings.  They prefer entire shopping centers with multiple suites.  This too is a plus.  Nexregen in this case doesn't have to compete with players with large sums of capital who can outbid them in the quest to purchase an asset.  The early bird gets the worm but not if the next bird on the scene is twice its size!

Why buy real estate equity?
Can you afford a 20% down payment on a rental?  Do you have great credit?  What's your debt to income ratio and will it make an underwriter happy enough to give your loan the stamp of approval?  If you agree that for the sake of asset allocation, you should own some real estate in your portfolio, but the three questions just above, when answered by you, leave you thinking pessimistically, then perhaps Rich-Uncles is the investment for you.  By the way, your home is not an asset until you sell it, and that's only if you're not upside down on the mortgage.

How to get started on an investment with Rich-Uncles?

I would suggest that you first go to the website: Rich-Uncles' site.  Read, read, and read some more.  If you're comfortable, sign-up.  Note: this does not mean you have to invest.  You'll simply be added to the database of investors and at some point, get a follow-up call from a Rich-Uncles employee, probably Mathew Wilkins or Scott Miller.  If you're not comfortable, you can email  I'll be more than happy to help you make sense of things.

I wrote about ten pages of scripted notes during my time with Harold and Howie.  And I could certainly continue writing more lines here on this post.  But my goal was simply to whet your appetite, recommend a solid investment, and hopefully get you thinking about delving in yourself.  It behooves me on many levels to promote the Nexregen REIT.  I'm an investor and realize that the more the merrier (more new money = more money for the fund to buy properties = more money in the form of rents = more money for dividends).  There is no dilutive factor when new investors come aboard so the value of my shares will not fall from newbies piling in.  In fact, the shares outstanding will be static, equaling $25 million dollars worth at the end, prior to the fund's closing.

Until next time, amigos! 
Investors look on in this pic.

Oh, I almost forgot, my wife did not break the bank at South Coast Plaza, as it turned out.  Phew!

Need more Info?  Check out this video:  

Just Out!  R-U in the News!  News story

Thursday, August 21, 2014

Should You Switch to an Index Fund this Year?

Out today, multiple articles on the recent explosion of the popular index fund investing strategy.  See for example, Vanguard Total and Buffett's Advice.  As I have shared in previous posts, index fund investing is the strategy where you place your money in a fund (Mutual or Exchange Traded) that tracks an index, like the S & P 500.  The latest research supports this investing strategy over, say, an active one where you place your cash with a money manager.  Warren Buffett, the world's greatest investor, has for years espoused this strategy for long term positive investing results.  He has cited the better statistical results of index investing over most actively managed funds over the course of time as the major reason to choose index over active.  He's also made it known that the fees you pay, a premium over a low-cost index fund (such as Vanguard's Total Stock Market Fund, ticker: VTSMX) are not worth the money and eat up returns.  Buffett has a lot of sway.  There's a celebratory party going on at Vanguard and Buffett's partly responsible for it.  Thousands of investors have poured in billions of fresh dollars into an index fund this year, in particular, VTSMX, making it today the largest mutual fund in the world!  Like the ice-bucket challenge, has this trend reached a level of idiocy?  Are people rushing into an index fund because others are doing it too, i.e., following the herd?

The answer to both of my previous questions are a definitive, Yes and Yes.  It is beginning to seem as if people believe index fund investing is risk-free.  New money has been pouring into the stock market for quite some time.  With the bull running on five and half years, people are starting to feel comfortable investing in equities just now!  They're either coming back in or just starting out.  The timing could not be any worse.  Or conversely, if I am wrong (and there is more left of this rally), the timing could not be any better.  But you've been told not to time the market.  But you've been told market timing doesn't matter as long as your investing time frame is long, in the multiple decades.  But, but, but......moooo!


Would timing have mattered in 2005, when everyone told you to buy a house, and that homes could do nothing but continue to rise in value?  Look, here's the bottom line: timing does matter, however, you can't be indecisive or on the fence forever.

Did you put your money into (or switch from an active fund) an index fund this year?
So far you have not been hurt by the decision.  Yet again today, the S & P is up.  In case you don't know, let me share with you why you could be in trouble and let you know what you will need to do to "ride out" your troubles.

