Too often, entrepreneurs–especially inexperienced ones–take the “luxury” approach to funding, incorporating every bell and whistle into their expansion plan by trying to accomplish all goals at one time. That’s nice, but it’s usually not reality and often forces businesses to be cash strapped because of high debt repayments.
That’s why I suggest entrepreneurs take a three-pronged approach to their expansion planning. This exercise helps businesspeople ruthlessly prioritize their needs and determine what is a must and what is frivolous.
A, then B, then C
Let’s say an entrepreneur believes he or she needs $1 million to make their expansion plans a reality.
Now, write up a plan for that amount. What are you going to do with that million? What are the specific investments you will make? What will your cash flow look like afterward? What does your business, in general, look like?
Now do the same exercise with $500,000. Ask yourself the same questions, as well as anything else that’s pertinent. Can you primarily accomplish the same goals with half the cash?
Finally, do the exercise one more time, this time with a loan of only $250,000. What are the answers to the questions now? Might it be possible to do what you want to do with only a quarter of the original loan?
And the answer is…
No set answer will be correct.
Perhaps your initial inclination that you need $1 million was correct. And there’s a good chance that $250,000 simply won’t get the job done.
But there is a decent probability that the middle option might be feasible, especially if it makes you realize that some of the more frivolous “wish list” things you’d like to do are best set aside for now. Remember, you don’t have to accomplish everything at once, and a scaled-down plan might allow you to better focus on more important things, preventing you from overextending yourself.
Of course, don’t get too stuck on exact numbers. Maybe this exercise will have you realize your plan can go ahead effectively for $790,000. Or $615,000. Or $485,000. Or any other number.
The purpose is to gain some clarity and sharpen your focus–not to mention to allow you to decide what makes you most comfortable and enables you to sleep at night. Don’t underestimate the value of that.
Also, keep in mind the time factor. The larger the loan you seek, the longer it likely will take to receive approval from a lender. The saying “time is money” always rings true, especially in this scenario. You might miss opportunities waiting for lender approval.
Remember, business tends to be more of a marathon than a sprint. You need to pace yourself in all aspects, including financing, to better your odds of finishing the race. Hopefully, this exercise helps you accomplish that.
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It seems like all the talk these days is centered around the inevitable recession. I see an article every day claiming that the end is near. Recently, the yield curve inverted, which many point to as a strong indicator of an oncoming recession. But, there are also many experts who claim the economy is strong. They cite strong growth, spending, development and other indicators to support their theory. No matter which way you lean, it is inevitable that there will be a market correction/recession at some point. It’s impossible to say for sure when or how bad it will be.
As a real estate investor, you want to be prepared for when it does happen. If you think back to the last crash in 2008, the best deals were the years after that. If you had capital, you made a lot of money. It almost didn’t even matter what you bought because prices were so insanely low. What I’ve heard most from investors looking back at it is, “I wish I would’ve bought more properties.”
Even though you can’t predict when it will happen, you can still take steps to get prepared. If you’re prepared, you’ll be able to capitalize. Let’s go over how people will be affected during the recession.
Sellers
In a recession, there will be many more distressed sellers than there are today. Since the last downturn, sellers have been able to refinance or sell if they got in a tight spot because of appreciation. Since prices will be going down, many will not have enough equity to refinance or sell. They’ll have to face foreclosure or a short sale. The sellers who do have equity will want to sell out of fear that they’ll lose their equity if they wait any longer.
Flippers
Many flippers will have exited the market. Prior to the recession actually happening, they’ll notice inventory rising, days on market increasing and their properties selling for less than anticipated. As a result, their margins will tighten. They may lose money or simply not make the return needed to justify the risk. Therefore, there will be far fewer flippers than you see today.
Wholesalers
Many wholesalers will leave the market. Even though there are more distressed sellers, there are fewer sellers with equity. They’ll notice that there aren’t as many flippers to sell to anymore either. The flippers who have weathered the storm will ask for significant discounts in order to do a deal. Wholesalers’ margins will begin to tighten to the point where it doesn’t make sense to spend marketing dollars anymore.
Contractors
Contractors will not have as many job opportunities since there will be fewer people buying and renovating homes. In order to get jobs, they will have to lower their prices to stay busy.
Real Estate Agents
With fewer buyers and sellers in the marketplace, there will be more competition to acquire clients. Real estate agents will have to spend more marketing dollars to attract them or take discounted commissions.
All these people play a vital role in real estate investing. You should ask yourself where you fit in with all of this. What’s the best position to be in?
The answer: become a cash investor.
In today’s market there are a lot of cash investors, but many will be wiped out or scared during the recession. So there will be far less competition in all aspects of real estate investing. The cash investors who do stay in it will own the market during a recession. With cash, you have many options. You can choose to flip homes with little competition. You can buy a bunch of discounted rentals and build your portfolio. Or you can lend the money to operators and have them do all the work for you.
