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09: Wealth Formula Investing Basics

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Let’s get back to basics. Here are some fundamentals on which to build your wealth:

Cash Flow: Cash is king. Especially when you start out, focus on investments that produce cash flow. This is how you are going to become financially free. Once you get enough checks in the mail without trading your time for it, you can start looking for other opportunities that might be a tad more speculative. Self directed IRA accounts are also good for pure equity plays.

Understand Your Investments: Here’s my rule of thumb–if I can’t explain how an investment makes money on the back of a napkin, I’m not interested. Complexity creates additional risk. I don’t like complexity. My favorite investment is real estate. The tenant pays rent. The rent exceeds expenses including the mortgage. Easy right? Reminds me of what my orthopedic surgeon friends used to say–BBMFB. You guys know what I’m talking about. “Bone broke. Me fix bone.”

Real Things: Tangible assets are superior to paper assets. Tangible assets are those that you can see, touch and feel. Can you touch a derivative? Here’s why tangible assets are superior to intangible assets. Paper assets (intangible) tend to vanish when the economy goes south. Remember the trillions lost in 2008? Tangible assets don’t vanish. My money in the stock market vanished but my rental house didn’t! Real things also inflate with inflation. Rents go up. The cost of oil and gas goes up.

Education: You are a highly trained professional who spent thousands of hours learning your craft to become someone who people want to pay. Why wouldn’t you spend a hundred hours learning about personal finance and not just believing what a wealth manager has to say? Did you know it takes less than 100 hours to become a wealth manger?

(Did you notice this spells CURE?)