A portfolio of passive mutual funds that track a given index, will track the performance of the index almost to the tee.  If the index goes up, so does the fund that tracks it.  If the index goes down, such as in the case of a market correction, so does the index fund your money is in.  Here's a hypothetical scenario.  I'm a "Millenial" professional that has placed $10,000 of my hard earned money in Vanguard's Total Stock Market Index Fund.  This was money I had saved for two years and had until recently kept in a savings account earning virtually nothing for fear of the market.  Being a novice, I have no idea of market timing and I believe that my 30 years left of work as a new teacher will save me from any losses.  So far, I've made a little over $500 (in line with the performance of the S & P this year) and am pleased with my investment.  There's a  market correction of 35% sometime this year and the fund correspondingly drops.  I'm in the red over $1,000.  I don't have any cash on hand and won't for some time.  I panic thinking that the market will continue to drop, and feeling defeated, "the pain," as it is commonly known, I decide to sell, incurring a substantial loss.  DO NOT SELL!  Unless you have to.  There could be an emergency in your life requiring you tap into all of your money sources, including the shares of your mutual fund.  There are no ways around a forced sell...because we never take money loans or use our credit cards!  Bite the bullet, claim your "realized" losses at the end of the year during tax season.

What should you do?  Investing in an index fund is not a one time decision, unless you start out with a whole lot of money and even then....What you should do is buy more shares of your low-cost index fund systematically, as the fund share price drops.  The smart investor has a reserve of cash to mobilize when the going gets tough in the market, to pick up additional shares of their favorite equities they hold in their portfolio.  This is called, buying the dips, and it's a great strategy for investors with time.  If you can't buy during the dips, for lack of cash, your only recourse is to Hold long term, and wait for the market to swing yet again.  This could be quick, historically average, or it can take a long time.

I have shared also in previous posts, why an actively managed fund has its perks and advantages.  Some professional money managers are great at their stock picking, and understand economics, timing, etc., better than you do.  They have a fiduciary responsibility to safeguard your money and dampen your losses.  There are cases of certain actively managed funds doing better in down markets, holding resilient stocks and fewer, more volatile ones.  Here is an article that actually supports actively managed funds.  It is a breath of fresh air in today's financial literary world.  Why you shouldn't put all your money in an index fund.

Leave the grazing for the cows!  Until next time.  Any Questions?  

Sunday, August 17, 2014

Taxes: Your American Right to Lower!

I've never met a person who likes to pay taxes.  Never.  They may not mind it.  They may consider paying taxes as something that needs to be done for the common good.  But again, "like," that is too strong of a word in all conversations I have had.  If you currently belong to the camp of "not minding," or of "it's good for the common good," I want you to ask yourself: Are my tax dollars being put to good use by our politicians?  If your answer is, "no," then read on.  If your answer is, "yes," then I want you to stop reading, leave this page immediately, and come back to this blog some other day, because this post, my friend, is just not for you.

The following is an excerpt from my eBook: Common Core Money: Financial Literacy For Educators & Other Professionals.  It's only $2.99 people!  You're not going to get a better deal on an all encompassing financial literacy book.  It's also short and sweet for you non-avid readers.  Without further a-do:

Taxes are the single biggest enemy to wealth creation and preservation.  Many of my peers think of taxes as money that gets taken out of their paycheck monthly.  They dread the IRS and loathe Uncle Sam for jacking them of their hard-earned money.  Many love the idea of getting the rich to pay their fair share of taxes.  But when it comes to tax-saving strategies they have no insight.  I ask, “What tax bracket are you in?”  They don’t know.  The median salary for an elementary school teacher in 2014 is $41,069.  For a middle school teacher it’s $42,694.  And for a high school teacher it’s $45,177.  Source:  Without personal exemptions, that could place teachers in the 25% tax rate bracket.  (A typical administrator with pay greater than 89K could be in the 28% tax rate bracket)  Does it seem high to you?  It is!  Why?
The U.S. tax code is arranged to punish the professional, the “employee” who works for someone else.  Our government believes that structuring the tax code this way is best for the U.S. economy.  They figure that more people will want out of these crazy high tax brackets, forcing them to go into business for themselves.  In so doing these entrepreneurs will create small companies that grow into large companies, creating more jobs!  Pop quiz.  What is the fastest way to become a multi-millionaire?  Is it by becoming a highly paid lawyer or doctor?  How about working for Google as a software engineer?  The answer to becoming a multi-millionaire in this country begins with the creation of your own company.  It ends with you developing your company into one that uses scale and automation for growth.  If you can franchise your company or license a product or service and get royalties then you understand the end goal.  When you no longer need to be present for your enterprise to operate, congratulations!  You’ll be bought out by a larger company and retire wealthy.  In contrast, if you start a business and don’t have the business savvy to expand without this taking more of your time and effort, then you’ve created a lifetime job for yourself.  You may enjoy better tax-saving perks as a business owner, but if throwing all your spare cash back into the business is all you can afford to do, you, my friend, are stuck.
This book isn’t about convincing you to leave your profession and start your own business.  It’s about helping you make the best of your circumstances.  If you are in the 25% or 28% tax brackets, the name of the game then becomes how to lower your taxes.  As educators, most of our income comes from wages and salaries.  We take the standard deduction on tax returns.  As an individual you can write-off a measly $250 for classroom supplies, materials, books, and software.  Whoopee!  You can claim your dependents of course.  If you’ve withheld more than you needed to each month, you’ll get a refund.  If not, you’ll have to pay the IRS.  You won’t ever need Schedule A, Form 1040, because you won’t have any itemized deductions.  No mortgage, charitable gifts, high medical expenses, and investments = no itemizing.  Your effective tax rate will be about the same as your marginal tax rate.
The Investor Class doesn’t make their income like you and me.  They’re not employees.  They make their money from their investments.  They avoid “owning” anything and start LLC’s or an S-Corp, and get additional tax savings, not to mention personal protection for themselves within their entity.  Their assets don’t belong to them; they belong to the company.  They’re mere stewards.  During the last Presidential race a big fuss was made about Mitt Romney’s tax rate.  Instead of applauding him for sticking it to the man, people, the employees of this great nation, criticized him!  In 2011 Mr. Romney made 20.9 million dollars, and his effective federal tax rate was 15.4%.  Outstanding!  President Obama’s effective tax rate was in the 20-25% range.  My personal federal effective tax rate for 2013 was 15.5%!  Mitt Romney has multiple streams of income and most, excluding his check from the state treasury for being governor of Utah, is income from his investments.
Investments (capital assets) in America are taxed at a lower rate than wages and salaries.  Again, it’s the government’s way of getting you to participate in this free-market capitalism project we have here in the U.S.  What type of investments does Mr. Romney have?  Well, he isn’t running a sole business somewhere with all his spare time.  He’s got millions in real estate generating positive cash flow each month, and he has his Enrolled Agent rubbing her hands together come tax season waiting to depreciate, deduct vacancies, repairs, property taxes, and mortgage interest.  He probably also has a sizable equities portfolio.  Again, his Enrolled Agent not only lists the income (capital gains) Mr. Romney made from the sale of stocks or bonds, but also deducts plenty in the form of losses.  Holding an investment long term, more than one year, can lower the taxes you pay on income generated even more!  Bottom line, many educators are investment (asset) poor.  But it’s not because we can’t purchase investments of our own.  There is no law against it.  It’s because we may not have the understanding to participate in the asset race to the top, pun intended.

Tax Saving Tips, Specific to Educators & (Other Professionals Who Can Enroll)
It boggles my mind how many teachers aren’t taking advantage of Section 125 Flexible Benefit Plans.  If your school district doesn’t offer Section 125 Flexible Benefit Plans, then get your union folk together and make it happen.  It’s not like site administrators have the power to change anything up the ladder.  But I digress.  Now, a section 125 flex spending account authorizes your payroll office to deduct from your taxable gross income each month.  These pre-tax dollars are sent to your account with the participating insurance product company.  In my case, it’s American Fidelity.  You decide the amount you’d like withdrawn from your gross pay each month.  There’s a limit of course.  You’re allowed to use pre-tax dollars to reimburse yourself for both dependent daycare (child care) and health related expenses not already covered by your insurance.  Copay for a dental visit?  Covered.  Copay for a doctor’s appointment, also covered.  If your family is on your insurance then they too are covered for eligible expenses.  Now why would you want to have what little you already make, your taxable gross, reduced each month?
            The math makes sense!  Here’s an example:

Source: GenX Finance
It’s possible for you to have a higher net pay each month with an FSA then without one.  The trick is to figure out how much you’ll spend each year in copays, meds, and daycare; then divide by the number of pay periods.  I get paid once a month but the installments for my plan are taken ten months out of the year.  With my wife, two kids, and me, we spend about $1,000 a year in health-care related expenses.  She’s a stay-at-home mom so no dependent daycare to claim.  $100 a month, therefore, is my monthly installment for HC/DC.  This is peanuts, I know.  But it is all I need.  If you don’t end up spending enough out of pocket then you’ll have a positive balance in your flex-account at the end of the year.  This is a no-no.  Although the U.S. Treasury Department allows up to $500 to be carried over to the next year now, employers are not required to go along.  Your money could be forfeited.  You’ll also have to wait a year until the next election period to make any adjustments.
            Aside from DC and HC, you can also pre-tax retirement contributions in the form of a tax-deferred annuity.  I work in California and we have CA State Teachers’ Retirement System or CalSTRS.  This is my defined benefit pension plan.  Because I’m a public employee, I’m automatically and mandatorily enrolled in this plan.  Each month, a portion of my pay is withheld to fund my pension.  My employer contributes a similar quantity for me.  The state of California contributes a tiny portion sometime later in the year.  In contrast, non-public employees get to choose (if their employer offers one) whether or not to fund a defined-contribution plan.  These are better known as 401(k) or 403(b) plans.  Despite having the option, some employees choose not to contribute to a 401(k).  It’s a no brainer for me if my employer offered a 401(k) and they were willing to match my contribution.  Why give up free money?  As an educator, under section 125, you’re allowed to increase your retirement savings using pre-tax monies.  I have $200 taken out of my gross taxable pay each month or $2000 (ten installments) a year.  This goes into a tax-deferred annuity, 403(b), held by the same insurance product company that does my flex-spending account.  Putting it all together, $100 a month for HC, $200 a month for my 403(b), totals $300 subtracted from my taxable gross per month.
            Educators that work long careers are sometimes lucky enough to be offered a golden handshake.  When your district has too many old timers still in the books, they might offer a golden handshake.  These teachers are at the farthest end of the pay scale.  It’s cheaper to hire a beginning teacher then to keep a veteran one.  To encourage retirement, some districts offer veterans an annuity.  That’s in essence what you’re building with a 403(b), your own golden handshake.  Don’t count on your district offering an annuity at the end of your line.
Because the contributions to a 403(b) are usually tax-deferred, you’ll have to pay taxes when you begin to withdraw.  If your tax rate won’t change much over the span of your career, then it makes sense to have a 403(b).  On the one hand, you’re minimizing the amount Uncle Sam can tap into each month.  On the other, you’re adding an additional source of income for your retirement!  If you believe your tax rate will be higher once you retire, then simply consider the tax-deferred 403(b) for its potential, along with an FSA, to help boost your net pay each month.  Use the extra cash to buy paper (equities) or hard (real estate) assets, lower your effective tax rate, and pay the taxman later.
            Here’s one last point about taxes.  Are you withholding too much each month?  If you have two dependents, are you putting “0” or “1” on your W-4 form?  I realize it’s tricky to get it just right, so that you don’t get a bill from the IRS once you file your return.  This is especially true if you’re doing taxes for yourself using TurboTax or some other software.  Everybody likes to brag about how fat of a refund they got.  I shake my head in bewilderment.  Don’t they know they let Uncle Sam hold onto this money almost a year, I say to myself.  They wasted time not putting this extra cash to work.  They could’ve paid down debt or bought stock of an undervalued company, for example.  Your tax liability for each year will be whatever it will be.  You get a promotion, you buy a rental property, a change happens, and all of a sudden things get more complicated.  That’s why I suggest you employ a certified public accountant.  Don’t skip the math and go the easy route, choosing “1” or worse, “0.”  Consult with your accountant or at minimum if you’re a cheapo, use the tax formulas so that you’re withholding just enough each month.  If you’re disciplined with your money, and you’ve put it to work wisely, a tax bill at year’s end won’t kill you.  You’ll be able to stroke it.  Re-adjust the following year.  I pay my Enrolled Agent, Cheryl, about $450 for her tedious work on my return.  She’s worth twice as much!  Finally, if you’re doing your own taxes, chances are you’re asset poor.  Or you’re a glutton for punishment.  That’s okay for now.  I don’t waste my time with this hair-pulling chore.  Why should I?  The fee is tax deductible.