Again, the No. 1 regret people told me they had after the last recession was that they didn’t buy enough homes. It wasn’t that they wish they would’ve wholesaled more homes or sold more homes as an agent. The person actually buying homes is the one who thrives in the recession.
The cash investor will be able to buy directly from all the motivated sellers with less competition. They’ll be able to buy from wholesalers at deeper discounts because there are more deals than money. They’ll be able to get cheaper labor from contractors because they’ll be one of the only sources of consistent work, and agents will work harder to find deals for cash investors because there will be fewer retail clients.
As you prepare for an oncoming recession, the most important thing you can do is become a cash investor. Here are a few ways how:
• If you have properties or assets, consider selling some so that you have more liquidity.
• If you’re a wholesaler or real estate agent, look into raising capital so that you can start buying the deals you find.
• If you’re a flipper, start building more relationships and using more lenders now so a trusting relationship is in place before the recession hits.
We don’t know when the next recession will be, but it doesn’t really matter. You should be preparing as if it could be tomorrow. Figure out how you can become a cash investor, and you will be ready for it.
Lets talk about a potential recession, what might happen, and how you can best prepare – enjoy! Add me on Instagram: GPStephan – Avocado Toast Merch: https://bit.ly/2DhFyo3 GET $50 OFF FOR A LIMITED TIME WITH COUPON CODE: THANKYOU50 The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $125 million in sales: https://goo.gl/UFpi4c Join the private Real Estate Facebook Group: https://www.facebook.com/groups/there… So first, lets talk about what’s influencing the market and what factors we should be made aware of: The first is rising interest rates: This means that the cost of borrowing money is expected to INCREASE over the next few years. When borrowing gets more expensive, you either need to RAISE prices to keep the profit margins the same – which means things get more expensive to you as the customer. Second, we’ve begun seeing the warning signs of the INVERTED YEILD CURVE – which, according to just about every article out there, the inverted yield curve has historically been associated with a high likelihood of upcoming recession. Third, we have the tariffs and the uncertainty surrounding what may or may not happen. And when it comes to investments, the ONE thing all investors dislike is UNCERTAINTY. When people are UNCERTAIN, they don’t invest, they hold cash…and that causes stock prices to fall. And fourth…we’re seeing a slow down in nearly all markets. Here’s what I think is going to happen… First, I’ve noticed QUITE a lot of what I call “gamblers fallacy.” This is the expectation that the market will drop, JUST because we’ve been in the longest bull market in HISTORY and that means it’s “overdue” and more likely to happen. Second, I believe that a lot of our “Recession Talk” is already SOMEWHAT factored into the price. Think of all the people NOT investing right now because they want to wait for lower prices…that is, in itself, self fulfilling and lowering prices. And third…no one, including myself, knows whats going to happen. No ONE. And fourth, you have so many false news articles designed to APPEAR like credible new sources so they get pumped through Facebook and Blogs for the sole purpose of manipulating you into buying their products. Well here’s the reality: First, NO ONE can predict when a recession will happen. We’ve been seeing these articles since 2013 from people who claim the recession is coming any month now. It’s never ending. You’ll read about this one expert predicting something, then another expert predicting something else, and they keep repeating themselves until eventually, one of them is right. Then they use that credibility of being right ONCE to propel them into the next opportunity. Second, it’s important you PREPARE for a recession in ways you can CONTROL: First, you CAN control whether or not you keep a 3-6 month fund in the event you lose your job or something unexpected comes up. This is absolutely ESSENTIAL for you to do. Second, you CAN control whether or not to have too many outstanding debts that might need to be paid down. If you’re over leveraged, or if you have high interest debt, it’s in your best interest to pay those off to free up cashflow in the event of a downturn. Third, you CAN control how much you spend…if you’re spending is too high, it’s important to cut those back so that you can save more money to invest. And when you DO invest, invest long term. Ideally, these are investments you should plan to keep 10-20 years. For me, I see lower prices as an opportunity. And to alleviate some of these concerns, you don’t need to just drop ALL of your money in the market at once…buy a small amount each and every month. This way, if the price goes down..you’re buying in cheaper and cheaper over time. If it goes up, you’re buying in little bit little…and anytime when it comes to investing, slow and steady wins the race. This isn’t about making an immediate 10% profit in a month…this is about investing for your future in a slow, stable way where you don’t feel stressed whether the market goes up or down. For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com My ENTIRE Camera and Recording Equipment: https://www.amazon.com/shop/grahamste… Favorite Credit Cards: Chase Ink 80k Bonus Point Offer – https://www.referyourchasecard.com/21… American Express Platinum – http://refer.amex.us/GRAHASOxHd?XLINK…
It costs over $1 million to retire at age 65. Are you expecting to be a millionaire in your mid-60s?
