Rule #1 Finance Blog
When you are ready to retire, how much of your stock should you sell?
Let’s pretend it’s time to retire and we have $1 million of stock invested in a wonderful company…
Not too bad, huh?
We can sell all of our stock in the company and use that to finish paying off our mortgages, travel the world, and visit our children – or we can keep our money in the company and skim what we need from the top to live during retirement.
Which path to retirement is better? Read more.
One of the key strategies for growing wealth is to minimize taxes on your money. When it comes to saving for retirement, the more capital you have, the more interest you gain. The following are some tips on how you can save on taxes and grow your retirement at the same time. Read more.
Let me ask you a question…
Are you confident that your retirement will last?
The truth is, for millions of people approaching retirement, it won’t…and that’s a scary thought. Fortunately, there is a way to make your retirement fund work for you and have enough to retire in 20 years, even if you think that it’s too late to start. Read more.
There is a common belief amongst many financial pundits that all you need to do to get rich is look at the small things you spend your money on every day and see whether you could redirect that spending to yourself. Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck. Read more.
I love a thoughtful email and this is a good one (see below). John has been doing some thinking and digging and wants to know why we shouldn't buy and hold a wonderful business we buy on sale instead of trading it. Its such a good Rule #1 question, John, that I wrote a whole new book about it. The book is called Payback Time and comes out in March 2010 from Random House.
The short answer is that you are right. Its better to hold a wonderful business that you bought on sale than to trade it. Trading has a transaction cost, can be inaccurate in the short run and will certainly cost you some of your profit. It also has the advantage of getting you out of a stock that is about to take a huge nose-dive. Trading is insurance against screwing up. Its not perfect but it is pretty good insurance and it reduces the amount of effort you have to put into determining whether the business is a good one and whether you got the price/value thing right.
Payback Time presents the buy and hold strategy in a whole new light with step by step instructions for implementation. It starts with the same requirement to get a wonderful business at a great price. But since we're holding, we're not trading, we HAVE to get the price right. So I bring in the concept of pricing from Private Equity that I call the Payback Time Price. Its the price of the business that will be repaid in a very short number of years out of earnings. The Payback Time Price keeps you from screwing up badly.
Imagine you were going to buy a private business for $1 million. The business earns $200,000 a year after tax. It isn't growing. Therefore, in 5 years you have your money back (assuming you don't need any additional working capital to keep it going). Notice that from that point on, you don't have any money in this deal. You are playing with house money. Your money is off the table. Now, if the business goes south, you can't lose money. Once you've got your money out, you are golden.
Here's another recent comment from the Phil Town blog, dated July 22: I am a real rookie, and novice and have a quick question. With an income trust (YPO.Un) is distributable cash per share (payments made monthly per share -dividends?) the same thing as earnings per share? Thanks Mitch Phil Town's answer: Mitch, Cash flow Read more.
For those of you managing your funds with long-term tools:
I'm using Rule #1 charting on our Mutual Funds because we are not allowed to transfer our 401k to a self-directed IRA unless we quit our jobs. My question is, what do you do when the indicators still say buy but you are watching the markets falling? This is very confusing and has happened several times over the last 2 months. Please help me understand.
I'd say you are using the wrong indicators if the markets are falling and what you are seeing for your mutual fund says to buy it. To use the indicators properly for mutual funds you have to slow down the data input to mutual fund speed.
Many of you write in asking how to roll over your retirement plans. Here's a question from Kay:
I am a nurse at a local hospital with a 401K and a 403B plan. I have a 14% payroll deduction every two weeks. The funds are managed by Fidelity. I have yet to see a 10% return. I have given myself 6mo to become a real rule #1 investor.
I have a paper account at MSN and am making money! When I get the guts to jump in what is the best strategy to get my $130,000.00 out of Fidelity and into the stocks I pick.