Note 1: An Enrolled Agent (EA) is a federally licensed tax practitioner.  Unlike a CPA or an Attorney who get their rights to practice from their state, an EA receives their right to practice directly from the U.S. government.  An EA specializes in taxation.
Note 2: Another way to minimize capital gains tax from the sale of equities is to buy shares of a mutual fund that has “low-turnover.”  When considering an investment, find the fund’s turnover rate (in the prospectus).  This is how long a fund holds its stocks for.  A turnover rate of 100% means that a fund is holding onto stocks for a year.  You want a fund with a buy and hold strategy (20% or below t-r) to minimize taxes.  The Vanguard 500 Index Fund (Ticker: VFINX) had a super low-end year 2013 turnover rate of 3.4%!

ANY Questions?

Wednesday, August 13, 2014

The Premise for Ford (F) Holds True

I wrote about a big position I took on Ford (ticker, F) stock on 6/6/14.  See: Big Bet On Ford Stock.  I am still bullish on the stock and own the exact number of shares as I did in early June, as the shares have not fallen below my cost basis for me to pile in again.  What has the stock done in a little over two months?

Ford reported great second quarter earnings, specifically citing an increase in auto sales coming from China.  They've also since reported that their European division is making a turnaround toward profitability.  F-150 sales continue to be the highlight.  Concerns for Ford include needing to turnover their factories for the production of the new aluminum bodied F-150s as scheduled, an unstable European investing landscape due to the fighting in Ukraine, hampering European markets, and a potential sub-prime car loan bubble in the United States.  The price of Aluminum has not been mentioned so I am assuming the metal has some price stability.  I will need to due my homework and read up on Alcoa (ticker, AA), one of the largest aluminum producers in the world.  Alcoa would benefit from a successful conversion by Ford to the lighter bodied aluminum F-150.

(Other intrinsic risks with owning stock of a car company include recalls and lawsuits from faulty vehicles.  Though it seems nowadays that a pile of money and a public apology can keep car businesses motoring on.  See Toyota Prius and various models of GM). 

This post has two objectives: 1) To teach you what a premise is when it comes to stock investing.  And 2) To share with you one of the pitfalls of actively selecting and monitoring a stock investment.

I always have a strong premise for every stock I purchase.  I also have an exit plan before I even take up a position.  I would equate investing without a premise or an exit to investing blindly.  Without some core belief about how a company (and subsequently its stock) should perform in the near future, you are doomed to lose money.  Notice I stated near future, and not some distant future.  The farther out you go, the less the probability of your premise holding true, like a spinning tire, if you overload it, it will warp and spin untrue eventually.  What happens when your bike tire spins untrue?  It hits the calipers, and you go flying over the handlebars.  The best premises come with some simple probability considerations.  Note: You do not have to be a math whiz.

Let's take the case of Ford.  Back when I first purchased the stock, I'd been following all literature reporting on their strategy and future plans to see the company continue to grow their earnings and cashflow.  My premise for Ford included the company Not needing to shut down multiple factories in the US.  Concerns over their worldwide centers alarmed me of course, but because we are in an economic recovery, other nations would soon follow and closures in other regions are to be expected for the time being.  So far, Ford has not been growing earnings by "cost cutting."  Cost cutting is how many companies have grown their earnings and they do this in many ways, layoffs, closures, etc.  Ford has not been cutting back recently.  They have stopped factory work and this has impacted sales, but this is because they cannot turnover their factories to aluminum vehicle production without actually turning off the machines!  What else was in my premise?  That Ford would improve sales worldwide.  They have more than met this expectation.  Both Europe and China Ford vehicle sales continue to shine and grow healthily.  Finally, my premise for Ford also included that they will execute the game plan for the production of F-150 aluminum bodied vehicles.  The company has not reported any setbacks thus far so unless they are hiding something, one can expect that they are on schedule.  Thus, this premise has three major parts to it and each one came with its own unique likelihood that I had to consider the opposite scenario for and weigh my chances of it happening.