If you’re like the average American, the answer is absolutely not.
The Emptiness of the Average American Retirement Account
The first thing to know is that the average American has nothing saved for retirement, or so little it won’t help. By far the most common retirement account has nothing in it.
Sources differ, but the story remains the same. According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings and an additional 10% have less than $5,000 in savings. A third of Baby Boomers currently in, or approaching, retirement age have between nothing and $25,000 set aside.
The Economic Policy Institute (EPI) paints an even bleaker picture. Their data from 2013 reports that “nearly half of families have no retirement account savings at all.” For most age groups, the group found, “median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.”
The EPI further found these numbers even worse for millennials. Nearly six in 10 have no retirement savings whatsoever.
But financial experts advise that the average 65 year old have between $1 million and $1.5 million set aside for retirement.
What Is the Average Retirement Account?
For workers who have some savings, the amounts differ (appropriately) by generation. The older you are, the more you will have set aside. However there are two ways to present this data, and we’ll use both.
Workers With Savings
Following are the mean and median retirement accounts for people who have one. That is to say, this data only shows what a representative account looks like without factoring in figures for accounts that don’t exist. This data comes per the Federal Reserve’s Survey of Consumer Finances. (Numbers rounded to the nearest hundred.)
• Under age 35:
Average retirement account: $32,500
Median retirement account: $12,300
• Age 35 – 44:
Average retirement account: $100,000
Median retirement account: $37,000
• Age 45 – 55:
Average retirement account: $215,800
Median retirement account: $82,600
• Age 55 – 64:
Average retirement account: $374,000
Median retirement account: $120,000
• Age 65 – 74:
Average retirement account: $358,000
Median retirement account: $126,000
For households older than 65 years, retirement accounts begin to decline as these individuals leave the workforce and begin spending their savings.
Including Workers Without Savings
When accounting for people who have no retirement savings the picture looks considerably worse. Following are the median retirement accounts when including the figures for people with no retirement savings. The following do not include mean retirement accounts, as this would be statistically less informative than median data.
• Age 32 – 37: $480
• Age 38 – 43: $4,200
• Age 44 – 49: $6,200
• Age 50 – 55: $8,000
• Age 56 – 61: $17,000
How Much Should You Have Saved For Retirement?
So that’s how much people have saved for retirement, or more often don’t. Now for the more useful question: How much should you have saved for retirement?
The truth is that there’s no hard and fast rule. It varies widely by your age, standard of living and (perhaps most importantly) location. Someone who rents an apartment in San Francisco needs a whole heck of a lot more set aside than a homeowner in the Upper Peninsula of Michigan.
The rule of thumb is to estimate by income. Decide the income you want to live on once you retire, then picture your life as a series of benchmarks set by age. At each age you want a multiple of this retirement income saved up. Your goal is to have 10 to 11 times your desired income in savings by retirement.
• By age 30: between half and the desired income in savings
• By age 35: between the desired amount and double the desired income in savings
• By age 40: between double and triple the desired income in savings
• By age 45: between triple and quadruple the desired income in savings
• By age 50: between five times and six times desired income in savings
• By age 55: between six times and seven times desired income in savings
• By age 60: between seven times and nine times desired income in savings
• By age 65: between eight times and 11 times desired income in savings
So, if you earn $50,000 per year, by age 40 you will want to have between $100,000 and $150,000 in retirement savings set aside. The formula grows later in life for two reasons. First, as your savings accumulate they will grow faster. Second, as you approach retirement it is often wise to accelerate your savings plan.
What You Should Do Next for Your Retirement Savings
Retirement is approaching a crisis. In the coming decades millions of Americans will get too old to continue working without the means to stop. Millennials, crippled by debt from graduation, will turn this crisis into a catastrophe in about 40 years. And Social Security, designed to prevent exactly this problem, covers less than half of an average retiree’s costs of living.
It’s beyond the scope of this article to discuss exactly how this happened, but if you’re one of the many people who have fallen behind on retirement savings, don’t panic. There’s plenty you can do. But… it might not necessarily be easy.
The key is to think about retirement savings like a debt. This is money you owe to yourself and it charges reverse interest. Every day you go without adding money to your retirement account is a day you lose investment income. That’s money that you’ll need someday and won’t have.
Next, take stock of where you are. How much will you want to live on in retirement and how much do you have saved today? Use our chart above. That will tell you how far behind you are compared to where you need to be. Are you a 40 year old with $25,000 in savings who will want to live on $50,000 per year in retirement? Then you’ve got $75,000 you need to make up for.
