Wednesday, June 10, 2009

Book's Gist: Idiot's Guide to Getting Rich

1. Top 20 Best $ Moves
-Saving set amt every mth
-Eat right & excercise
-Shopping @ warehouse clubs
-Buying term life, not whole life insurance
-Go to garage sales / 2nd hand sales
-Do own taxes
-Buy generice & store brands
-2ble checking commissioned salesperson
-Buying clothes @ thrift / sales
-Be yr own travel agent
-Find out dealer cost b4 negotiations
-Be debt free & buying most things with cash
-Continuous education / learning, especially economics basics
-Use no-fee checking account
-Eat home meals, not out
-Make extra principal payments on mortgage
-Investing via mutual funds
-Investing in income-producing real estate

2. Stages of Wealth
i. Able to maintain std of living & save enough to meet Targetted Savings Goal (TSG)
Focus on budgeting, living below means and saving
When U live within yr means & actual savings >= TSG, end stage 1
ii. Portfolio generates annual compound growth >= TSG
Focus on living within means & savings + investing properly
When portfolio generates annual compound growth >= 3X TSG, end stage2
iii. Portfolio generates growth enough to cover desired lifestyle and inflation
iv. Portfolio generates growth enough to cover dream lifestyle and inflation
v. Portfolio generates growth well beyond spending ever

3. Calculating Target Savings Goal (TSG)
-Create budget and track
-Find annual expenses from budget & add yearly expected inflation to it until the year targetted to retire
-Target Portfolio Goal = Yearly inflated expenses / Estimated net rate of return from portfolio
eg $300K / 12%
if not going to spend all 12% returns, then estimate how of returns much spent and how much reinvested
eg. $300K / (12% * 75% spent), thus $300K / 9%
-Annual TSG = Annuity per year based on estimated returns to reach TPG

4. Portfolio
Proprietery Investment
Heavily loaded Mutual Funds (Hi > 6%, Med 4%-6%, Low 2%-4%, No load 0%)
Killer B Funds (12b1 fees)
UITs (Unit Investment Trusts)
Limited Partnerships
IPO of Close-End Funds
Penny Stocks
Rumours & Hot Tips
Insurance Products as Investments
Wrap accounts
-KNOW before investing
What exactly am I investing in?
Does it fit into my plan?
What are the risks involved?
Is there a 2ndry market for it (to sell whenever U want)?
What is the total cost?
-FDs/CDs or $ Market, depending on yield - for liquidity & short term
-Stocks: NTA to Price vs P/E vs ROCE
-Equity Mutual Funds
-BONDs (TBonds / Corp Bonds) to reduce risk and maintain principal
-Real Estate
-BEST PORTFOLIO: Diversified vehicles and global

5. ECONOMICs - track all weekly with investments
-Track Inflation / Interest Rates
Inflation UP causes Interest Rates UP (vice-versa) - Bonds DOWN, Stock UP IF bonds < 8%
-Track Producer Price Index (PPI) vs Consumer Price Index (CPI). PPI will move CPI
-Track GDP - The Economist shows current and expected GDP each week
GDP affects & correlates with Stocks

6. WHEN to Buy / Sell Stocks / Mutual Funds
Others fear & pessimism
Others greed & optimism
Everyone in Market
Zero based thinking

7. 10 Portfolio Tactics
-Track Interest rates
Interest rates UP, Bonds (especially longterm bonds) DOWN
Interest rates DOWN, Bonds (especially longterm bonds) UP
-Investing in Pessimism & Optimism
Headlines = Bad, look to Buy coz cheap,
Headlines = Good, look to Sell coz prices up
-Look for Industrial & Geographical Growth
New industries in early growth stage
Mature industries with new products / tech, financial reorg, mission reorg, mgt reorg
Emerging market countries in early growth stage, adopting capitalism
Countries establishing new govt, with falling inflation & economic growth
-Invest in Anticipation of Economic Cycle Change
via estimating GDP growth (announced monthly)
easiest mthd is to watch Monthly Index of Leading Indicators (consisting of 12 leading economic indicators that move b4 business or economic cycle)
When Contracting - move into Bonds
When early Expanding (even in recession) - move into Stocks
-Track Market Cycles
PE ratio per week of Index Stocks = average PE
If average PE > 20(?) , overpriced, look into Value investing or Sell
if average PE < 20, fair or below priced, look into fully invested
-Study Demographics
Baby boom years + 46 years to it = when spending up = bull market, thus get into market prior
US market expected 2007 bull, 2010 slow down
-Track Leaders and Laggards
If new/ex-laggard stock/mutual moves into Top10 = opportunity coming in the new/ex-laggard stock/mutual sector, look to Buy
If new/ex-top stock/mutual moves into Last10 = correction coming in the new/ex-top stock/mutual sector, look to Sell

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