What about the stock?  What has it done for me?  I reported on 6/6/14 (Big that I was up almost 5% on the stock.  Since June, the stock has risen to $18 and I was at one point up 10%.  However, the last week has seen a bit of a market correction and we are just now starting to trend higher.  I'm back to 7.48% as of today.  I'm disappointed in how the stock has performed considering the multiple number of positive stories (outweighing the negative ones) out for Ford.  The stock has been fluctuating between high $16 to mid $17's for some time now.  When will it break out?  I'm not a technical analyst so I can't give you a prognostication.  All I can say is that my premise for holding onto the stock remains strong, and there have been no reasons given to sell the stock.  I will Hold until next quarter.  They are due to report in October again.  My exit is priced to start at $22 and I plan on exiting, if all goes well, selling in blocks of 50 shares, hopefully riding the stock up over time.

Objective number two was to speak to one of the pitfalls about investing in stocks.  This pitfall is, namely, time.  Being a stock picker takes time and patience.  You need to love to read.  Sometimes I wonder if I were not better served just putting my money in a low-fee, index fund or ETF.  The myth is that you cannot beat the market with an index mutual fund or ETF.  Actually, you can and a lack of actively trading, eroding gains with fees, is one reason for it.  What about you?  Are you an active equities investor?  Have you considered fully whether or not you could be doing better things with your time instead of trying to beat the market several stocks at a time?  You could be spending time in other money making ventures!  Like me here, blogging for myself and the Nexregen REIT, Rich-Uncles.  Think carefully folks.  Time is of the essence!  Until next time.

Bored, people are getting fancy with their index fund investing now too!  They buy index ETF's weighted to some industry they perceive will do better in the coming months.  They call this, "smart beta."   

Thursday, August 7, 2014

Commercial Real Estate's Future Looks Bright

Most investors favor traditional investments like stocks, mutual funds, ETFs, bonds, CD's.  All investments come with intrinsic and extrinsic risks for their rewards.  To balance the risk vs. reward scale, many investors use an "asset allocation" strategy for their investment portfolios.  They constantly shift the type and percentage of securities they own, often making grave errors.  That is why many of them hire financial planners.  The creator of comic strip character, Dilbert, believes the financial industry is a total scam: Adams on Yahoo.  I happen to partly agree with him, and this is because I believe behavioral psychology plays a large role in the decision making of many investors.  A professional would help keep an investor's emotions in check.  Although, the overwhelming body of evidence has made it clear that indexing, i.e., buying low-cost mutual funds or ETFs that track the market will outperform Hedge funds and actively managed portfolios alike, almost all of the time (with a few exceptions...there are a handful of Hedge funds that outperformed the market in 2013...and I mean a handful: Guess which article).

   Dilbert Creator: The Financial Industry Is The World's Biggest Scam
Credit: Fred Prouser/Reuters

The Case for Alternative Investments in an Overheated Equities Scenario

If 100% of your portfolio is comprised of traditional investments, and you believe that by diversifying within the world of securities you have swayed the balance of risk versus reward in your favor, you are sorely mistaken.  Do you think that by owning publicly traded real estate investment trusts (REITs), whether they are a bag of residential or commercial dealing companies, you have added exposure to alternatives?  Publicly traded REITs that you can buy shares from in the open market act more like equities, than they do as hard, tangible, real estate assets!  They too will be hurt by a systemic decline in equities, like the type we are due for any day(s).  These are tied/linked to the stock market!

How can you truly diversify your portfolio then?  You will need to bite the bullet at some point in your investing time table and actually purchase an alternative investment.  What's an alternative investment?  The alternative investment most people are conscious about is real estate, owning a rental, i.e.  There are other alternative investments you can get your hands on with more cash on hand.  Accredited investors utilize private equity deals or put their money (accounts range in the hundreds of thousands) in private equity firms, hedge funds with an alternative investment focus, master limited partnerships or MLP's, and other alternative assets.