Now, begin catching up. Chip away at that debt every week and every month. Pay into your 401k and IRA the same way you would whittle down a credit card. By thinking about it this way, as a specific goal, you can take away some of the fear of saving for retirement and turn it into an achievable (if large) amount. It’s not just some big, black hole you can never fill. It’s a number, and numbers can go down.
It won’t necessarily be fun. You might have to cut back on luxuries or take on some extra work, but even if you start late in life you can catch up on your retirement.
Dimensional Vice President Marlena Lee, PhD, explains how her research on replacement rates can help you prepare for a better retirement outcome. See more here: https://us.dimensional.com/perspectiv…
An updated spreadsheet of the greatest fund managers is available to download at the link at the end of this article.
At the midpoint of the year, it’s time to review the performance of the greatest fund managers. I have received many emails from readers asking how to use the spreadsheet listing the greatest fund managers that I make available for download. Many readers start by sorting the spreadsheet by year-to-date returns. Let me explain why that does not get you to funds I would recommend as top choices.
The top 3 funds on the spreadsheet sorted by year-to-date (YTD) return are Kinetics Internet (WWWFX) up 38.47% YTD, Virtus Zevenbergen Innovative (SAGAX) up 36.58% YTD, and Artisan Mid Cap (ARTMX) up 33.95% YTD. Here’s how I look at each of them.
Kinetics Internet
Murray Stahl has been at the helm for 18 years. For the last 10 years, he has beaten his category benchmark by 0.26% a year — including the past 6 months of stellar returns. If you invested $10,000 in this fund 10 years ago, you would have beaten the category benchmark by $263.06. Beating his benchmark for 10 years is an achievement for Stahl, but the outperformance is not enough to make a difference for investors.
Virtus Zevenbergen Innovative
Brooke de Boutray has managed this fund for 11 years. Over the last 10, she beat her category benchmark by 3.21% a year which translates to an additional $3,715.69 return on a $10,000 investment over 10 years — that’s more like it. The only problem is the fund has a hefty 5.75% load. Although the manager has proven her skill, I would prefer not to pay a load unless there was no other alternative.
Artisan Mid Cap Investor
James D. Hamel has managed the fund for 10 years, outperforming his benchmark by 1.19% a year which means Hamel added $1,255.79 over 10 years on a $10,000 investment on top of the benchmark return.
My Take: The best evidence of a manager’s skill is the margin of outperformance over a market cycle (10 years minimum). The bigger the gap between the manager’s return and the benchmark the more confident you can be of a manager’s skill.
Stahl’s outperformance of 0.26% a year, is better than about 98% of mutual fund managers, but it is not large enough to be compelling. I leave him on the spreadsheet because he may be the best one available in many 401k plans, but he would not be among my top choices.
Even when a great manager outperforms by a large margin (as Boutray did) the fund company can make it a bad choice for investors by loading up the fees. I leave Boutray’s fund on the spreadsheet, because a lot of 401k plans only offer load funds. In that case, Boutray’s fund could be your best choice, even if it would not be among my top choices.
Hamel’s Artisan Mid Cap Fund is the best of these three, but there may be others what have performed slightly less well year-to-date but with much bigger margins over their benchmark for the past 10 years. There is a trade-off to make between recent returns and long-term returns. I will do a deep dive on this next time.
Click here to download the most recent spreadsheet listing all the funds that passed muster.
To see previous articles in this series, click here.
I am the CEO and founder of Marketocracy, Inc.,and portfolio manager at Marketocracy Capital Management, LLC. My firm maintains a database of the world’s greatest
Singapore’s law enforcement authorities have extended their criminal probe against the Malaysian state investment fund 1Malaysia Development Berhad (1MDB) to include Goldman Sachs, according to a Bloomberg report.
Although the city-state’s authorities have been investigating Goldman Sachs’ involvement with the Malaysian scandal-plagued firm since 2017, now they are focusing on the firm’s local unit. The primary focus of the investigation is to see if Goldman’s Singapore subsidiary was involved in moving around $600 million acquired from the three controversial bond deal sales from 2012 to 2013.
The Scandal Explained
1MDB came under the limelight soon after its establishment in 2009, which was then chaired by the former Malaysian Prime Minister Najib Razak. Leaked financial documents surfaced that huge sums of money were borrowed via government bonds and syphoned into bank accounts in Switzerland, Singapore, and the US.
Digital transformation is changing the way companies do business, so it should come as no surprise that the applications that deliver business services are under pressure to keep up. Application teams are embracing a full mix of technologies– from mobile first to cloud-native architectures, to enable more agility, innovation, and end-user focus than ever before. Yet with more technology comes more complexity, more need for visibility, more components to monitor– and also more data. As digital transformation sweeps the world, the following seven data points can help inform your application performance monitoring (APM) strategy ………..