There are many ways to get your hands on a rental property.  A real estate investor who is just starting out will be going at it by flipping.  This is where they take title of a property at a low price, rehab, and sell it for a profit.  These investors will make their living like this for some time, until they have enough "working capital" to be able to keep a property they have rehabbed on their books as a rental, an asset in their business portfolio that earns income for the LLC these investors usually form.  Are you a real estate investor?  Probably not.  So how do you come to own a rental property to add to your portfolio?

There are two ways to invest in a rental property for the 90+% of people who have jobs and aren't highly paid employees.  1) Save, save, save....until you have enough to stroke the entire cost of the property, i.e. be a "cash buyer."  Whether or not it behooves you to lay down that much money will depend on the Cash on Cash return you will get and Internal Rate of Return, also on your tax situation.  All income from any source is taxed!  Meanwhile, mortgage interest is tax deductible and so are expenses tied to your rental. it wisely.  2) You can get conventional financing, i.e., a bank loan.  Most banks now are looking for investors to approve who can put down 20% or more on the subject property.  Most importantly, they are looking for credit worthy individuals or partners whose debt to income ratio is adequate...little debt...lots of income!

What if you can't afford to buy a rental outright or qualify for a conventional loan?  Are you squeezed out of the alternative investing world?  Not any more.  The JOBS ACT now allows non-accredited investors to participate in investments that were inaccessible to them in the past.  That is why crowd funding sites like Realty Mogul site have taken form and are expanding rapidly.  I will say that investing in crowd funding nationwide companies like Realty Mogul do require a level of financial worthiness.  You may not qualify! Or maybe you will.

The Case for Commercial Real Estate Investing through Crowd Funding

So you can't close on a residential property for whatever reason and add an alternative investment to your portfolio.  Do you give up?  Of course not.  Real Estate is an alternative investment you must have in your portfolio.  If you can't do it through Realty Mogul, you can still invest as a California resident, with a company like Rich-Uncles.  Currently owning 23 commercial real estate buildings, the Nexregen Real Estate Investment Trust distributes its rents from credit worthy tenants in the form of quarterly dividends for as little as a $5,000 initial investment.  Nexregen is a non-publicly traded REIT, meaning, it's not tied to the stock market!  Also meaning that you will stand to gain from the appreciation factor of real estate.  Finally, the criteria to qualify as a Rich-Uncles investor is not as stringent.  See RU site.  Disclaimer: I am both an investor and paid associate.

I like the Rich-Uncles investment for many reasons and I can share these with you.  Just email me: I would not be recommending this investment if I didn't feel it was a great investment for our current economic scenario in the United States and the world.  To back me up I have the following two articles that you should read if you are interested in this investment opportunity.  They make the case for investing in commercial real estate today and were the reason why I titled this blog post: Future Looks Bright for Commercial Real Estate.
Commercial RE & Rising Rates  and Commercial RE forecast for 14-15

Until next time!

Tuesday, August 5, 2014

The Life of a Network Marketer: Part 2

Murphy's Law states: Anything that can go wrong, will go wrong.  Maybe you've said the epigram out-loud before?  Or you've heard someone else say it.  It's a reference to an "epic fail" moment too unbelievable not to share with someone else.

And so I bring you today, the second installment of...The Life of a Network Marketer, with a little of Murphy's Law looming in the background, photo-bombing this story of one network marketer, my wife, Jessica.  We left Jessica last time (see post The Life of a Network Marketer, part 1, Friday, July 25th, 2014) showcasing the lifeblood of network marketing, the activity known as, "prospecting."  Now we move to an additional and indispensable activity for a network marketer: "Monthly Training and Recognition."

In the world of network marketing, or at least as I, an outsider, have come to understand, a monthly training is much more than the act of getting trained per se, and of hearing a presenter talk well of a person who deserves praise in the case of recognition.  Every time Jessica goes to a Monthly Training and Recognition, it's like I get a brand new wife.  She really is a different person the next day.  I don't get to see her until the next day because by the time she gets home, I'm fast asleep and snoring.  Occasionally she wakes me up with her rustling and insomnia.  She's on a high from what she heard at the event and I can feel her energy even in my dreams!

Here they are...the ladies of Arbonne International, getting their Nation Team Training & Recognition.  Check it out...those three on the right all got flowers for doing something great for themselves and their families.  And the one on the left has got her hand on her chest, probably saying something incredible about the three with the flowers.  The gals in the audience (that's where Jessica is) are getting a healthy dose of inspiration.

As an excellent husband, Jessica only has to remind me she is going to her monthly training about three times before it sinks in and I confirm with her my availability to relieve her from watching our rug rats, Ajani and Rehani.  Like I said, I'm an excellent husband so I gladly accept coming home just a tad bit earlier from the gym after work except....when I get assigned an additional duty after my normal work hours.  Huh?  Yeah, you see, a high school administrator doesn't really have set work hours.   We don't get two 15 minute breaks and a lunch hour.  Lunch?  What's that?  We are management, and it is a tradition of sorts, to work as needed, be available for anything while we are on campus, and be assigned to supervise a bunch of after school events, especially high school administrators.  Suffice it to say, I had to stay until 7:00 pm'ish to assist parents and families with Pre-Registration online in our computer lab.  It's back to school season.  So I told Jessica that she'd need to get our babysitter for a couple of hours as I would not be home in time to see her go to the monthly training.

The training started at 7:00 pm, but Jessica had to leave to pick up a "prospect" she had invited to the event.  Another prospect was supposed to meet her there.  Factor in also the time it takes a lady who takes care of herself (I am watching my words wisely) to "get ready" to go out, and transportation time to the venue.  That would place Jessica starting to get ready at 5 p.m. and leaving the house at 6 p.m.  My tentative arrival time home would have been about 7:30 pm, if all went well for me.

It's 6:40 p.m. and me and my two colleagues in the computer lab are still being inundated with parents coming in for help.  I text Jessica to tell her how I'm fairing.  A few minutes later, Jessica texts me back.    Her two "prospects" have flaked out.  They can no longer make the training.  And you see, this would be a sad story in the past.  Jessica would have been distraught about the cancellations, angry, perhaps even a bit depressed.  All reasonable emotions for someone in her line of work.  This time was different, however.

Jessica took it all in stride.  In fact, it was amusing to her.  She texted me several "ha-has" and a smiley face and said she was going to go to the training anyway.  Not letting things bother you, just plowing ahead and doing the actions you need to do, despite the minor set-back, is the hallmark of a great network marketer.  So if you are thinking of starting your own network marketing business with a company whose consumable products you like, you need to get used to rejection...a lot!  The successful marketers, and I mean the ones who carve out a nice payday each month, have been rejected a million times easily, but they have also been said "yes" to and it's those "yes's" that translate into success eventually.

Can you quickly pack up your kid's diaper and essentials bag, get them ready in a hurry, and take them where you need to go when your babysitter calls in sick?  You can't?  Well that's what Jessica had to do last night.  Adjust.  Do things on the fly.  Will you get all out of whack and just say, "Oh, forget about it!"when Murphy's Law happens?  Then this business is probably not for you.  That's okay...we can't all be least not initially and without some training.

Jessica had no choice but to take Ajani and Rehani with her to the event and I had to also adjust.  Instead of going straight home, I had to drive to where Jessica and the kids were, take the kids from her, swap vehicles, and drive home.  There have been times when I would have reacted, gotten upset at Jessica for "making me" go out of my way on a very long day of work.  I probably would've attempted to convince her not to go, to stay since her "prospects" weren't going with her anyway.  But like Jessica, I too have changed.  I have become Robin, to my Batman partner.  And I prefer this role to an angry and temporarily depressed wife.  My point?  If you are a man and your partner is a network marketer, you have already condemned him/her to fail if you are not 100% in support of everything they need to do to be successful, especially go to their monthly training.

Here's Rehani (with her monkey) in the audience checking things out.

Why go through all of this trouble?  That's what most people would think.  Because there are people who think life can be more than working for "the man" like a slave.  I am one of these people.  My idea of fun is not working 12-14 hour days once or twice a week, and 8-9 on a good day, seeing my kids an average of 12 hours during weekdays.  Just as Jessica endeavors to "retire" herself, as do I with my own pursuits.  So should you!  DO WHATEVER IT TAKES!  Thanks for reading and God bless.

Would you like more information about starting your own Network Marketing business with Arbonne?  Or are you interested in getting more information about Arbonne's pure, safe, and beneficial products?  Email: