Katie Kieffer is a national columnist and political commentator. Her multimedia website is KatieKieffer.com.  She writes a column for TownHall.com every Monday. Katie has a background in journalism, multimedia entrepreneurship, public speaking and commercial real estate. Due to her diverse experiences, Katie is a popular public speaker for college campuses and professional conferences across the country. Katie is a frequent guest on local and national radio shows to discuss her viewpoints on young professionals. Katie graduated Summa Cum Laude from the University of St. Thomas. As a college freshman, she wrote an opinion column for the St. Paul Pioneer Press. During her sophomore year of college, Katie founded, edited and published a nationally recognized student journal of thought and opinion called the St. Thomas Standard. Katie also developed a comprehensive website for the newspaper so that all of the articles were available online. Katie has over six years of experience in commercial real estate. Before launching into multimedia, Katie worked for NorthMarq Real Estate Services. She chaired a National NAIOP Young Professionals Forum of rising stars in commercial real estate and traveled across the country learning about different geographic business climates and development trends. Katie also chaired the NAIOP Minnesota Developing Leaders and was recognized as NAIOP’s Volunteer of the Year in 2007.

Katie is a LEED Accredited Professional through the U.S. Green Building Council (USGBC). Katie balances conservation and profitability considerations when discussing sustainability. Katie has traveled abroad and she currently researches the needs and challenges that young professionals face across the globe. Katie conducts interviews of both experienced and young professionals and showcases these on her website to inspire other young people to think innovatively, whether they work within a large corporation or are interested in starting their own ventures.

Stock
Stock is sometimes referred to as shares, securities or equity. Simply put, common stock is ownership in part of a company. For every stock you own in a company, you own a small piece of the office furniture, company cars, and even that lunch the boss paid for with the company credit card. More importantly, you are entitled to a portion of the company’s profits and any voting rights attached to the stock. With some companies, the profits are typically paid out in dividends. The more shares you own, the larger the portion of the company (and profits) you own.

Common stock is just that, “common”. The majority of stocks trading today are in this form. Common stock represents ownership in a company and a portion of profits (dividends). Investors also have voting rights (one vote per share) to elect the board members who oversee the major decisions made by management. In the long term, common stock, by means of capital growth, yield higher rewards than other forms of investment securities. This higher return comes at a cost, as common stock entails the most risk. Should a company go bankrupt and liquidate, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

How to Buy or Sell It
The most common method for buying stocks is to use a brokerage, either full service or discount. There is no minimum investment for most stocks (other than the price per share), but many brokerages require clients to have at least $500 to open an account. Dividend reinvestment plans (Drips) and direct investment plans (DIPs) are two ways individual companies allow shareholders to purchase stock directly from them for a minimal cost. DRIPs are also a great way to invest money at regular intervals.

Strengths
Common stock is very easy to buy and sell. Thanks in large part to the growth of the Internet, it is very easy to find reliable information on public companies, making analysis possible. There are over 11,000 public companies in North America to choose from.

Weaknesses
Your original investment is not guaranteed. There is always the risk that the stock you invest in will decline in value, and you may lose your entire principal. Your stock is only as good as the company in which you invest – a poor company means poor stock performance.

Three Main Uses
Capital Appreciation
Income
Liquidity

Mutual Funds
Are you someone who wants to invest (or already does), but doesn’t want to bother deciphering a company’s numbers and deciding whether or not the stock is a good buy? Or are you someone who finds the risk and volatility of the stock market stomach-turning? If this describes your personality, you are a prime candidate for mutual funds. A mutual fund is simply a large group of people who lump their money together and give it to a management company to invest it on their behalf. A mutual fund manager proceeds to buy a number of stocks from various markets and industries. Depending on the amount you invest, you own a part of the overall fund.

Strengths
No matter how much you invest, you get to own several companies. In other words, you get instant diversification. You can easily make monthly contributions. Your money is being managed by a professional manager. Because of his/her experience and knowledge, you should receive above average returns, at least in theory.

Weaknesses
The majority of mutual fund companies don’t come close to beating market averages like the S&P 500 and the DJIA. (Notice we said you will receive above average returns “in theory”. This will be discussed in detail in future pages.) Fund managers take a slice of the profits for their work. This slice varies, but it can be quite high. You pay management fees whether the fund actually makes you money or not.

Three Main Uses
Capital Appreciation
Provides Income
Tax-Deferred Savings

Real Estate
Usually, the first thing you look at when you purchase a home is the design and the layout. But if you look at the house as an investment, it could prove very lucrative years down the road. For the majority of us, buying a home will be the largest single investment we make in our lifetime. Real estate investing doesn’t just mean purchasing a house – it can include vacation homes, commercial properties, land (both developed and undeveloped), condominiums and many other possibilities.

When buying property for the purpose of investing, the most important factor to consider is the location. Unlike other investments, real estate is dramatically affected by the condition of the immediate area surrounding the property and other local factors. Several factors need to be considered when assessing the value of real estate. This includes the age and condition of the home, improvements that have been made, recent sales in the neighborhood, changes to zoning regulations, etc. You have to look at the potential income a house can produce and how it compares to other houses in the area.

How To Buy or Sell It
Real estate is almost exclusively bought through real estate agents or brokers. Their compensation usually is a percentage of the purchase price of the property. Real estate can also be purchased directly from the owner, without the assistance of a third party. If you find buying property too expensive, then consider investing in real estate investment trusts (REITs).

Strengths
Whether your objective is income or capital appreciation, real estate investing can help you achieve your goal. Mortgages allow you to borrow against the property up to three times the value. This can dramatically increase an investor’s leverage. Remember that you typically need a 5% down payment first.

Weaknesses
Selling property quickly can be difficult. There are significant holding costs, especially if you are not residing in the property. Examples include property taxes, insurance, maintenance, etc.

Three Main Uses
Provides Income
Capital Appreciation
Leverage

At Young Wealth, we strongly suggest that you focus your efforts on real estate investing. This is traditionally where American millionaires come from and there is no reason to think anything is set to change that. One thing we should also point out in regard to down payments. A few paragraphs back we referred to the fact that you will likely have to put 5% of the purchase price down as good faith in order to secure a loan.
The bad news is that was in the good old days about five years ago. With the crash of the housing market, powered by bank failures and massive foreclosures, few lending institutions will offer to write a mortgage on a property unless you are able to put down 20% to 25% in cash. This can be quite a chunk of change for the new investor but, on a positive note, there hasn’t been a buyer’s market like this in decades.

The Young Wealth Team

Flickr / ilovememphis

Some of the particular for the preceding article drawn from Investopedia.com

Dwindling Corporate Benefits
Not so long ago, college graduates targeted the corporate world. Pay and benefits were good, job security was high, and the incumbent stress and time away from home simply considered the price to be paid. Then a funny thing happened. We entered a global recession. Young and old workers alike found themselves laid off en masse while, at the same time, retirement benefits shrank, and stock options seemed more like a joke than something you would actually want. Take away the attraction of corporate employment (high pay and job security) and what are you left with? Umm…nothing? Newsflash to corporate headhunters: Nobody really likes office melodrama and 60 hour workweeks.

Rise of Organic Eating
At some point in the past few decades, Americans began to slowly realize that the chemical-laden junk food shoveled into their laps at their favorite drive-thru or tossed onto grocery shelves by Big Food was a first class ticket to an early grave. People began to look around and notice friends and relatives dropping like flies from an assortment of food-induced ailments: heart attack, stroke, high cholesterol, high blood pressure, obesity. Some of us began to care about what we put into our mouth. Voila! The rise and increasing popularity of organic farming.

The reality is that the demand for locally grown and organic food has seen a slow, steady rise, even during the recent economic downturn. Young people are starting to remove themselves from the rat race and put on work boots. With more than 60% of our nation’s farmers over 55 years of age, this is good news for food eaters everywhere. Do you want the entire food production and supply of the United States to be reliant on gigantic firms like Monsanto? The very idea makes us a little bit nervous.

Not only is the younger generation of workers showing a growing love of working with their hands, they also are taking to the idea of self-employment. Farming. It might be worth a second look.

The Young Wealth Team

Flickr / eamoncurry123

Wait a second. Low interest rates are a good thing, right? The truth is they’re great if you’re a borrower but terrible when you’re lending and the position of lender is exactly what you assume when you “invest” in typical savings assets like a certificate of deposit, money market fund, interest bearing savings account, treasury note, etc. What attracts investors to such choices is the guaranteed rate of return, because it makes us feel just a little more secure to have that “profit” locked in.

But with a reported annual inflation rate running around 4% (the actual percentage is probably MUCH higher – we estimate about 10%), and interest paid usually well below that number, falling for the savings account trap can actually cost you money. Inflation is simply a measure of how much value the dollar has lost over the course of the previous 12 months. And when the dollar loses value, you the consumer, lose spending power. It’s like getting a 4% pay reduction each and every year. Now you see why that percentage is the magic number when it comes to calculating whether or not your investments are really making you money. Here’s the simple math:

1. If you make MORE THAN 4% on an investment, it’s profitable for you
2. If you make LESS THAN 4% on an investment, it costs you money

Granted, making something on an investment, even when it’s less than 4%, is better than making nothing, which is exactly the case when you choose to keep cash assets stuffed inside your mattress. Hopefully, none of you are doing that. This concept can be a little muddy if you’re not used to thinking about rates of return in terms of inflation. Here’s a simple example of how it all works, and how an interest-bearing checking account or money market fund adds up to nothing more than you loaning the government money and receiving nothing for for it.

Step 1:
You deposit $1,000 in a money market fund that pays you 4% annually.

Step 2:
The bank, which acts as the middleman for the transaction, turns around and uses your deposit to purchase government debt such as treasury notes. When the notes come due, the government returns the money along with whatever interest rate applies at the time. For the purpose of this example and simplicity, let’s say 4%. The bank turns around and pays you that 4%. Of course, there are additional fees involved because the bank isn’t going to lose money but, for now, let’s ignore that.

Step 3:
Stepping back to look at the bigger picture. An unsophisticated investor counts his money at the end of the year and thinks that interest-bearing checking account is a pretty good deal. After all, he made 4% in an anemic economy. The reality, after taking into account the effect of inflation, is that he made nothing while giving the bank and federal government use of his money for a time.

If, after pondering this, you still think traditional avenues of savings are a good idea, you might need to re-read this blog post. The numbers don’t lie! You can’t win under this system in which interest rates are set and manipulated by the Federal Reserve. The end result is that, while you might think you’re increasing your portfolio at the rate of 4% each year, the compounding effect of inflation will see to it that, no matter what your account balance says, real world purchasing power is going to be much less than expected.

When you add in the reality that inflation is actually higher than 4%, the financial future of millions of young investors begins to look positively grim. You begin to see why we’re always harping about inflation and how it’s going to unravel the best laid plans of the younger generation. The sooner you acknowledge the reality of inflation and begin to take corrective steps with your portfolio investments, the sooner you have a chance to take advantage of the real investment opportunities that still exist in America today.

The Young Wealth Team

Flickr / FredoAlvarez

Third Reich
Adolph Hitler rode the coattails of the fervent German youth as they revolted against anything and everything that had come before. Considering the country had recently lost World War I AND suffered through a hideous economic period of hyperinflation, who could blame the younger generation for being a out of sorts when it came to trusting anyone over thirty? While the rest of the politicians went about business as usual, Hitler focused on tapping and turning all that youthful energy to his own cause. These “useful idiots” swept the man into power. Six million dead Jews later, his reign of terror mercifully came to an end.

But what does President Obama’s recession have to do with the price of idiocy in America? It goes something like this. Remember how the drive-by media “ohhed” and “ahhed” over the man’s ability to tap into younger voters, making huge inroads into that voting bloc via the Internet? Republic opponent, John McCain, was much less effective when it came to capturing young votes. Result: president who does not hold traditional American values in high regard.

Was Obama tapping into a whole herd of useful idiots back in 2008 and will he do so again in 2012 when he runs for election? Oh, almost certainly. The better question is will it work again? There’s a good chance. We at Young Wealth aren’t here to tell you which candidate to vote for when the time comes around, but do beg and plead that you not function as a useful idiot. Learn the issues. Know the candidates. Look at America and place our present state of existence in some sort of historical context.

Are you better off now than you were four years ago? If so, congratulations. There are a whole bunch of your fellow Americans who can’t make that claim. While we’re always in favor of hope and change, especially when compared to the opposite – hopelessness and stagnation – take a moment to consider what you’re actually getting in return for all those lofty, vague phrases.

A stronger America, or a diminishing superpower?

The Young Wealth Team

Flickr / Richard Elzey

To Kyle, a ‘red paperclip’ is more of a symbolic thing, an idea that you’re ready to launch. A new project about to happen. That spark of insight or inspiration. The most important thing about an idea is to do something with it. Today, Kyle lives in Montreal with his wife and does speaking engagement, photography, art projects, and “Who are These Guys?” to name a few of the projects he has embarked on.

At the age of 16, defiant and hardheaded, Eric decided to leave home and drop out of school, choosing to live on the streets of Detroit. By divine intervention at age 17, Eric met a pastor who saw him a young man with tremendous unrealized potential. As a result, their mentoring relationship was born which led Eric to complete his GED and to prepare for college. Determined not to be another statistic, Eric enrolled at Oakwood University where he began reading every thing he could get his hands on. Understanding the struggle of the streets, he realized what his purpose in life was to become, so he reached back to his fellow drug dealers and helped many of them get their GED’s, go to college and incorporate the strategies and self-improvement exercises he learned in order to assist them in developing their own life plans. In so doing, he provided them with a much-needed positive option to the life of crime and illiteracy they then led. While in college, Eric started Break The Cycle I Dare You, (BTC) a non profit youth development and special event organization that focuses on developing programs for youth who have made bad choices and most often have had family, social, and academic struggles along with the lack of a father figure in their lives. Today BTC has developed and produced many supportive community-based programs and conferences across the country. They provide youth and teachers alike with activities, self-improvement exercises and motivational strategies to help them reach their highest potential in life. Eric now serves as the Chairman of the Organization.

He obtained his Masters degree in 2005 and is currently pursuing his PhD in Education Administration at Michigan State University and serves as Senior Pastor of A Place of Change Ministries, Lansing Michigan. He also serves as a consultant at Michigan State where he has developed The Advantage Program, an undergraduate retention program targeting academically high-risk students of color. In addition to his work with the Advantage at Michigan State, he also serves as a consultant for several collegiate athletic programs across the country. In this role, he provides assistants to student-athletes having academic and social challenges as it relates to successfully transitioning from high-risk schools and communities to a collegiate environment. Eric’s representation of the merits of higher education, coupled with his knowledge of the pains of the street, inspires young people to break bad habits and reach for new levels of personal and spiritual achievement. Eric has lived a life of challenges and triumph but has found a way to break the cycle.

Here’s the point. The only way to get ahead – really get ahead – in love, life, or business is to take matters in your own hands. If you’re out of work, are you waiting around for Mr. Obama to wave a magic wand and suddenly decrease the jobless rate by a few percentage points? We certainly hope not because it’s obvious he’s in over his head in HIS job. But it doesn’t even matter which president or political party is in power.

Don’t make the terrible mistake of deriving your life’s progress from the aimless machinations of those in power. Need a job? Get out there every single day and beat the streets until you find one. Meanwhile, are you working to create your own business? Why not? Millionaires were made during the Great Depression and Great Recession by people who simply refused to participate in the “woe is me” mantra being chanted all around.

So what if there’s 10% unemployment? That means 9 out of 10 are employed. That’s 90%! We’d take those odds any day of the week and twice on Sunday. The point is that America was founded on a spirit of rugged individualism, which has been diluted by a wave of namby pamby whiners of late. Maybe your mortgage is upside down, you got laid off, your teenage daughter is pregnant, and your wife has cancer. Those are formidable obstacles and we wouldn’t wish such a nightmarish string of bad luck on anyone, but no matter what your story is, you have two options – deal with it or lay down and whine.

And though whining is always an option, it wastes your breath and accomplishes nothing. Why not ignore the doomsayers and recessionaires and simply live your life the best you can. After all, it’s the only one you’ve got. Make the best of it. Here’s the best tip we can think of for feeling better about the state of affairs in the world. Stop watching the evening news and cable television!

The Young Wealth Team

(Flickr / James Ellsworth)

Passionate
Unless you’re highly overmedicated, there is little chance that you’re truly passionate about all the things people claim to be. Some of us might have one passion. Maybe. Not three or four, and the odds that you feel that way about “teaching small businesses to harness the power of social media” is infinitesimal. Focused might be a legitimate word but passion is something else entirely.

Authority
Former British Prime Minister Margaret Thatcher used to say this: “Power is like being a lady; if you have to say you are, you aren’t.” What we’re saying is that if you feel compelled to plaster the word authority over everything you’re connected with, chances are you aren’t either. Social media authority. What’s that? Sounds like you spend too much time on Facebook.

Workaholic
To anyone who understands what the word actually means, “workaholic” has definite negative connotations. Sorry, it’s impossible to work 24/7. You’d be dead soon. Rather than devoting all that effort to impressing us with how hard you work, why not focus on the results that your efforts have created? Now that might be impressive. Keep in mind that employers don’t care how much your work, only that you accomplish something while you’re doing it.

Unique
We feel pretty safe in saying that every human being on this planet is unique. That’s part of the deal. Saying it is only restating the obvious and should be classified in the category of Worthless Resume Filler. Writers are urged to show not tell, and that makes good sense here to. You don’t prove uniqueness by saying you’re unique. Try showing why you’re different instead.

Why not pull out that resume’ that’s collecting dust and make sure you haven’t fallen prey to any of these common mistakes.

The Young Wealth Team

(Flickr / windygig)

Approach 1
Use put options as a trading strategy to generate profits.

Approach 2
Implement put option positions as a hedge against drastic market moves against your stock holdings.

Put Options Basics
Options that are traded on exchanges are a different beast than those issued as part of an employee compensation program. Normally the latter are good for years, plus you don’t have to pay anything to get them. The type of put option strategy we’re talking about is much shorter term in nature – they will likely expire in a few months – and you have to pay something to get them, just as if you were buying stock. A single put option contract allows you the right to buy 100 shares of the underlying stock at a certain price within a certain time frame. Terms like strike price, premium, expiration date, in the money, at the money, and out of the money are good to know.

Premium — The price of the option; the price the buyer pays and the seller receives. The premium can be broken down into two parts: The intrinsic value and the time value.

Strike Price — The price at which the put owner has the right to sell the underlying stock.

Expiration — The last date the option is a valid contract. Technically, options expire on the Saturday
following the third Friday of the month. But the last day to trade them is the third Friday of the expiration month. Many index options will expire one day earlier on Thursday. You can describe an option in one of three ways, depending on the relationship between its strike price and the value of the underlying stock …

In the money: When the strike price of a put option is higher than the price of the underlying instrument, the option is in the money.

At the money: When the strike price is essentially equal to the price of the underlying instrument, the put option is at the money. When expiration day arrives, options that are in the money have value and you can sell them at a price that’s very close to that in-the-money value. Before expiration, you also can capture any remaining time value in the options.

Out of the money: When the strike price of a put option is lower than the price of the underlying, then
the option is out of the money. When expiration day arrives, options that are out of the money expire
without value.

But why do investors like options, when they could just as easily buy the underlying stock? Here are 5 reasons: Let’s ask Mike Larson who explained it quite well in his report, The Great American Apocalypse of 2011 – 2012.

Advantage #1. Leverage. Even a modest move in an underlying stock can result in a significant change in the value of your options.

Advantage #2. Limited risk. With the simple purchase of options (as long as the options are not exercised), you can never lose a penny more than you invest plus commissions. That means you always know how much money you have at risk.

Advantage #3. Low cost. You can find options with excellent potential that cost as little as $50 or $100 per contract, although some options may cost $1,000 or more per contract.

Advantage #4. Listed on exchanges. Thousands of options are listed on regulated exchanges. You don’t need to venture into so-called over-the-counter options to generate substantial profits in the Great American Apocalypse of 2011-2012.

Advantage #5. An excellent vehicle for protective “hedges” against market declines. As we mentioned above, options can be used as a kind of insurance policy or hedge.
As you should know if you’ve been around the block a time or two, few things in this life come only with advantages and no disadvantages. Such is the case with a put option strategy. Here are four potential drawbacks listed by Larson.

Disadvantage #1. Options are wasting assets. That’s because when you buy an option, you are buying time. So if the market remains unchanged, the value of the option will naturally decline as time
goes by.

Disadvantage #2. Limited time. This follows from the first disadvantage. The expected market move has to take place — or at least get underway — before the option expires. Otherwise, the option can expire worthless and you will lose the entire amount you invested in that option. That’s why it’s important to buy an option with enough time for your trade to work out.

Disadvantage #3. Volatility. Investors who buy options and just forget about them often miss out on
opportunities to take large profits. Sometimes the option’s value will spike upward, and then, before
you know it, plunge back downward again.

Disadvantage #4. Occasional low liquidity. There are many options with plenty of liquidity. But there are also some that are not so liquid. In other words, the number that change hands in a given day (the volume) is low and the total amount held by investors (the open interest) is small. These options tend to have wider spreads, or differences between the bid and ask prices. That can result in you getting poor execution on your trades — paying more than you should to buy and getting less than you deserve when it’s time to sell.

Buying or selling a put option outright without owning the underlying stock is a pure speculation play, much the same as if you had simply bought the stock. EXCEPT the very nature of options means that leverage works in your favor, allowing you to control more value with less money. On the other hand, if you implement a put option strategy merely to hedge your stock positions, consider the premium you pay as the cost of insurance, because that’s basically what it is. Hopefully, the market never moves against your stock positions and the options expire worthless.

It makes sense for a new investor to spend a bit of time understanding the option market. There’s a good chance you’ll find yourself unavoidably drawn to it at some point in your investing career. Maybe you’ll give it a fling and move on to another type of investing that fits your personality better, or maybe you’ll fall in love with the whole ‘magnification of profits through leverage’ thing. Either way, DO NOT jump into option trading until you actually understand what is going on. From personal experience we know that you can get your head handed to you on a silver platter.

The Young Wealth Team

(Flickr / Doc Trader)

Young people just starting their working career tend to fall into three different categories.

1. Have a viral infection of “stuffitis” and max out every credit card they can get their hands on. Sorry, we can’t help these people in the short space available. Check out DaveRamsey.com.

2. Are busy hoarding every spare penny they’ve got for college tuition for a kid who’s not even born yet. Hey, at least they got the saving part down.

3. Earn a modest salary in an expensive urban area, and are barely able to cover rent and food.

The good news is that, if you make it a high enough priority, there is almost always space in your budget to steal $25 to $100 bucks a month to put into savings for eventual investment. And savings is critical for reasons other than simply investing. Are you lucky enough to be the one person on earth who never has a car repair expense, unplanned doctor visit, or any other type of financial emergency? If you’re like most of us, every once in a while a humdinger comes out of nowhere and turns your monthly budget into chaos.

That’s when a savings account is REALLY nice.

So, let’s get to it. Saving is just like exercising. Even a little bit helps. Skip a few soft drinks and you’ve got five extra dollars this week. To help you get started, here are six tips to save money on a modest salary.

1. Make it a priority!
2. Take your savings chunk out early in the month rather than waiting to see what’s left over.
3. Don’t shoot for the moon all at once. That sets you up for failure. Pick a manageable number and simply do it.
4. Open a separate account for your savings and LEAVE IT ALONE!
5. Decide what your first investment will be. Make it a specific, concrete goal.

Now get out there and start saving if you ever want to be able to afford The Donald’s hair stylist.

The Young Wealth Team

(Flickr / Gage Skidmore)

A few survived. Names like Amazon, eBay, and Google lived to become legitimate business models, and, in some cases, revolutionize industries, though their stock prices have never come close to those days of heady valuation. Still, they are solid investment options today. Others, too numerous to mention, crashed and burned and took millions of investors portfolios with them.

Does this mean you should avoid the tech stock surge completely? Of course not. There is a real chance to make money with these high-fliers but remember to use your common sense. Here’s a quick reminder list for the next time you are tempted to throw all your investing capital into the next tech IPO.

1. Stay diversified and conservative – Markets are always going to have booms and busts. The entire fate of your lifetime wealth does not rest on any single cycle, unless, of course, you decide to throw it all into a spectacular failure. Whatever your investing plan is, stick with it. Don’t oversize your trades or change any of your trading rules. You do have trading rules, right?

2. Be greedy when others are scared and scared when others are greedy – This advice comes from the great man himself, Berkshire Hathaway founder and chairman, Warren Buffett. This contrarian advice should have you buying market bottoms and selling market tops, a practice that should eliminate any danger of flame-out. Buffett also suggests you look for companies that return outstanding return on capital and produce substantial cash profits.

3. Take a look at real estate – Income producing properties, to be specific. Over the long haul, this form of investing outperforms all the tech stock boom and bust cycles you’ll ever see.

Now get out there and don’t load up on the next Egghead.

The Young Wealth Team

(Flickr / zzkt)

“We can no longer simply talk at this generation,” said Charles Schwab Foundation president Carrie Schwab-Pomerantz. “Social media isn’t just a place where young adults spend their time, but it’s also a place that allows for a two-way conversation.”

Strong words indeed for a company that has always chosen to talk AT its audience rather than engage in actual conversation. Schwab’s Twitter assault, which is not likely to set the world on fire all at once, is part of a larger effort by the company to access young investors on the own turf and try to educate them about money, investing, and finances.

At Young Wealth, we have to say we think any education at all aimed at young people and understanding finances is a step in the right direction, especially in light of the woeful job that most public school systems do in this area. Understanding how money works is the first step towards learning how to generate more of it through savvy investing. We’d love to see each and every one of our readers reach the land of financial independence and if it takes Charles Schwab strutting their stuff in the happenin’ world of social media – you go, Chuck.

Remember, though, that Schwab is a stock market company. We would like to suggest that you not get so caught up in the Schwabification of America that you forget that the proven best investment in history is real estate. Not just any old chunk of real estate but the kind that makes you a landlord, collecting passive income every month. We call it income property investing. It’s powerful stuff. The kind of stuff that could lead you to the land of financial independence if you let it.

The Young Wealth Team

(Flickr /  _DaniloRamos)

Here it is in nutshell. Instead of keeping all your content and applications on a hard drive installed on your local device, why not upload everything to the Internet, store it at a third party’s remote location, and access it via any of your devices any time you need it. Sounds brilliant, right? It is, though it might take a while for those of us who were raised tethered to our hard drive to give it up.

The downside is that cloud computing is only as reliable as your Internet connection. Let’s say you stored all your apps and files in the cloud and, for whatever reason, you couldn’t get online. Meltdown city. There’s a good chance you’d be ripping handfuls of hair out of your very own head and hurling them at the screen. And let’s not even think about the rumored electromagnetic pulse bomb that could immediately fry anything electronic across the country within seconds, including all your cloud data.

Actually, you shouldn’t worry about an EMP bomb too much. If it ever happens, lost data will be the least of your problems. But Apple has figured out the way to lure the younger generation into the cloud is to focus on music, and that’s what iCloud is all about. Imagine storing all your music and video with iCloud and being able to access them all instantly across all your devices. Want to hear the latest Celtic musical punk rant by the Dropkick Murphys? Doesn’t matter whether you’re on your iPhone, iPad, or Macbook. If it’s in the cloud, it’s always at your fingertips. And get this – no syncing required!

You’ve done it again, Mr. Jobs. While the competition was floundering around trying to figure out what to do, you knew how to take the technology and make it cool. Now Amazon’s not far behind. Stand back and let the era of cloud computing begin in earnest.

And one more thing from your friends at Young Wealth. It might not be a bad idea to invest in Apple.

The Young Wealth Team

(Flickr / kevindooley)

A Chicago native, at the age of 18, Walsh has amassed great wealth as well as created a personal brand that surpasses most seasoned marketing experts.  As CEO of iSocial Academy, Walsh has created what he calls “iHit17” which is a “17-minute Social Media Hit List”, that allows you to build and easily maintain your personal brand and Social Media network. Austin started his career by developing local bands MySpace pages in the Chicago area, bringing in 200 to 1200 attendants—all without spending a dime and using social media outlets like Facebook, Twitter and YouTube.  After many successful events, Austin’s father’s colleagues took notice and asked him to do the same for them—create a Facebook page that not only increases their followers but also brings in revenue.  The great thing about his concept is that your followers are people who actually want to receive information from you—unlike a mailing list.

So what does a business plan look like? It’s simply a printed document, the more professional looking the better, that is broken down into standard sections where you describe various aspects of how the business will operate. Some experts tell you to include more information and others claim you need less, but the following eight section breakdown is the one suggested by the Small Business Association.

1. Executive Summary: The executive summary, sometimes called the Mission Statement, is the big picture view of your business. This is where you talk about the company’s reason for existing. In other words, how will the world benefit from your business being there? A good example of a mission statement on steroids can be found in the movie, Jerry Maguire, where a sports agent played by Tom Cruise famously flips out and decides to tell the truth about where he sees his profession as having gone astray, and lays out a road back to respectability in mission statement form.

2. Company Vision: This section is where you lay out the ultimate vision for your company. Where is it now and how big do you want it to be? Will it be limited to a single store serving a local area or do you have aspirations for it to grow into national or international proportions? If so, you better have a step-by-step plan for getting there. This is where you expand on your grand vision and do your best to get potential investors excited about the possibilities. Subsections of this topic would include a history of the company and any other principal players that might be involved, such as investors or partners.

3. Definition of the Market: To complete a business plan requires that you have some idea of the scope of the market, target audience, and amount of competition already there. You should have already done some research, or at least a fair bit of thinking, to be able to define and describe exactly who you are trying to sell your product to. High earning middle-aged men with flat feet? Left-handed young adults? Very few companies can simply say “everyone” is their target audience because it simply isn’t true. Wal-Mart might get away with such a declaration without being laughed off the stage but there’s a good chance you should narrow your sights considerably.

4. Products and Services: This is where you describe exactly what it is you do or what you’re selling. Maybe you want to sell hot dogs but it’s not that simple. How do you distinguish yourself from the other weiner-slingers already in business? Is your dog bigger, tastier, cheaper, more fortified with essential vitamins and minerals? There’s got to be something different about yours, that makes it superior, or what’s the point in even trying to open a business? If you have nothing different to offer, there’s little chance you’ll make significant inroads into the market if there are already other established players. Don’t forget to include your pricing model.

5. Organization and Management: Depending upon the scope of your vision, especially if you’re going to be a one man company in the beginning, this might be a very short section. On the other hand, if you do have more than one person involved and would like to provide an organizational chart that delineates the power flow and departmental responsibilities, please do so here. Also include what business type you are planning, whether it be a sole proprietor, LLC, or corporation. If you do have managers or partners, describe the role they will play in the business and what they are in charge of. If you need to obtain any special licenses or permits, mention that here, as well as how and when in the process you will get them.

6. Marketing / Sales Strategy: You have your product. You’ve defined the market. Now how are you going to connect the dots and put them together? Explain your sales and marketing strategy, especially in regard to the Four P’s of pricing, promotion, products, and placement. In simple terms, how will you reach your market with news of your company’s product or service? Building it and hoping they will come might have worked for Kevin Costner in Field of Dreams but please don’t rely on it for creating awareness of your new endeavor. What are your plans to get the ball rolling toward the land of profitability? Are you going to advertise on radio, television, on the Internet, or in print? Wait for word-of-mouth to kick in? Send a sales team out into the world? Your investors want to know up front how you’re going to make sales.

7. Finances: You better not blow through this section with a flip remark, “We’ll make money pretty soon.” For a new business, you need an estimate of start-up costs, as well as a projected balance sheet, income statement, and cash flow statement extending one year into the future. For an existing business, you’ll need to provide records of at least three years worth of balance and income statements and a year’s worth of cash flow evidence. For your own good, make these estimates as close to accurate as you can get. If you’re trying to get a business loan, you should include the most recent year’s tax return for the business, as well as a personal financial statement for yourself and any other principals involved.

8. Title Page: Last but not least don’t forget to include a title page, lest the very people you’re trying to woo find themselves eager to throw fistfuls of money in your direction but can’t figure out where to send it. Include your company name, street address, phone number, email address, and website address.

After a stringent round robin of editing by at least two or three other people, you can print out this business plan, put on a freshly pressed suit, shave, and head out to convince those people who need convincing to give you money. Or, if the business plan is merely for your own purposes, the process of putting it together should have given you a heads up if you have massive holes in your thinking. Be glad that you found out now rather than three months into the process.

If you’re interested in more information about how to put together a business plan, visit the Small Business Administration’s website here.

The Young Wealth Team

Flickr / Yodal Anecdotal

* List courtesy of IncomeDiary.com (Click here to see the whole list)

1. Mark Zuckerberg, 25 yrs old (Facebook)
Why They Matter: Mark is at the top of our list for two HUGE reasons, he is the world’s youngest billionaire and he runs the world’s largest social networking website which is actually the second most visited site in the whole world, not bad for 25 years, is it?

2. Matt Mullenweg, 25 yrs old (WordPress)
Why They Matter: Matthew Mullenweg is the founder of WordPress, the software that runs this blog and millions of others out there. Without Matthew, you probably wouldn’t be at this website right now because I wouldn’t be as fond of blogging without his genius, easy to use blogging software. He has been offered over $250,000,000 for his company which he turned down.

3. Pete Cashmore, 24 yrs old (Mashable)
Why They Matter: Pete Cashmore makes our list because he runs on of the world’s top blogs which is about all that is new on the web. With over 1,600,000 Twitter followers and 300,000 RSS readers, you know this guy is running something big!

4 and 5. Aaron Levie and Dylan Smith, 23 yrs and 22 yrs old (Box)
Why They Matter: Box.net founded in 2005 was originally launched as a college project to share and store any type of file, and make it accessible from anywhere in the world with an internet connection. The company nearly has 2 million users on the service, and netted a $6 million in venture capital.

6. David Karp, 22 yrs old (Tumblr)
Why They Matter: Tumblr is a blogging platform that anyone can use. The service was built with customization and ease of use in mind. Karp invested money into the company from his previous job as a software consultant at a parenting website. Tumblr raised $5.25 million in funding from various investors, including 2 lead investors with the popular social network Twitter.

Now get out there and replicate the success of these young entrepreneurs.

The Young Wealth Team

Flickr / DonkeyHotey

Self-Directed IRA – In case no one ever told you, it’s perfectly legal (and smart) to invest in real estate through a self-directed IRA. The tax benefits are truly amazing, but make sure you familiarize yourself with the complex rules first. Do it wrong and you could get hit with a huge tax bill. The main thing to keep in mind is that the property cannot be for residence or vacation use. It has to be an investment property.

* Read this Kiplinger’s Article on the subject

Partner with other Buyers – There are experienced real estate investors out there who solicit funding from the public for large apartment building buys. This is a great way to let an expert do your property screening for you, though take care to understand exactly what sort of deal you’re getting into and what returns are expected. It wouldn’t hurt to have your own expert look over the deal. We suggest you avoid the “great deals” associated with a “war zone” neighborhood.

Make friends with the local REIA – Most areas have a local chapter of the Real Estate Investor’s Association. Attend the meetings. It’s a great way to meet like-minded investors and maybe even get a heads up on new property deals or meet potential partners.

Wholesale – This refers to the strategy of locating motivated sellers who have not listed their property on the MLS yet. A great way to learn the business from the ground floor up, wholesalers commonly make $5k to $10k per deal by acting as a bird dog for cash buyers.

These are just a few ideas for the young investor looking to break into real estate. The overall point to keep in mind is that you will be much better served in the long run to focus on developing your property portfolio than messing around with Wall Street squirreliness.

The Young Wealth Team

Flickr / Jon Garfunkel

Now you’re paying attention! At least for a little while. Even if you plan to earn your first million by wining the next edition of Survivor, you’re going to need top notch money management skills to make it last a while because a million bucks ain’t much when you take the long view. Think of it like this. One million dollars divided over the course of a 40 year working career works out to $25,000 a year, an amount that won’t have you eating caviar at the Fontainebleau in Miami Beach.

Knowing how to manage your money for growth is critical to long term success and the kind of wealth you’ve REALLY been dreaming about. Let’s steer this towards investing and say you have that million dollars in your pocket after outwitting, outplaying, and outlasting 17 other castaways. You take the money from your pocket and open a trading account. You’ve been studying a bit and have a good idea how to make a killing as a Wall Street daytrader.

Here’s something you might have overlooked. No trader is right 100% of the time. Only the market itself is never wrong because it does whatever it darn well likes and no one can do a thing about it. Do you have a clue as to how much of your cool million you should risk on a single trade? How about in total open positions? If you say 50 percent, you might as well turn make a reservation on skid row right now because that’s where you’re headed. Different experts have different ideas but the ballpark you should be thinking is NEVER risk more than 1 percent of your account on a single trade or put more than 5 percent of trading capital at risk at any one time.

That’s what money management is about and that’s what will keep you alive to trade another day.

The Young Wealth Show

Flickr / danielmoyle

Are colleges in their current format, as brick and mortar edifices of learning, becoming about as useful as the square wheel? Here’s what’s been happening in the real world. There was one part of the American economy that actually saw prices increase in the wake of the recent recession – college tuition. While stock market and real estate prices tumbled left and right, Americans ran for the shelter of higher education, hoping to arm themselves with the proper tools to land a job upon graduation.

It turns out that education at ANY price might not be all it’s cracked up to be. Private, four-year colleges have averaged a 5.6 percent tuition increase each year over the last six, and the government has been more than willing to allow students to pile up mountains of loans to keep pace. Now these poor souls who greatly overpaid for their education are graduating to find there still are no jobs to be found. It’s enough to make one think that the current business model of higher education is unsustainable. We have an education bubble in the United States!

Why can’t colleges go to the Amazon model? With high speed Internet a functional reality in almost all of America, is there any real reason to continue the charade that it’s necessary to relocate to a different physical location and sit in a room with thirty other sweaty young adults to be bored out of their mind by a droning professor? Actually there is no reason to continue this arrangement and the smart schools are already figuring it out. With most states forced to cut college funding as they grapple with serious budget issues, the schools themselves have no better solution than to raise rates while prices are falling all around, or maybe encourage campus police to write a few million extra parking violations.

There comes a point when you have to say, “This isn’t working. Let’s try something else.” We agree. It IS time to try something else.

The Young Wealth Team

Flickr / cooljinny

Think about it like this. Notice how some presidents, not to imply anything in particular about the current White House occupant, don’t seem to have even a grade school grasp of how to run a country? Well think of each state’s governor as a mini-president. Some are good. Some are not. Some states have a history creating a better economy for workers. Why not go there? Is there really a good reason to stay where you are if unemployment is high and salary is low?

Just in case you get a wild urge to go where the local economy looks better, here are some ideas to ponder. The following conclusions were based upon research that considered unemployment rate, average income, state income tax rate, and cost of living to arrive at what is called an Adjusted Average Income.

5 Best States to Earn a Living

1. Illinois
2. Washington
3. Texas
4. Virginia
5. Delaware

And then there’s the 5 Worst States to Earn a Living

1. Hawaii
2. Maine
3. Montana
4. California
5. Vermont

Sure Hawaii is a tropical paradise but the average income isn’t so good and the cost of living out of this world. Conversely, Illinois might not be high on most people’s bucket list of places to live but, after you consider the numbers – reasonably high wages, low state income taxes, moderate cost of living – it starts to make more sense. Young Wealth is not here to suggest you drop it all and run halfway across the country based on a blog’s advice, but is there really a good reason to not consider another state to live in?

The Young Wealth Team

Flickr / woody1778a

Which begs the question, what will it look like when the sliver disappears? How exactly does a country defaulting on its debt affect the man in the street? Unfortunately, there’s a good chance we’re about to find out. First we should point out there there is one teensy tiny factor in our favor which might prevent a Weimar-esque sprint into hyperinflation, and that’s that we still hold the world’s reserve currency, though it’s anyone’s bet how long that will be the case.

Let’s check on a recent quote by Bill Gross, Chief Investment Officer of PIMCO, the world’s largest bond fund. Gross is personally responsible for $1.2 trillion worth of assets and had this to say: “I am confident that this country will default on it’s debt.”

Not much wiggle room there. He IS confident we WILL default. Gross has been busy getting PIMCO out of treasury bonds and thinks that unless Social Security and Medicare aren’t reformed substantially, and quickly, the default is a done deal. Gross went on to say the default was already underway to some extent. Here’s how he explained it. “Not in conventional ways,” he said, “but by picking the pockets of savers.” He says the government will pick your pocket through “inflation, currency devaluation, and low to negative real interest rates.”

That’s is why it’s dangerous to be a saver right now. Low interest interest rates paid on treasury bonds and bank certificates of deposit end up actually costing you money by the time inflation is figured in. If Gross is taking his money out of assets backed by the “faith and credit” of the United States government, where is he putting it?

Mortgage-backed bonds! At least there’s a real asset somewhere on the other side of all that paper.

The Young Wealth Team

Flickr / abraham.williams

The bad news for owners is that their NBA teams lost an average 2.6 percent in value during the recent recession, making basketball a below average investment. In the past year, the value has shrunk by 1 percent. Okay, so maybe we’ve finally found an investment opportunity that actually makes the stock market look good and real estate investing positively lucrative. But back to basketball. The truth is that these billionaire owners often get into the business for reasons other than profit. While some teams are incredibly profitable over the long haul, an underlying passion for the sport is probably more of a contributing factor.

And how those fortunes can change in an instant. Let’s look at the Miami Heat, whose off-season acquisition of LeBron James and Chris Bosh (to go with superstar Dwayne Wade) sent that franchise to the largest value increase in the league’s 64 year history, with a 17 percent surge, while the team James left, the Cleveland Cavaliers, saw their value drop by 26 percent.

The lesson to be learned here is that, if you want to earn real estate type returns for your professional basketball investment, hire LeBron James then stand back and watch season tickets sell out. In case you’re interested, here are the values of the top five NBA teams.

1. New York Knicks – $655 million
2. Los Angeles Lakers – $643 million
3. Chicago Bulls – $511 million
4. Boston Celtics – $452 million
5. Houston Rockets – $443 million

But don’t feel sorry for these owners and the recent paltry rate of return. Most of them are just doing this for fun. They make their REAL money in completely unrelated industries. And these basketball numbers seem positively anemic when compared to that other American sport, football, where 19 of the 30 teams are valued at over $1 billion, with the Dallas Cowboys leading the way at $1.6 billion.

The Young Wealth Team

Flickr / RMTip21

Sean is a wunderkind – with the strength and determination to succeed at whatever he does. A young entrepreneur, he was raised in rural poverty and has lifted himself to wealth in the millions through his service, import, and real estate portfolios. The intensity, commitment, and preparation that Sean demonstrates provide practical starting points for anyone who wishes to become wealthy. Though still in his late 30’s, Sean has become successful in business many times over, with accomplishments such as SBA’s Young Entrepreneur of the Year, and the San Francisco Bay Area’s Most Successful Under-40 Recognition. He has sufficient self-awareness and analytical abilities to clearly describe the principles and practices that have contributed to his success, so that others can follow where he has led.

The truth is that decisions our politicians have made in recent years would have been unthinkable 50 or 100 years ago. At some point along the way, in our hubris, we decided that we could ignore the laws of economics and never have to pay the price. Blame presidents, congresses, Federal Reserve chairmen if you like. It wasn’t one person who set us on this path but rather a succession of extremely poor decision-makers.

We’re fighting a war in Afghanistan, a nation called the “Graveyard of Empires.” Nobody ever wins in Afghanistan! The British tried. The Russians tried. Now we’re mired there, wondering around in those vicious mountains where all our fancy technology seems to not work quite as well as advertised. While we’re at it, let’s let government employees set their own wages and benefits, but first we’ll get rid of that irksome gold standard so we can create money out of thin air to finance our wild spending sprees. Everyone deserves a house with a mortgage they can’t afford, a handful of expensive prescriptions paid for by someone else, and a willing communist nation to foot the bill for our largesse (thank you, China).

The problem is that nation-building and spending without limit never works. Remember back when the original colonists got a bee in their bonnet over “Taxation without Representation?” They threw off their oppressor and wrote down some pretty good ideas about how to run a successful republic. They called it the Declaration of Independence and the Constitution of the United States. We were recently reading those documents. Seems like they have some pretty good ideas in them. We should try it some time. Again.

The Young Wealth Team

Flickr / The US Army

Overall, last quarter’s billionaire sentiment was to get into the financial sector and out of technology, which is a bit of a buzzkill for all the young traders out there itching to earn their bones by being the next prescient wunderkind to get out in front of the next great tech wreck.

Financials? Boring! Sorry to have to break the bad news to you but billionaires were literally flocking to financial companies like Bank of America, Wells Fargo, and Citigroup. Both Warren Buffet’s Berkshire Hathaway group and John Paulson’s hedge fund hit these stocks in a big way. Meanwhile, currency billionaire, George Soros, decided to up his stake in Delta Airlines to 14.7 million shares, which works out to about $157 million.

While we would not be so silly as to suggest you mindlessly model your portfolio after anyone, you could do worse than to at least follow what the Big Boys are doing with their money, and try to understand why. It’s a pretty safe to assume they aren’t randomly dumping huge piles of cash on certain stocks just because they like the sound of the name. With Buffett, it is always and forevermore about fundamentals. You can bet he sees great fundamentals with the financials (probably that they are artificially undervalued in the aftermath of the foreclosure mess), which can be a great reason to buy.

In general, the billionaires are staying away from technology companies, though some can’t help buying shares of Apple. The overall feeling is that the sector is overvalued and ripe for a bubble which will eventually pop.

The Young Wealth Team

Flickr / TEDizen

Todd Babbitt grew up in the Washington, D.C. area, in an average middle-class family. He attained the majority of his wealth through real estate, and a smaller portion from the stock market. Nothing he did was complicated or beyond the understanding of an average person. Today, Todd lives the good life in Naples, Florida, with his wife and daughter. He continues to build his net worth through various investments.

Employment is one of the fundamental factors of economic growth that represent the most frequently used yardstick for measuring recoveries. In discussion of employment, there are two distinctly different categories of unemployment that must be understood. The first is the ‘narrow’ definition that compares the people who are unemployed and looking for work against the total labor force who is employed or looking. The alternative or ‘broad’ definition includes discouraged workers who have stopped looking for work and incorporates the number of people who are working part time, but would like to be employed full time.

Some strange nuances can influence the reported unemployment rate that must be comprehended. When large groups of people stop looking for work, it can result in a net loss of jobs that rolls through as a lower rate of unemployment because the number of people who stopped looking exceeds the number of people who lost their job. Given the statistical machinations that are inherent within reported rates of unemployment, it is critical to understand the factors that will need to be present in a return of unemployment to historically healthy levels between 4% and 6%.

One of the most important factors to consider is the dynamics of “Job Gains” and “Job Losses.” The reported numbers are frequently the ‘net’ of all gains and losses in a given month or quarter. Focusing on the net number has the unfortunate effect of blinding many people to the ‘churn’ of jobs within the economy. Each US fiscal quarter results in the ‘destruction’ of somewhere between seven and nine million jobs that is offset by the ‘creation’ of seven to nine million jobs. The net change at the margin is what influences the reported rate of unemployment.

The current economic situation has resulted in the net loss of many jobs with many more people dropping down from full-time to part-time employment. Facilitating a return to healthy rates of employment will require many consecutive months of net job growth to absorb the currently unemployed work force. In the 2010 forecast book, we forecasted a narrow unemployment rate of 9.2% by the end of the year, and a broad rate of 16.1% by the end of the year. As of November, narrow unemployment stands at 9.6% with broad unemployment at 17.1%. Our 2010 model assumed an anemic economic recovery, but predicted a faster return to net job growth than actually occurred. The principal reason for this is because of uncertainty that surrounded the health care legislation that was pushed through Congress during 2010. As employers grappled with the expected impacts of these new laws, they held off on hiring new employees until their view of the future business landscape became more clear.

As we move into 2011, we are anticipating continued economic sluggishness that offers dim prospects for major net changes in employment. Over the past few quarters, economic growth has barely held pace with the entry of new workers into the labor force. This has resulted in narrow unemployment persistently holding above 9% with broad unemployment staying above 16%. In order for a major reduction in unemployment to occur, the economy will need to expand faster than the rate at which new entrants come into the work force. Since the economic fundamentals are not currently oriented toward the accomplishment of these goals in 2011, we anticipate that unemployment will continue to be relatively high throughout the year.

Our models predict that we will exit 2011 with narrow unemployment of 9.3% and broad unemployment of 16.8%. On the surface, this reduction in unemployment appears very anemic, but it is reflective of the fact that employment is a lagging indicator of economic recovery. During uncertain times, businesses become very cautious in hiring new employees. This generally results in new hiring only when it can be justified by tangible revenue generation. The wild card in growing employment is the impact of small business and entrepreneurial ventures. Job growth at the margin frequently stems from small business. Current uncertainty over the future of health care legislation, government policy, and taxation has suppressed growth and expansion for many small business entities. We do not currently believe that the regulatory environment will stabilize quickly enough to generate a tangible impact in 2011. However, if the mid-term elections and subsequent strengthening of the Republican Party in congress suppresses the tide of government intervention, there is the potential for an economic recovery to begin unfolding before 2011 concludes.

The Young Wealth Team

Flickr / smemon87

Austin experienced a moderate value contraction after the financial collapse, but is now regressing back toward its long-term trend of modest single digit appreciation. The economic fundamentals of Austin continue to be strong as it moves into 2011. Currently, approximately 37% of listings in Austin are from foreclosures.

With many companies seeking to move out of hostile business environments and into areas that are more friendly to commerce. With a highly educated population, a strong technology industry, and a low rate of taxation Austin is a nexus for business and commerce in the upcoming decade. Market values in Austin are somewhat higher than cities such as Dallas and Houston, which has resulted in lower rates of cash flow than is frequently experienced in those markets. In contrast, Austin centers much more around the University of Texas, with its associated restaurants and culture scene. Income property in Austin operates much closer to breakeven than other markets in Texas, but values have historically grown at a faster rate, resulting in a higher expected return from leveraged appreciation.

Investors are expected to realize attractive rates of return from Austin by generating leveraged appreciation and positive cash flow from rental revenue. As a historically linear market, Austin has not experienced the same value swings as many other areas, but is expected to produce consistent returns for investors. Austin strikes a balance between cash flow and expected appreciation by generating rent revenues that are frequently sufficient to pay for normal expenses associated with operating income properties. This gives investors considerable leeway in waiting for future appreciation, since they are not required to absorb significant negative cash flows. On balance, Austin represents the kind of market that many investors tend to prefer because of its attractiveness as a place to work and live, along with its balance ROI profile.

The Young Wealth Team

Flickr / StuSeeger

Oil prices have been going through a period of very significant volatility over the last few years. In the months preceding the financial crisis, global demand for energy was perceived to be on a permanent upward trajectory. This drove a large degree of speculation on oil prices by investment fund managers. The resultant run-up in oil prices1 generated large profits for established oil companies, which drew a high degree of political pressure from the government.

As the financial collapse unfolded, it initiated a string of forced selling by investment funds to unwind their financial positions in oil contracts. This drove market prices down to levels similar to the year 2000. After oil prices bottomed, they have regressed toward their longer-term trajectory. As we moved into 2010, another major factor effecting energy policy emerged. This factor was a drilling ban in the Gulf of Mexico following the oil spill by British Petroleum. This drilling ban served to inflate market prices for oil and tilted the balance of production to Mexico, South America, Russia, and the Middle East. In the 2010 forecast book, we forecasted an oil price of $82.70 by the end of the year. In the month of November, the price for a barrel of light sweet crude oil reached $81.3, landing within 1.8% of our forecast for the year.

We used the same model to produce our 2011 price forecasts as in 2010. The price estimate per barrel of crude oil in 2011 is $105.27, reflecting continued monetary expansion by the Federal Reserve and a global price equilibrium of growing demand juxtaposed against a limited supply of proven crude oil reserves that can be harvested at a relatively low cost. If market prices continue to escalate, it will generate opportunities for opening up new wells for production that are not currently in use due to acquisition costs that exceed the market price. This phenomenon may help to constrain price growth in the future, as new supply comes on line to accommodate some of the increase in demand.

The Young Wealth Team

Flickr / L Gnome

One of the primary monetary news items to note as 2010 draws to a close is the announcement of more ‘quantitative easing’ by the Federal Reserve1. In plain terms, this means that the Fed will purchase treasuries on the open market. This will have the effect of artificially increasing demand for treasuries, which will push down the rate of interest. It is also expected to have the effect of pushing more money out into the economy with the hopes that it will stimulate consumer demand. Unfortunately, many fear that it will also stimulate inflation.

One of the most powerful tools that the Federal Reserve has in its arsenal is the rate it charges member banks for loaned funds. (Also known as the “Fed Funds” rate) In the aftermath of the 2008 financial crisis, the Fed Funds rate lowered to just a few basis points. (Effectively Zero) The effect of this move was to immediately flood the balance sheets of banks with liquidity. This also created a vast sea of un-loaned reserves on the balance sheets of banks.

In a normal lending environment, capital at the bank is lent out at a 10 to 1 ratio so that the bank can earn interest on the loaned funds. In the current environment, banks can borrow money from the Fed at near-zero interest rates, and many are earning profits by churning borrowed funds into treasuries to profit from the yield spread between the treasuries and the rates charged by the Federal Reserve. The fundamental problem is that the nearly $1 Trillion in un-loaned reserves can literally be turned into new loans overnight. This could potentially mean the addition of up to $10 trillion in new money at any given time.

In practice, a flood of loans like this is quite unlikely. Analyzing the rates of change for key monetary aggregates reveals that the M1 and M2 measurements have grown much more slowly than the Monetary Base2, even when accounting for the massive increase following the 2008 financial crisis. The way that this expansion of money has been held out of broad circulation is by government sponsored treasury arbitrage from artificially low interest rates from the Federal Reserve. As we move into 2011, the principal monetary question facing investors is that of whether the Fed will decide to increase its Fed Funds rate, shifting incentives for banks to stop arbitraging treasuries and resume making loans. When this ultimately happens, it will create broad and rapid price escalations. Our models indicate that the current administration will use all of the tools in its disposal to delay this phenomenon in an attempt to create the appearance of economic recovery in advance of the 2012 election cycle.

The Young Wealth Team

Flickr / DonkeyHotey

Atlanta represents an investment gem in the southeastern United States. It has spectacular economics from a development and employment perspective that make it a tremendous opportunity for income property investors. With a wide diversity of employers, many universities, and a vibrant cultural presence in the city, Atlanta has attracted a tremendous amount of in-migration from young professionals seeking employment opportunities. Since many of these young professionals choose to rent, the Atlanta market has very healthy rents relative to values. Currently, approximately 31% of listings in Atlanta are from foreclosures.

Atlanta’s experience during the real estate bubble and financial crisis has been somewhat unique. Prices in Atlanta started from a much lower baseline than many other major markets. The prices escalated to a peak in advance of the financial crisis and have subsequently fallen back to the same levels that they were 10 years ago. Most of the other markets that experienced an inflation and deflation of prices like this are bubble markets that typically exhibit high prices relative to rents. In contrast to this, Atlanta represents more of a linear market with attractive rates of return available from cash flows that result from rent revenues. This is one of the primary reasons for Atlanta’s strength as an income property investing market.

The favorable business and economic environment in Atlanta make it one of the more likely places for an economic recovery to emerge. Our models estimate a return to modest rates of appreciation in 2011, which combines with attractive rates of cash flow to produce a tremendous opportunity for astute investors. By investing in Atlanta, it places you in an advantageous situation where you can afford to wait out market volatility and sell when it is optimal for your long-term strategy.

The Young Wealth Team

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One of the important ratios to keep in mind when examining the equity markets is the gold price relative to the major stock market indexes. This provides a valuable insight into the extent to which market values reflect a real shift of sentiment toward equity value, versus the extent to which the value has lost value, driving increases in nominal valuations to simply retain purchasing power. Over the last 35 years, the relative price of Gold1 and the S&P 5002 has oscillated up and down very significantly. In the aftermath of 2008 and the financial crisis, this ratio has regressed toward a value of 1.0, which indicates equal valuation for the S&P 500 index and an ounce of gold. In the latter half of 2010, the S&P 500 vs. Gold ratio dropped below 1.0 as Gold prices were pushed up by speculators seeking to hedge against expected future inflation. Our analysis indicates that this trend is likely to continue through 2011 as monetary expansion inflates both asset classes.

The principal driver of past expansions and contractions of this ratio are changes in consumer sentiment toward business and expectations about price inflation. During the late 1970’s and early 1980’s there was a general souring of investor sentiment toward the prospects for business expansion, combined with high levels of price inflation. This drove the ratio downward quite sharply. As the economic expansion of the 1980’s and 1990’s continued, sentiment shifted toward the stock market as a way to generate wealth. This was reflected in the S&P 500 carrying a valuation over five times the price for an ounce of gold in the late 1990’s.

After the technology bubble burst, and market sentiment for equities eroded, the S&P 500 index began a regression back toward the price for an ounce of gold. This regression has stabilized in the last few quarters as the price of gold pulled even with and eventually surpassed the S&P 500. As 2011 unfolds, we are not expecting to see economic or political conditions that are favorable for business expansion, meaning that price increases for both assets will most likely come from inflation pushing up the nominal values, but resulting in little change for the real value. If the economy slips back into recession from monetary tightening or the cumulative impact of additional government taxes and regulations, we expect to see the S&P 500 price move significantly below the price for gold. Conversely, we anticipate that the S&P 500 will resume a growth trajectory relative to gold when the economic and political conditions become more favorable for expansion. At present, these conditions are not likely to transpire in 2011, and may take until 2012 or longer.

The Young Wealth Team

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One of the significant problems faced by the government is the increasing difficulty in auctioning off treasury securities. The reason for this is investor fears over inflation and the relative low interest rate offered on the debt. These fears are amplified by the massive budget deficits being run by the Federal Government that must be financed with consistently increasing levels of borrowing. The strategy currently employed by the government is to use the Federal Reserve to purchase treasuries.

By adding treasury securities to the Federal Reserve balance sheet, the Fed is increasing the amount of banking reserves in the system that are available to be loaned out. Thus, every dollar in monetary expansion by the Fed can be turned into ten dollars by the banks through issuing loans under the 10% reserve requirement. Currently, this has not happened because of the near-zero interest rates being charged for loans from the Federal Reserve. Instead of loaning out these additional reserves, banks are using the funds to purchase treasuries and generate a profit on the interest rate spread. When the tide of new money creation eventually crashes in, it will result in a sudden upward surge in prices that will influence demand for treasury yields.

In the 2010 forecast book, we anticipated that rates would exit 2011 at 6.7% for a 10-year government bond. This estimate was based on the assumption that current levels of monetary expansion could not be continued indefinitely without adverse effect. As of November 2010, the 10-year treasury rate stood at 2.5%, supported by heavy purchases on the part of banks who are investing funds borrowed from the Federal Reserve at near-zero rates. Because of these factors, we believe that the 10-year treasury rate will finish 2011 at 5.75%. Our models have been adjusted to factor-in the spillover effects of quantitative easing pushing up yields demanded by investors in response to escalating consumer prices.

With current mortgage rates at historic lows, it is likely that the housing recovery will stall in the second half of the year as the interest rate increases erode affordability. For homeowners and investors that have capitalized on the current low interest rates, there is a significant probability that future inflation rates will be considerably higher than the current treasury and mortgage rates.

The Young Wealth Team

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By now, most people have heard about the second round of “Quantitative Easing” being conducted by the Federal Reserve. In short, this means that the Fed will be purchasing treasury bills with freshly printed money to inject more cash into the monetary system. To date, most of this additional liquidity has been limited to banks who have opted to hold the capital instead of loan it out. The reason for this is because the banks can borrow from the Fed at extremely low overnight interest rates and use the capital to purchase treasuries with a yield rate that exceeds their cost of borrowing.

However, this round of monetary expansion is likely to ripple out into the economy much more quickly than the last one. In practice, it means that prices are likely to adjust with more money out in the system and the same amount of goods and services being produced. This is expected to create a nominal increase in prices. The items that will experience this price increase first will be those that are bought with cash and have a high transaction velocity. Treasuries, Stocks, Food, Energy, and Commodities are the first places where nominal price increases are likely to show up.

As time goes by, the nominal price inflation is expected to work its way throughout the economy. This is the intended purpose of quantitative easing, and one of its principal dangers. Actions by the Federal Reserve are being taken to stabilize nominal prices. If further weakness is seen in the price for things like real estate, there is a possibility that the Federal Reserve will take even more action to keep nominal prices stable. The problem comes when the nominal price of things like homes are held stable, but the price of things like food, energy, and other things that are considered ‘necessity’ items of life increase in value.

The likely output of such a scenario will be ‘real’ value decreases that are hidden behind ‘nominal’ price stability or even increases. When analyzing decisions for your personal and investing behavior, it is critically important to understand the importance of these monetary effects. There are many ‘doom and gloom’ proclamations floating around that anticipate a second recessionary dip for the economy. Our assessment of the situation is that the Federal Reserve will continue with its expansionary monetary policy for the express purpose of avoiding value contractions that would initiate a secondary recession.

The likely outcome of these decisions will be an extremely slow economic recovery as activity stops and starts in reaction to price signals. Increases in nominal prices will temporarily spur activity, but increases in key costs will subsequently dampen that additional activity. This see-saw action is likely to continue throughout the process of quantitative easing and for a considerable time afterward.

Practically speaking, this means that investors must be ready for considerable uncertainty over the next couple years. It also means that nominal price gains must be measured against the real purchasing power of the dollars that they are denominated in. Astute investors should seek opportunities to fix their cost of capital at today’s low rates and invest in assets that will have their nominal value carried upward by inflation.

Financial independence is closer than you think. Buy your Early Bird ticket to the Meet the Masters of Income Property Investing educational event before February 14 to qualify for a steep discount on tickets.

The Young Wealth Team

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By focusing on investment in deals that produce reasonable cash flow, investors can achieve favorable rates of return from leveraged value appreciation and cash flow in the Phoenix area. Currently, approximately 54% of listings in Phoenix are foreclosures1.

Phoenix is a unique market, since it has been historically linear but was escalated to very high levels of valuation during the recent real estate bubble. We expect to see a return to historical levels of value appreciation that are a combination of modest fundamental growth and a regression upward from an artificial bottom that resulted from foreclosures after the financial crisis. To long-term investors, a steady growth rate with attractive cash flow represents a much more attractive opportunity than a cyclical market that depends on steep value appreciation and quick re-selling of properties to compensate for negative cash flow from rents.

As we move into 2011, there are two significant forces acting on the Phoenix market. The first is a regression to replacement cost after market values reach their fundamental bottom. The second is an expected increase in interest rates from historic lows that will suppress cash flow relative to prior levels. Our analysis concludes that now is the optimal time to pursue income property deals due to the intersection of historically low interest rates and market values that have been suppressed to their year 2000 levels.

The Young Wealth Team

One of the complexities implicit within consumer prices is the duality that exists between commodity products that naturally inflate with increases in the supply of money from the Federal Reserve and technology products that naturally deflate in price as new innovations displace current products with higher quality and lower prices. When we published the 2010 inflation predictions, our models assumed that the quantitative easing being undertaken by the Federal Reserve would ripple through the economy and drive up consumer prices. Our 2010 forecasted rate of inflation was 3.9% for core inflation and 7.2% for all items. The reported inflation through the month of October is 0.8% for core inflation and 1.1% for all items. It is quite apparent that the experienced inflation through October is quite lower than our prediction. The reason for this is that our prediction was based on an assumption that a dramatic increase in bank reserves after the financial collapse of 2008 would eventually spill out into the broader economy. However, the Federal Reserve successfully kept these reserves out of circulation by lowering the “Fed Funds” rate for bank borrowing from the Federal Reserve down to nearly zero. This made it more profitable for banks to borrow from the Fed and use those borrowed funds to purchase Treasury notes than to loan their reserves out. This technique has resulted in steadily printing more money to fund the bank arbitrage of Treasuries, but has also been able to keep the excess reserves from inflating the supply of money in the marketplace.

As 2011 unfolds, we expect to see commodities inflated by the “quantitative easing” on the part of the Federal Reserve. This is expected to result in an inflation rate of 2.4% for all items excluding food and energy and a 6.6% rate of inflation for all items in the index. These predictions are based on the assumption that techniques used by the Fed to constrain monetary inflation will see their effectiveness diminish in 2011. The spillover effect from quantitative easing are already being felt in prices for food and energy. We view this as an indicator that recent increases in the money supply are finding their way into the broad economy and influencing prices. In the event that large amounts of new money are unleashed into circulation over a short period of time, there is a considerable risk of price spikes. However, it is extremely difficult to know exactly when such an event will occur, because of the existence of large excess reserves that have been sitting on bank balance sheets for an extended period of time.

The future of consumer prices will be largely dependent on the extent to which government policy accommodates or constrains new innovation that will deflate prices for technology and manufactured goods when the currently deployed capital becomes obsolete. Our current view is that the divided legislature resulting from gains by the Republican Party in mid-cycle elections will moderate government activity and hold the potential for stabilizing the economy as it moves out beyond 2011.

The Young Wealth Team

Flickr / pdinnen

The most significant factor that impacts prices is the supply of money relative to economic output. While it is true that the prices of individual items relative to one another will fluctuate in the marketplace, the only thing that can drive the price of everything up at once or everything down at once is an increase or decrease in the supply of money chasing after goods or services. It is important to note that “money” can take the form of currency, bank deposits, or lines of credit.

Bearing the cause of inflation in mind, it is also important to understand how the government measures inflation. The most commonly cited measurement of inflation is the consumer price index.1 This index is expressed as a bundle of consumer goods, and is intended to represent the likely purchasing behavior for an urban household. (Over time, the household size assumption for CPI has been decreasing, meaning that when the consumer bundle is expressed in a per-person instead of per-household basis, the increase is faster than expressed in CPI) The index value derives from comparing the consumer bundle price to the bundle price in the base year(s).

As time goes by, the items in the government consumer bundle are changed to reflect shifts in purchasing behavior. In addition to this, quality changes are imputed into the index so that an item that costs the same, but has greater quality shows up as having a lower cost in the consumer bundle. There are many other adjustments made to CPI, but in aggregate, they make objective pricing comparisons from one time period to another difficult since there are many subjective adjustments that have gone into computation of the index.

As a way of level-setting the value of CPI, we have constructed a comparison of the relative values2 for the S&P 500 stock market index, the consumer price index, the consumer product bundle3, and the consumer product bundle normalized for per-person instead of per-household from 1929 through 2009. Analysis of the trending shows provides some very interesting insights for investors.

The first is that over time, the CPI and CPI bundle diverge very significantly. Presumably, this is due to price adjustments for quality improvements of CPI component items. However, it also shows that the nominal increase in price of items over time is likely to be larger than what is expressed in the CPI. Another interesting insight is the fact that the adjusted bundle tracks very closely with the consumer bundle until the 1960’s. This is the point when divorce rates began to increase and the average household size started shrinking. When the consumer bundle is spread across a smaller household size, it results in a higher cost per person than is expressed in the ‘per household’ assumption of the index.

Further analysis of the data trending shows that the S&P 500 significantly under-performed the CPI through the mid 1950’s, and basically held flat with CPI during the mid to late 1970’s. It wasn’t until the bull market of the 1980’s that the S&P 500 value really began to separate from CPI.4 After the financial crisis of 2008 drove down market values, the normalized value for the S&P 500 and the normalized value of the adjusted consumer bundle stood relatively close to one another.

This analysis provides a unique insight. Depending on how one defines inflation (CPI, Consumer Bundle, Adjusted Bundle), the long-term returns from the S&P 500 index become relegated mostly to dividends. For stock market investors who were caught in the value growth explosion of the technology and financial bubbles, it is important to understand that the rates of growth experience during those time periods are unlikely to be repeated anytime soon.

However, all investors must come to understand that nominal gains and real gains are very different things. The government assesses tax liabilities based on nominal gains, but as investors, we principally care about the ‘real’ rate of return generated by our investments. This means that we must seek investment vehicles that will produce ‘real’ rates of return in excess of future inflation.

Our preferred strategy for accomplishing this goal is with income properties. By purchasing an income-producing asset with fixed-rate financing, it allows investors to benefit from nominal value inflation since their cost of financing is fixed. Furthermore, by outsourcing the payment of mortgage interest to tenants who are paying rent, it allows income property owners the luxury of holding through value disruptions so that nominal price inflation helps them to create real wealth.

The Young Wealth Show

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One thing that we know will occur because of this move is that prices will be temporarily strengthened as the inventory of foreclosures is artificially constrained. During this time, people will be held out of the rental pool while they are living in a house (without paying rent) until the foreclosure process rolls through. The impetus behind this is quite clear, since the politicians in charge of government policy are attempting to curry favor with their constituents by helping people to stay in the houses that they cannot afford.

Over time, this decision will play out and the market will regress back to equilibrium. In many markets, this will take the form of short-term price stabilization or increase, followed by softening of the market prices as the foreclosure inventory that had been held off the market comes back on. In conjunction with this, there will be people moving out of the ‘owner’ population and into the renter pool. This will strengthen rents as the population of renter’s increases faster than the supply of rental properties. This will remain true even if investors purchase some of the foreclosed properties because the displaced owners will become renters, but less than 100% of the foreclosed properties will be purchased for investment.
In some markets with low land values, the wave of foreclosures has pushed market prices below the cost of construction. Fundamentally, this means that buyers have ‘built-in’ equity since the low prices have ground new construction to a halt and future demand increases will push market prices up toward replacement cost before new construction begins. This Regression to Replacement Cost is expected to be an upward force on future market values in some areas. Conversely, in markets such as California and New York with high land costs, there is considerable room for price compression since the values exceed replacement cost by a very large margin. It is not likely that land value in these markets will compress to zero, but whenever land value makes up a high percentage of your total market value, there is more downside risk exposure.

In the end, the only situation that can create a fundamental market recovery in real estate is if there is an increase in the number of people who can pay their bills. With national unemployment in excess of 9% with a broad unemployment rate exceeding 16%, there is considerable slack in the labor markets that will stand in the way of a fundamental recovery. It is likely that real estate will lag the overall market recovery, as there need to be more people who are employed and paying their bills before there can be a sustainable increase in the number of people purchasing homes. For astute investors, there continued to be tremendous opportunities available to purchase properties in healthy economic areas for prices below the cost of construction.

Breaking Down Return on Investment by Market
It is most decidedly true that “all real estate is local” and that the commonly referenced “national real estate market” does not exist. One of the unique features offered in this forecast book is a detailed prediction for each major investment market that outlines the key ROI components. These components are the base value appreciation, leveraged appreciation, and cash flow from rental income.

Value appreciation represents the simple increase in property values for a market area. Leveraged appreciation represents the extent to which you realize additional return on investment because of the mortgage loan that allows you to purchase much more property than would have been possible with cash alone. Leverage opportunities vary, based on markets. Cash flow represents the rent revenues you receive from tenants, less expenses for the property. These factors combine to generate the total return on investment for properties in a given area.

Another Form of ROI is “Return on Inflation™”
Jason Hartman created the term “return on inflation,” which is a distinct advantage of investment real estate in that it offers the opportunity to generate a return on inflation. Broad price inflation results from increases in the money supply by the Federal Reserve. This ends up generating more dollars chasing after the same amount of goods and services, which inevitably precipitates an increase in prices. By borrowing money to purchase your property with a fixed-rate mortgage, it allows investors the opportunity to realize significant benefits when inflation rolls through the economy.

The way that this phenomenon unfolds is when the increased flow of dollars throughout the economy increases the nominal value of the property. The real value relative to other assets may remain unchanged, but the fixed-rate mortgage that was used to acquire the property will have its payments remain flat while the value goes up. In this case, the investor realizes all of the increases in value while paying exactly the same amount to the bank each month. We refer to this effect as “Inflation Induced Debt Destruction.” The impact of inflation reduces the real value of mortgage debt.

In addition to this, rents are likely to be pushed up by inflationary pressures as well. This will result in larger cash flows that increase profitability for investors. The driver of this increased profitability is also the fact that interest payments remain fixed and revenues grow faster than expenses. Thus, investors can generate real returns from inflation through the prudent use of leverage. This is the fundamental strategy behind our ROI predictions.

The Young Wealth Team

Flickr / Xurble

In practical terms, prices in Orlando have declined to less than half of what they were at the peak. This has resulted in a tremendous improvement in the ratio between cash flows and the price of investment properties. However, the extensive inventory of foreclosures is still being worked through by the banks, and is expected to suppress future value appreciation. The current situation is a case where values in Orlando grew so rapidly that they no longer justified income property investment, but have now adjusted down so that they are back in line with the underlying economic fundamentals. The city economy is very heavily intertwined with the entertainment industry, so it is likely that a full recovery will lag the overall economic recovery.

The combination of these market dynamics create an environment that is friendly to investors because of cash flows that have strengthened significantly, and values that have the potential to rebound from a precipitous decline as the inventory of foreclosures are dissipated. With multiple foreclosures currently available, investors may have the opportunity to purchase properties near or below the cost of construction. This can create ‘natural’ price appreciation as market values regress toward replacement value. This effect will only happen when net in-migration resumes and new construction begins again. However, for people who took action at the right time, it can be a tremendous opportunity for gain that is hiding behind a shroud of current economic difficulty. These factors make the Orlando area worthy of consideration.

The Young Wealth Team

Why should young entrepreneurs care about IPO’s? Not so much as to whether or not you should invest in them, though that could certainly be part of the equation. The real factor to take into consideration is that where there are IPO’s, there are ideas and innovation. That’s where the action is, and where there is money to be made. Not that you can’t still become filthy, fabulously wealthy in the United States. There is always that possibility, especially if you happen to be a billionaire heiress with a penchant for bad behavior, or an American teenager in Orange County.

But if you do want to cash in on the sense of vigor and vitality in the Chinese market, there is a way for young entrepreneurs to profit without going directly to Chinese traded markets. ETF’s are one option, as are American Depositary Receipts, which lets you invest in companies like Suntech Power and JA Solar Holdings through the American stock market. Mind you, we’re not suggesting you run out and sink everything you own into these particular companies. Keep in mind that some will make it and some won’t. Remember those late 1990′s heady dot come days when everyone and their grandmother was going public with an IPO? A very few had sensible business plans and lived to become legitimate companies – Amazon and eBay are two.

The real point of this is to encourage young investors to broaden their horizons. Extend your vision beyond the shores of America because opportunity can be found in places you never thought of looking. One thing is certain, the tsunami we know as the Chinese market is not going anywhere any time soon.

The Young Wealth Team

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Too many young entrepreneurs find themselves stymied by what they perceive as a lack of focus on any particular business direction. Stop making it so hard! You can figure this out if you’ll stop trying to invent a new wheel and content yourself with selling them. It’s true that some people have made amazing amounts of money by bringing something truly original to the market. Bill Gates and his Windows operating system is a good example. But many, MANY more people have made a heck of a lot of money simply selling something what’s already on the market. Did Ray Croc invent the hamburger? Of course not but, under the auspices of his chain franchise, McDonald’s, he certainly re-invented how to sell about a billion of them.

Keep in mind that you don’t have to limit your thinking to what you perceive to be a profitable idea. Think of some of the wacky concepts people have turned into businesses over the years and, hopefully, you’ll realize that you shouldn’t limit your imagination at this early stage of the game. So, let’s get down to the lists.

What are your ten favorite things to do? Be honest. Don’t pretend like you’re great with numbers when you’re not. Your parent’s dream of raising a solid tax accountant professional might be your dream – but it might not. Write down ten things you love to do, then ask yourself what you like about each one. This should be a voyage of discovery, because not many people take the time to actually complete an exercise like this Once that’s complete, it’s time to crank out list number two – your ten greatest strengths. Now cross pollinate the lists to see what similarities you might find.

At that point, you should be a whole lot closer to nailing down the business idea than you were before.

The Young Wealth Team

Flickr / Florian

But what can you, as a wet behind the ears investor, learn from this grandfatherly figure who has managed to climb to #3 (Carlos Slim Helo and Bill Gates being #1 and #2 respectively) on the most recent list of the world’s richest men? Quite a lot, if you’re willing to pay attention. Warren Buffet has always eschewed complex mathematical models when it comes to picking stock, and usually is something of a contrarian (which simply means he tends to ignore popular opinion and go his own way). For example, when Goldman Sachs was getting the stuffing kicked out of it during the 2008 recession, and the stock price had slipped to $115, Buffet was all in, investing $5 billion dollars. With a recent closing price of $165, the old man did okay and added several million more dollars to his pile.

What does a simple investing philosophy mean when it comes to picking stocks the Buffet way? He prefers businesses with models easily understood by anyone. Companies like Target, Coca-Cola, Apple, and Wal-mart are good examples. Each has a simple mission: to sell as much of their product to as many people that will buy it. Nothing fancy. Nothing complex. Just solid examples of filling a need in the consumer market.

After simplicity? Buy and hold, baby, buy and hold. And keep in mind that Mr. Buffett didn’t make his first million dollars right out of the gate. He worked at various jobs in the financial industry, learning the ropes, forming partnerships until, finally, at the age of 32 he could legitimately say he had joined the millionaire club. At age 60 he officially became a billionaire in 1990, and his net worth has continued to grow ever since.

Don’t make the mistake of thinking you can become like Buffett overnight. Patience is part of the process. Set a few interim goals, but keep your eyes on the road and hands on the wheel.

The Young Wealth Team

Flickr / Aaron Friedman

Such is the case with what passes for financial journalism in the world today. If you don’t know anything about investing, you naturally read/listen to the financial media for advice. The problem is they either don’t know anything about it either, or are lying to you. The end result of consuming the “wisdom” of the print, cable television, and Internet “gurus” is that you still don’t know anything about investing.

But the problem with the entire premise of this article is why should you listen to us either? Aren’t we part of financial journalism? Good point. We do, indeed, consider Young Wealth to be a critical component of a young investor’s education. One crucial difference is that we are a non-profit organization trying to make up the financial literacy deficit you acquired in school. We’re not selling a product and the only benefit we get is when you learn to discern fact from fantasy, then go out and make the world a better place for us all by working the free market system for all the wealth you can earn.

There are so many ways the traditional financial media misleads you, but here are a few, in particular, to watch out for.

1. Corporate broker recommendations made via direction from on high, and possibly totally unsuitable for your purposes.

2. Recommending an “all in” in approach no matter where the market is rather than a dollar cost average or buy when it’s low strategy.

3. Churning your account with pointless buying and selling of stocks simply to create transaction commissions for the brokerage.

So, what’s the easy way to separate the kernels of good information from the ignorant or misleading? Sorry, there isn’t one. Becoming a savvy investor takes applied research over time from a variety of sources. One general bit of advice we would like to suggest – if you want to truly build wealth, investigate income property investing. It beats the pants off stock market returns, and you maintain direct control of your investments.

The Young Wealth Team

Flickr / tkksummers

Most young people rent first because that’s all they can do. Buying is not an option yet, and it’s not even because they have bad credit, but because they haven’t had time to establish much credit history at all yet. Don’t feel bad about it. That’s the way the world works. You build a good credit rating as time passes by paying your bills on time, not exceeding your credit card balance, and keeping a debt to income ratio of about 16%.

But back to the point of the article. How does one both rent and buy at the same time? Using a type of investing called income property, you can gain the benefits that go beyond what renting or buying a house can do for you individually. Let’s consider a nice little duplex. Nothing fancy, but clean, neat, and in a decent neighborhood. Run the numbers, considering what your mortgage payment would be if you decided to buy it, and how much you could earn in rent from a tenant by renting out one side. If the numbers work, you live in one side and rent out the other. Often the rent paid by your tenant will completely cover the amount of the monthly mortgage payment and, even if it doesn’t pay it all, should make a good-sized dent.

The end result is you either get free rent (if income from the other side covers your payment), or greatly reduced rent yourself if it doesn’t cover everything. Either way, it’s a heck of a deal for you, especially when you consider you’re going to own the asset (the duplex) at the end of the mortgage, even though the bank put up all but about 20% of the purchase price and your tenant’s money was actually what paid it off.

Even better might be to rent both sides out, a move that could leave you with positive cash flow above and beyond the loan payment. And you can repeat this process again and again and again with different properties? Are you beginning to see the possibilities?

The Young Wealth Team

Flickr / NNECAPA

Construction: Unemployment in this industry is at 17% right now. With the foreclosure crisis still unreeling, a resumption of building new houses on any sort of broad scale is not likely to happen in the near future.

Realty: See our comments on construction. The bottom line is the realty industry has lost 200,000 jobs since 2006.

Automotive: Detroit has lost 300,000 jobs in recent years but that isn’t all the damage. Periphery jobs lost are estimated at three for every one auto construction that goes away. We’re looking at almost a million people out of work due to the financial mess the industry brought upon itself. Thanks unions!

Pharmaceuticals: The big drug inventions of the 1990′s and 2000′s are running into the fact that their patents are expiring, which means everybody else can horn in on the action. With companies merging and downsizing, only the next “it” drug will turn this train around.

Postal Workers: Already considering dropping Saturday delivery, the USPS can’t seem to do the job of moving parcels as well as private firms like FedEx and UPS. With actual letters being replaced by email, what’s left for the boys and girls in blue to do except take shots at one another?

Federal Government: Believe it or not, Mr. Obama has frozen the pay of federal employees for two years, and more than 240,000 federal jobs have been slashed since 2007, so don’t pin your hopes for a swanky retirement on a government paycheck.

Other areas without a rosy future include education, the military, public safety, and banks. Charles Darwin taught us about evolution, and it seems that some of the former stalwart employers of this economy are disappearing like the dodo bird. Don’t be the last one in line.

The Young Wealth Team

Flickr / Aranami

Here are a few particular financial mistakes to watch for.

1. Don’t neglect an emergency fund. Yes, the boring old emergency fund that can save your financial rear end when things like medical expenses, car repairs, or broken windows appear in your life. Though the timing and extent of emergencies never reveal themselves in advance, one constant is that they will happen. We recommend you first establish a $1,000 “baby” fund, while working on building a full three month reserve. Using this to deal with contingencies is always better than using high interest credit.

2. Beware the slow leak. Do you use your debit card for the daily soft drink, Starbucks, or bottled water? These nicks and cuts to your balance can surprise you at the end of the month, leaving you paying close to $30 for that latte, once overdraft fees are figured in. Set yourself a drink budget and pull out the cash. When it’s gone, it’s gone.

3. The non-existent budget. It surprises us to discover that some people have absolutely no budget at all for – for anything – and are still surprised when they run out of money halfway through the month.

4. Credit disaster. Paying only the minimum on your credit card each month is a financial black hole. The high interest charges end up costing you much more than the actual purchase price of whatever you used plastic to pay for. A credit card should only be used for actual emergencies, and the balance paid off, in full, each month. If you’re in a bad way and can’t do that, pay as much as possible until the debt is gone.

If you recognize yourself committing any or all of these financial mistakes, we have a bit of direct advice for you – stop. The good (and bad) news is that it’s as simple as changing your habits.

The Young Wealth Team

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At Young Wealth, we hope all our readers have the chance, at some point in their lives, to display colossal ignorance regarding investment capital totaling more than $1 million, because that means you’ve been doing something right along the way.

And we’re not here to bash the stock market without cause, merely to point out that any resemblance between today’s stock market and the one your father and grandfather invested in, is nothing more than thin window dressing. Financial times have changed and taken your Wall Street darlings with them. We happen to not believe that the idea of waiting around for an eventual correction is sound strategy any more.

We also see a parasitic connection between the rise of the ’round-the-clock news cycle on television, radio, and the Internet, and the seemingly random price twitches the stock market has adopted as “business as usual.” An oil well in the Gulf of Mexico explodes and stocks go bouncing like Silly Putty. A tsunami hits Indonesia and stock charts look like the Tasmanian Devil’s EKG. A snail breaks wind in Kwajalein and investors take to buying and selling like frenzied clowns on crack cocaine.

This is not investing. Today’s stock market runs on worldwide static generated by business channels desperate to bump viewership at the top of the hour. Plus they need something dramatic to build tension during the interminable five minute news break that separates broker commercials. If you’re a millionnaire, more power to you; we salute what you’ve accomplished. Our fervent hope is that you learn how to stop playing with your money in stocks and learn how to actually invest it in income property.

The Young Wealth Team

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Think of it this way. A roommate is an immediate way to halve your housing costs, but the decision should be undertaken only after considering all the angles.

The Good
Obviously, only having to shoulder half the financial burden of rent and utilities is a major benefit that makes it seem like you received an immediate pay raise. Choose carefully, and you can find a cheerful soul to pass time with on a rainy weekend afternoon, and who will help keep the common areas clean. If you’re really lucky, they might even have a large screen, high definition television to put in the living room.

The Bad
Choose poorly, and your life could become hell on earth. In the worst case, your new roommate is chronically late with rent payments, or can only muster a portion of what they owe. Toss in a tendency for all night rave parties, clogging the bathroom plumbing with unmentionables, and loud sex in the kitchen at 3 a.m. But it doesn’t even have to be that traumatic. The disconnect could be as simple as a personality conflict that keeps you on edge any time you’re in the room together.

The Ugly
Worst case scenario, your new roommate is using your apartment to sell drugs or mastermind his new prostitution business. Make sure that you spell out in exact detail, before they move in, what can and can’t be done on the premises, how long the rental agreement will run for – it wouldn’t be bad to have a contingency plan (like an emergency fund) in the event you have to kick them out, which you can do if necessary.

The Young Wealth Team

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Here’s what you do to keep your brain from imploding and palms from breaking into a cold sweat.

1. Determine if it’s a bear or bull market. Bull market conditions mean that, overall, prices are generally trending higher, while a bear market suggests lowering price conditions. Many times you can apply a layman’s eyeball to a chart and determine what the current conditions are. A simple way to confirm is to apply a 200 Moving Average to your time frame and check the price. If the line is up and price the same, you’ve got a bull. Line moving down and price below indicates a bear.

2. Ranging market. We’re not going to lie to you. Often the stock market falls into what is called a range, where it wanders back and forth over a relatively narrow price span. It’s tougher for the average trader to make money under range conditions. Some choose to sit out the range completely and wait for a trend to appear. If you do trade the range, consider taking smaller positions and cut your profits and losses sooner. Trading a range badly can kill your account, though your broker will be happy at the extra commissions.

3. Check the dollar. In the current economic environment, when so much of the stock market movement is a reaction to macro world events rather than intrinsic company value, it’s often true that when the stock market is weak, the dollar is strong and vice versa. For example, if you think the market is bullish but the dollar is also showing strong, step back and take another look before opening a big position.

Unfortunately, much of what you learn in college related to stock investing is based on a market that doesn’t exist any more. As we said, so much of today’s movement is based on speculation and knee-jerk static reaction to political events halfway around the world. If you’re looking for a safer long term investment play, check into income property investing.

The Young Wealth Team

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Such was the case with Frank Corbin at http://jasonhartmanfoundation.org/articles/young-wealth-show/. When Frank was very young, he had a “hunger”, as he put it, to become wealthy. After moving from Ghana to New York City, he watched his mother constantly struggle to pay the bills. Frank was determined not to get into this same situation. Frank was determined to become wealthy and eliminate money as an issue in his life. As a teenager, Frank worked many different jobs. After graduating from high school, he attended DeVry Institue in Toronto – which loaded him up with student loans and other debts.

In addition to his studies at DeVry, Frank also purchased every real estate course and real estate investment book he could get his hands on. As a result, Frank became convinced that purchasing and holding real estate was the easiest and quickest way to become wealthy.

At the age of 21, Frank purchased his first property – a $241,000 home in Toronto which he picked up for no money down, received $20,000 at closing and the property ended up providing him with $900 per month of positive cash flow. One year later, Frank had attained 4 more properties and was financially free.

After 15 years of buying properties, Frank became bored. He needed a new challenge. Frank saw people struggling financially. He couldn’t understand why people weren’t doing what he was able to do so easily. So he went about creating a course, the Remic Wealth Institute, which teaches his methods for finding and investing in real estate. While putting together the courses within Remic Wealth Institute, Frank identified another need people had that he new he could satisfy – obtaining credit despite having a poor credit history. “The 8 Strategies to Highly Effective Credit” was thus born.

1. Links get retweeted. According to social media scientist (who even knew there was such as thing), Dan Zarella, the best way to get a retweet is to include a quality link. Zarella claims 60% of retweets contain a link, while only about 19% of non-retweets do. The easy way to boost your retweeting? Include links. And remember you should be sending out quality links. Conversational or entertainment value tweets are okay every once in a while but, to build influence, find links that matter.

2. Stop overtweeting. Like overeating, overtweeting makes you fat and lazy and people stop listening. As a tool of influence, you shouldn’t sit the entire day with fingers poised over the keyboard, waiting to regurgitate the next stray thought that enters your mind. Save that for Facebook. Too much tweeting will actually cause some people to tune out. Try the following. Get a list of 10 to 20 possible tweets as part of your morning routine. Kill the weaker ones until you have 3 to 5 strong ideas. Spread them out as tweets during the hours of 8:30 am to 10:00 am because this is when people pay the most attention. 3 to 5 ideas. No more. Got it?

3. News digest versus self promotion. Too many people make the mistake of linking only to their own products and/or websites. That will only get you so far. You’ll come to be viewed as a much more valuable resource if you only do that a third of the time or less. Use the majority of tweets to help people cull the junk from the gems. Once they realize you almost always give good links, they won’t mind the infrequent promo and might even be more inclined to pay attention.

Let’s sum it up. Don’t tweet too much. When you do, make it mostly links. Don’t obsess on yourself. Now get out there and build a Twitter account that matters.

The Young Wealth Team

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The problem is that failure has gotten a bad rap and needs to be re-framed or redefined. Let’s make failure the goal rather than an inadvertent result. What does failure mean? In essence, it shows we challenged ourselves, pushed beyond the boundaries of the comfortable and safe, and aspired to go where we hadn’t gone before. Failure means you put yourself in a situation where the opportunity to grow and achieve was ripe. The fact that you didn’t accomplish the desired goal right then and right there is irrelevant.

Failure isn’t a bad thing for successful entrepreneurs; it’s merely one stage of the journey. More important is how you reacted to it. Did you take a step back, think about what went wrong and plunge forward again or did you get mad and quit? A temporary failure is just that – temporary.

Here are a few great failures in history you might have heard about.

Bill Gates – dropped out of Harvard to tinker with computers. He ended up creating a company you might have heard about. Microsoft.

Michael Jordan – this eventual greatest basketball player in history was removed from his high school team due to “lack of skill.”

Walt Disney – this man’s first cartoon production company went bankrupt and he suffered ridicule at the hands of the local press for his lack of ideas.

Marilyn Monroe – this legendary sex symbol was dropped from her contract at 20th Century Fox after one year. They claimed she was unattractive and couldn’t act. Like the Energizer Bunny, she kept going and going and going…

This sampling of various highly successful people have one thing in common and it’s something successful entrepreneurs could learn from. They failed utterly at one point in their life. If this is what failure gets you, where can we sign up?

The Young Wealth Team

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Here are a few you might want to pay attention to.

1. Mark Suster (MSuster on Twitter): Suster is an acknowledged expert in the early stage development of a tech company. He’s also good at selling them and making lots of moolah in the process. Suster’s Twitter account holds links to all his blogs and he even includes interesting responses.

2. Richard Branson (RichardBranson): Quirky? Yes. Brilliantly driven? Yes. Branson is the head of the Virgin group (airlines, music, etc) and a heavy Twitter user. Plus he likes to interact with followers, which is a bonus for those looking to learn a thing or three.

3. Cindy Ratzlaff (BrandYou): Ratzlaff specializes in building personal brands and Twitter is her tool of choice. Her incisive marketing tips and buzz building strategies constantly circulate among her 18,000 followers.

Another guy you might want to track is Fred Wilson (FredWilson). This leading Twitter investor is very well connected and an excellent conduit to keeping up with what is going on in business. As might be expected, Wilson tweets all day, every day. Got a favorite business guru? Find them Twitter or Facebook and get busy learning from the best.

The Young Wealth Team

Flickr / waltercolor

Location
If you want to live in the hippest neighborhood, you’re going to pay a steep price for the privilege; there’s no way around that. Plus if the area is densely populated, it’s liable to cost extra for a parking space (Hello, New York City). Or you can lower your rent dramatically by finding new digs a few minutes away. The amenities will still be there, albeit a short drive and you’ll have extra cash in your pocket to actually enjoy them.

What does “nice” mean?
If nice heretofore had to include granite countertops and stainless steel appliances, maybe it’s time to rework the definition to mean no insect infestations or bad neighbors. Presto, you have more money for essentials like food, gas, and deodorant. The truth is that your income might not be quite ready for that dream apartment but your ability to overlook drawbacks like shabby carpet could get you into an otherwise nice place at a good price. Throw down some area rugs and you’re good to go.

Roommates
A roommate (or 2 or 3) doesn’t have to be the definition of Hell on earth and imagine the cost savings if you only had to pay a quarter or third of the cost of living in some fancy digs. Finding sane roommates can be something of a crap shoot but if you really really really want the nice place – get busy screening. Your personal budget will thank you.

The Young Wealth Team

Flickr / Ben Cumming

• Enrolled in school less than part time or not in school at all
• Currently making loan payments or within the “grace” period
• Have a good repayment history, which typically means not be in default
• Hold a balance of at least $5,000 to $7,000 in loans

Now that we have the particulars out of the way, let’s take a look at a handful of reasons that you could benefit from a decision to consolidate your student loans.

1. A single larger payment rather than a handful of small ones can simply your life.

2. In many cases, a consolidation extends the the term of your loan, which can reduce your monthly payment if you’re having financial difficulties. Keep in mind an extension means you will incur interest and pay more in total over the life of your loans.

3. You may be able to receive a lower interest rate through a refinance if your credit has improved since you took the loans out.

4. Borrowers often have various loans at different interest rates, some variable. A consolidation can pool everything under one fixed rate so there will be no future interest rate hike surprises.

5. If you are a valuable customer, your lender may extend certain other benefits such as interest rate discounts for setting up automatic payment or paying your bill on time.

It’s not all wine and roses when it comes to consolidation. There are some factors you should be aware of which could work to your detriment. As mentioned, you may pay more in total interest as well as having a larger total loan repayment. Obviously, consolidating for a longer term means you will be paying for a longer period of time. Most Federal loans are issued for an initial ten year period but can be extended with some consolidation for up to 30 years.

One final note, be wary of lenders offering to drastically reduce your interest rate. The student loan consolidation industry is rife with scams so it behooves one to perform their due diligence before signing on the bottom line.

The Young Wealth Team

Flickr / RambergMedialmages

If Social Security had a Facebook account, it would soon be permanently changing its status to “historical footnote.” Here are a few reasons we believe this.

1. Retirement Age: Remember when the age to begin collecting benefits was 65? Now they’ve raised it to 67 and talk is that it will be going to 69 soon. The powers that be realized that one way to stop the arterial bleeding in the program is to get the age at which people begin to collect benefits up to a level that exceeds the average lifespan. At that point, there’s a chance it just might become solvent, and the only ones who get their fingers in the pie will be the cripples and the geezers. Brilliant? Absolutely.

2. Cost of Living: Back in the mists of pre-history, as in two years ago, the federal government used to implement a cost-of-living-adjustment (COLA), which was a percentage – based upon the annual inflation rate – that a retiree’s monthly Social Security check was bumped up. The fed sent up a trial balloon in 2010 and offered no COLA. Since there was no outright rebellion by recipients, they’re repeating the process for 2011. You can clearly expect that the amount of a check will never go up again. Factoring in inflation over forty years of your working life, by the time you’re ready to collect, if you live long enough, your monthly benefit amount might just be enough to buy a loaf of bread.

Point number two illustrates the crux of the matter why you mustn’t make the mistake of counting on Social Security for your retirement. Inflation destroys the value of almost all assets, properly leveraged income property investments being the exception, and it will make your benefit check essentially worthless. Looks to us like young American workers better learn how to invest and learn it well, because it’s the only shot they have at a comfortable retirement.

The Young Wealth Team

Flickr / Alex E. Proimos

Make no mistake, you would have to be either desperate or desperately stupid to ever cross their threshold, for the entire industry is nothing more than loansharking, plain and simple, and loansharking is illegal – except when it isn’t. All we can guess is that this industry has a mob of highly paid lobbyists, because interest rates on one of these short term loans can easily climb north of 100%. Let’s see a bank do that and try to stay in business.

Here’s how a payday loan works, and remember, this is one of the worst financial decisions you’ll ever make!

Your payday is still a week away but you’re short of cash and not about to stoop to the indignity of spending your last ten bucks on a loaf of bread, peanut butter, and gas to get to work and back for the next few days. Nope, you’ve got a drinking date with guys this weekend and need more cash, so you waltz down to your local payday loan company – don’t worry, you can’t miss them – and ask to set up a payday loan. Normally the amount runs the gamut from $50 to $1000 but it’s much harder to qualify for the higher amount. After being approved for a certain loan amount, you write a postdated check for the loan plus the fees. You walk out of the store with money in hand and they cash your check when the date on the check rolls around.

A payday loan is a way for people with no financial alternatives to stay afloat for a short period of time without asking for handouts but it is a very risky habit to develop, plus you pay a seriously high rate of interest. A typical $100 loan might run for eight days and cost you $18 in fees and interest, which works out to an 821% interest rate!

You would be better served to cut off your hand and eat it than patronize these vultures.

The Young Wealth Team

Flickr / Lip Kee

Firsts the scoop on what Americorps and the Peace Corps are. Both are federally funded programs that connect willing participants with non-profits, public agencies, faith-based, or community-based organizations performing a range of work from basic healthcare to business development in both domestic and foreign locations.

While certainly commendable to participate in such an endeavor, our one caution is that the stipend offered is sometimes not enough to cover living expenses. To get an idea of what we’re talking about, your monthly allotment will range from $900 to $1,900 (generally). This might be fine and dandy in the Kentucky Appalachians but might barely cover your rent in New York City. Unless you have benevolent parents willing to make up the difference, think carefully about how you’ll pay the bills while you’re there.

Let’s look at the programs themselves.

Americorps is a domestic program offering terms of service of one year – sometimes shorter. The stipend is $800 to $1100. If plan to attend grad school and complete your service, expect a $4,725 education award (similar to Pell Grant) and partial cancellation of Federal Perkins loans (only for VISTA volunteers). VISTA (Volunteers In Service To America) also find themselves on the inside track to Federal jobs.

The Peace Corps is a similar program but specializes in overseas locations. The term of service is 27 months, after which you receive a $6,000 cash award and partial cancellation of Federal Perkins loans for each year of service. If your long range plans include securing a Federal job, the Peace Corps also gives you the inside track to finding one.

Is volunteer service a good choice in your case? Only you can decide that but think long and hard about what’s important to you. If your primary life motivator is a healthy weekly or monthly paycheck, maybe you should pass on this, but if helping others makes your heart sing, go for it!

The Young Wealth Team

Flickr / Tommy and Georgie

Like Underdog, we’re here to save the day. The following list includes the major classes of investments and a little about each one; just enough to be dangerous, probably, but we’re going to tell you anyway. The primary type of investment is called ownership investment and it goes like this.

1. Stocks: A stock certificate is literally a piece of paper that declares you own a portion of a company. Even though most investors rarely have need to actually hold the certificate they own, they could call the company and have it sent out if they wanted. Partial ownership of the company entitles you to certain rights, such as the ability to sell it if the price goes up or you think it’s going down hard. A successful company will cause other investors to want a piece of the action, driving share price up on the open market. You can sell your shares at any time or hang onto them and reap dividend payments.

2. Business: Starting or buying into a business is also considered an ownership investment. This is normally a harder method to realize profit in but, when you do, the rewards could be extraordinary. Think Bill Gates for example. One of the main difficulties in investing in a business is that requires more than just money. You also need a great idea that people will pay for and someone willing to put lots of time and effort into the undertaking.

3. Real Estate: Often called history’s best investment, to invest in property is to invest in one of people’s basic needs, namely shelter. Everyone (almost) wants to have it or must have it for protection from the elements, therefore we like to call it a Universal Need. The profit potential for this type of investing is enormous but it sometimes receives a bad reputation when people who don’t really understand the proper way to invest get involved. With real estate, you can profit from both appreciation of the value of the asset and through cash flow when you rent it out.

This discussion has been an abbreviated thumbnail sketch about a particular class of investments. There are many others, of course, and we’ll get around to mentioning them eventually but these are the biggies. You could also invest in gold, foreign currency, a da Vinci painting, or a pair of Kobe Bryant’s basketball shoes, though we can’t say we’re awfully excited about the prospect of that last one unless it comes with odor eaters.

The Young Wealth Team

Flickr / Myrone

The Young Wealth staff makes no claims that staying under the same roof with the parents won’t mean giving up some independence – there’s a good chance it will. The obvious upside to the arrangement is it should reduce your overall living expenses. If it turns out that staying at home for a year or two after graduation is somehow just as expensive as going out on your own, don’t waste another second thinking about it However, even if they require you to toss a few bucks into the common kitty, it likely won’t be as expensive as coughing up first and last month’s rent plus a security deposit to move into your own place.

Depending on where in the world you live, it takes a chunk of several thousand dollars to even get move into an apartment or rental house. Monthly expenses such as utilities, phone, cable television, and internet service come at their own high cost and sometimes require individual deposits. The area where living with the parents has a big upside to your future financial management is it should allow you to get a flying start on saving for big ticket items like a mortgage down payment, wedding, or setting up an emergency fund.

If you decide to go this route, sit down with both parents and have a discussion about what the living conditions will be. Find out if they will require rent of some sort or maybe increased responsibility towards household chores. Will there be a curfew and, if so, can you abide by it? To avoid hard feelings, make sure everyone is perfectly clear about how much you will pay, if any, and how often you’ll need to stagger downstairs in the morning to wash dishes.

The Young Wealth Team

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You might think bankruptcy is the way out from under this crushing financial debt. Sorry to be the bearer of sad tidings but student loans are not, as a matter of course, able to be automatically discharged through bankruptcy. You first must prove “undue hardship,” which is not an easy matter. Generally it means you or your spouse must have a mental or physical condition that prevents you from working and earning at a high enough level to ever pay back the amount you borrowed. Claiming you simply can’t afford the payments is not good enough.

The courts take the whole idea of personal responsibility quite seriously when it comes to student loan repayment. The “undue hardship” test is three prong in nature and was mostly established by the precedence of a 1987 case known s Brunner vs. New York State Higher Education Services Corp. It goes like this.

1. That the debtor cannot maintain a minimal standard of living, based on current income and expenses, if forced to repay the loans.

2. That additional circumstances indicate that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.

3. That the debtor has made good faith efforts to repay the loans.

While many graduates with stratospheric levels of student loan debt might meet the first part of the test, it’s the second prong about “additional circumstances” that weed out the vast majority of claimants. This is where you must prove a physical or mental condition, basically a disability, to qualify for the “undue hardship” out.

This leaves student loans as a debt rarely discharged by bankruptcy. If that is the primary reason you’re considering the process, ponder the reality before you do.

The Young Wealth Team

Flickr / Wallula Junction

The first thing to keep in mind when shopping for an investment broker is that they are in the business to make money. There are two basic ways for a broker to accomplish this. The first is to manage your trades diligently and shrewdly and only take an agreed upon percentage of the profits as a commission. The second is to hit you up with numerous transaction fees and administrative charges and try to get you to churn your account with pointless trades.

You’ll need to decide whether to go with a discount broker or full service broker. As a young investor, there’s a good chance you won’t have the means necessary to attract the interest of a full service broker. His extra customer service comes at a price of higher fees and, normally, a higher minimum deposit to open an account. Discount online brokers like Scottrade or Etrade only require $500 or $1,000 to get started and the fee structure is usually simple to understand, which brings us to three points we’d like to make about brokers and why you should do your homework to make sure you’re hiring a legitimate one.

1. Some brokers are crooks. You might as well face this reality up front. Rarely a year goes by that we don’t learn about a serious bit of chicanery going on that costs investors a bundle and the dishonest broker jail time.

2. Some brokers are incompetent. Don’t let a million dollar smile, flashy three-piece suit, and firm handshake fool you. Some people are dolts and the broker career is no exception.

3. Some brokers are nickel and dimers. If the fee structure is too complicated to understand or takes up more than one page of printed material, say thanks but no thanks. What’s the point of even making a profit if you give most of it back to an investment broker who makes his living inventing new fees for your account?

At the very least, check to make sure that the investment broker you are considering for your first account is a member in good standing with the National Association of Securities Dealers or the Securities Investor Protection Corporation.

The Young Wealth Team

Flickr / gcoldironjr2003

1. It takes money to make money: Teens may be taken aback when the Bank of Mom and Dad eventually turns off the spigot and the realization sets in that, ughh, it’s time to think about working for your money. It’s a tough lesson but that’s how the cookie crumbles. Unless you’re a trust fund kid, Disney tween star, or plan to invent the next world conquering computer operating system, you’re going to have to slave for your wages. That’s okay. Learn the value of work and how much you don’t want to do it the rest of life. Therein might be the motivation to save and invest!

2. Set a Goal: It’s tough to get anywhere in life without setting a goal. It could be as simple as buying a new iPod or more lofty like retiring before the age of 30. Either way, learning to set goals is an invaluable part of finances. Set a price tag and time frame and let your industriousness take care of the details.

3. Income is a good thing: The reality of life is that the majority of us are going to have to go to work every day to make ends meet. The sooner we internalize and accept that fact, the better. The important idea here is to learn to make the connection between effort and achieving the goal. Plus there’s the small matter of being able to afford to put food on the table and gasoline in the car.

4. Motivation means reward: To accomplish anything of substance in life requires motivation. That’s where goals and rewards come in. Though our first goals might be a new bicycle or Wii, eventually we move on to more substantive life accomplishments like retirement or a new car. That’s when the lessons of childhood pay off in a big way. Motivation takes you to the reward, which provides more motivation for the next goal and an even bigger reward. Rinse and repeat.

These financial lessons might seem simplistic to those out of college or in the work world but, if you find yourself experiencing money hardships, maybe it’s time to go back to these very simple financial lessons and re-apply them to your life. It’s normally the basic, simple ideas that carry the most power.

The Young Wealth Team

Flickr / Chad Crowell

The price of food is a killer. Here’s how to give your budget a fighting chance.

1. Eat at Home: The fact is that any tasty meal at your favorite restaurant can likely be prepared at home, or at least a close approximation of your favorite meal, for pennies on the dollar. As a young investor trying to save money, you absolutely cannot make dining out a daily habit.

2. Make a Shopping List: If you wander into the grocery store hungry and stumble around around throwing stuff in your cart, there’s a good chance you’re going to get back home with a pitifully small amount of high-priced, low nutritive “food.” Make a list and ignore the scrumptious distractions.

3. Work the Maze: Grocery stores are intentionally set up so that you have to run a gauntlet of tempting junk items to find the basic necessities around which to build meals. Stay mostly on the perimeter where the actual food is, only wandering into the maze in the middle for a few stray items at the end.

4. Eat First: Fill up at home on a good meal before shopping. You can’t imagine (or maybe you can) what incredibly bad impulse buys end up in the cart if you make the mistake of going into the store hungry. In fact, fill yourself past the point of comfort, so that food is extra less appealing. That should keep you on point.

5. Skip Bottled Water: That liquid gold sold in the store called bottled water is one of the biggest crocks in Western civilization. And it you’re one of those pansy whiners who whimper that you don’t like the taste of tap water, buy a filter. The whole point of this is to cut back on food costs so you’ll have money to invest. Paying for water in bottle is simply ridiculous. Jump on the Internet sometime and do some real research on where that stuff comes from – completely, absolutely, totally a waste of precious financial resources.

We’re beginning to fear that our readers may be on the verge of reaching their tolerance for browbeating today, so we’ll cease and desist for now. Just keep in mind that to neglect creating proper food habits today could be the difference between a stunning portfolio tomorrow, or suffering the paycheck-to-paycheck routine the rest of your life. For real.

The Young Wealth Team

Flickr / Jeff Keen

In short, danger, Will Robinson; very much danger!

So how can we at Young Wealth suggest a method of low risk commodity investing and still sleep at night with a clear conscience? The trick is to, “Unlearn what you have learned,” as Yoda would say, not that we suggest basing critical financial decisions on the unhinged ravings of a fictional Jedi Master. What we’re talking about is an approach sometimes called Packaged Commodity Investing, which is another word for real estate.

You might have never thought of it this way but basic commodities are the building blocks of the houses we live in: lumber, copper, steel, gold. The advantage to investing in commodities already pre-packaged into a structure is that you’ve taken an investment with no real useful value – are you ever going to actually take delivery of that pork belly contract – and transform them into a product (home) that everyone uses and demands. Humans need water, food, and shelter. By investing in real estate, then renting it out, you provide one of the most sought after commodities around – shelter.

And think of this, at the time of purchase you have locked in the cost of the commodities that went into construction of your investment forever, or at least a good 50 years if the thing was built stoutly. So while your cost is fixed, a rising demand for commodities causes the value of your house to continuously increase while, at the same time, you create cash flow from the investment in the form of tenant rent.

A pork belly contract is made up of 40,000 lbs worth of 12-18 lb frozen pork bellies. If you can figure out a profitable way to rent those things out to create cash flow and still retain ownership, please let us know. All investment requires some risk, or it wouldn’t be investing, but a conservative approach to commodity investing in the form of real estate has the potential to return a heck of a lot of return for your dollar.

The Young Wealth Team

Flickr / FotoosVanRobin

Suffice it for now to say the stock market, driven by irrational speculation, amounts to little more than taking a spin at the roulette wheel in Vegas except it’s not as much fun. About now, you might be saying to yourself, “Well, where does that leave me, the young investor, most pious and pompous editor? If not the stock market, then what?”

Good question and it just so happens we have an answer for you. It’s called income property and it so happens to be the most powerful method we know of to create wealth in America today. We’d like to present, as an example, a single family residential property in Atlanta that would make an excellent starter property for your portfolio.

The purchase price for this piece of real estate is $102,000. If a young investor has decent credit and stable employment, a lender will likely ask for a 20% down payment, which works out to a little over $20,000. The home is red brick, built in 1999, located in a nice neighborhood, and will be fully rehabbed and rent ready for the new owner. Rent in the area is about $1,150 monthly – we’ve run the numbers because this is the kind of deal we love to jump on – and the cash flow AFTER the mortgage and all other expenses have been paid is about $151 monthly. No one here will try to convince you that the amount is a fortune because it’s not but cash flow is only part of the range of benefits. In addition, you’re getting your mortgage paid off by someone else (the tenant), while your investment appreciates over time.

The icing on top of the cake is that this income property will be owned outright by you at the end of the mortgage term. Considering you only put down 20% to buy the thing and someone made payments on it, the result is same as if you bought the property outright for twenty cents on the dollar. If you are one of the fortunate few to read through this short description and latch onto the possibilities, congratulations, we’ll be seeing you on Lifestyles of the Rich and Famous before it’s all over.

By the way, don’t try this strategy on Wall Street; it doesn’t work.

The Young Wealth Team

Flickr / Neurofibromatosis – Reggie Bibbs

There are three separate programs a small business owner might consider if he finds himself in need of working capital, each designed to address a separate situation. In no particular order, they are:

1. Basic 7(a) Loan Program: This is the one to look for if you want to start a small business or already have one but need general purpose money to keep the ball rolling. This is the most used loan program available that is backed by the SBA. Qualified borrowers receive a quick turnaround decision on their application, normally within 36 hours.

2. CDC 504 Program: This loan program is for established, growing businesses who need a steady source of long-term, fixed rate financing for acquisition or improvement of major assets like land, buildings, or who find themselves in need of major equipment for expansion. As a Certified Development Company (CDC), if you qualify for financial assistance under the CDC Loan Program, the SBA will help you locate private, non-profit foundations looking to provide money to improve a community’s economic base.

3. Microloan Program: The SBA microloan program operates a bit differently and does actually provide funds indirectly to qualified small businesses, up to a limit of $35,000. Small or start-up businesses wishing to access this program still should approach their local lender because all approval decisions are made at the local level – SBA merely provides money for local lenders to distribute.

There you have it. A nice, simple description of what the Small Business Administration does, and more importantly, does not do. As you can see, your time would be better spent approaching a local bank who works with the SBA rather than wasted chasing your tail in circles trying to tap into the agency directly.

Prospective small business owners – good luck!

The Young Wealth Team

Flickr / ShashiBellamkonda

Prime offenders for fee-hiking are, as one might reasonably guess, ATM convenience fees and overdraft “protection,” though we wonder how the lowly consumer manages to differentiate between protection and a gouge. You know, a hard working bank’s gotta make a living somehow.

First up, out-of-network costs for using an ATM. By now, you’ve probably realized that accessing cash on the road is not as simple as inserting your card into any old machine and drawing out a few bucks. Sorry, but no pay means no play. The average fee to use an ATM that isn’t hosted by your local bank was $2.33 this year, up five percent from 2009. Meanwhile, the average overdraft charge for not having enough money in the account to cover a check or withdrawal is over $30! And what used to be all the rage in banking commercials, free checking, is slowly going the way of the brontosaurus, with institutions that offer the service dropping from 76% to 65% over the course of the last twelve months.

Since the bank really doesn’t care if you hold your breath until they change their fee structure, you’re going to need to hit upon another alternative. Save big on ATM fees by using the “cash back” option when you’re shopping. Most grocery stores and other big box retailers offer the service at no cost. Remembering this simple workaround solution could save you a few hundred dollars a year in out-of-network fees. As far as overdrawing your account; the only answer we have to that one is keep a close eye on your balance and simply don’t exceed it. If you’ve ever lost track of your checking account and added up the steady line of thirty dollar charges at the end of the month, you realize that this sort of checkbook balancing scheme can go wrong in a hurry.

The Young Wealth Team

Flickr / quinn.anya

1. The ability to get a cell phone

2. The ability to rent an apartment

3. Getting hired for a great job

Let’s take #2 (apartment) and see how it plays out. With the high rate of deadbeat tenants, landlords have realized that it saves them headaches to try and weed out problem rentals before they ever hand over a set of keys. A stable rental history helps but what if you are just out of college and have no past rentals to fall back on? The sort of landlord who gladly takes your one month security deposit and welcomes you into his complex might be the one you should have second thoughts about.

These days it’s become the normal course of events to have a credit check run before you can rent that great apartment you really want. Guess what? Bad or spotty credit might mean you either are politely told, “Thanks, but no thanks,” or find yourself faced with an outrageous security deposit that would make Bill Gates blanch. Remember, there is more than one way to keep out the “undesirables.”

The point of this exercise is to remind you that it’s never a good idea to let debt accumulate until one day you snap out of your walking coma and realize you have a serious problem on your hands. Luckily, getting out of debt is not complicated. It’s hard for many people but the steps themselves are infinitely easy.

1. Stop spending and start paying off debt. Remind yourself that the easy way to get rich is stop spending money. The same goes for reducing debt. Stop spending money and apply it to debt instead.

2. Honest assessment. Take a good long look at your finances and admit to yourself what got you into trouble. Like an alcoholic, the first step is admitting that a problem exists. Often spending is done for emotional reasons and we’re of the opinion that retail therapy is hardly ever a good idea.

3. Set goals. Even modest goals help you get started. Pick the smallest debt you have and throw everything at it with furious vengeance until it is gone. Now pick the new smallest debt and repeat the process.

Before long you’re going to be what they refer to in technical terms as debt free and that’s a great place place to inhabit.

The Young Wealth Team

Flickr / Roozbeh Rokni

But then reality. Ugh.

As is usually the case, investing such ridiculously high hopes in a run-of-the-mill politician is bound to end in frustration and disillusionment. Why are we being such sticks in the mud all of the sudden? We hate to be the messenger of sour news but, according to a Harvard University newspaper poll, young voters are less enthusiastic about voting this year than last. How far has the shine dulled? A mere year ago, 36% of Generation Y voters said they would “definitely vote.” This year that percentage has slumped to 27%. Additionally, the percentage of young voters choosing to describe themselves as “politically engaged” fell from 24 to 18 percent.

The Harvard paper goes on to suggest that the plunging numbers might be attributed to disillusionment following Mr. Obama’s failure to implement his grand campaign promises. He certainly had the political savvy (or advice) to tap into the idealistic nature of young voters naïve enough to believe he was anything other than the standard model politician. The problem with promises is that sometimes people expect you to keep them and, when you don’t, the resulting disenchantment can sweep you from office as quickly as it swept you in.

Playing to the Wii, MTV, and Facebook generation is fraught with peril anyway, because they don’t have the requisite amount of patience to wait for change before they click away. And with unemployment numbers stubbornly clinging in excess of 10%, voters of all ages are:

1. Afraid of losing their job.
2. Tired of looking for another to replace the one they lost.
3. Sick of the grandstanding, teleprompter reading, Sycophant-in-Chief

But that’s just our humble opinion. History tells us that American leaders who don’t solve economic problems rapidly become yesterday’s news and tomorrow’s footnote. Voters of all ages are notoriously impatient when you start messing with their livelihood. Does anyone out there still cling to vaporous “hope” and experience a shooting thrill through their nether regions at the nebulous phrase, “Yes, we can?” Looks to us like, “No, you didn’t.”

Now what?

The Young Wealth Team

Flickr / jurvetson

Accountants, particularly those who have earned the CPA license, can charge up to 15% more for their services than other plain Jane accountants. The reason is simple – it’s harder to become a CPA. The process includes education and examination, a high code of ethics, and experience. Plus there are some services CPA’s provide that are legally forbidden to the traditional accountant, such as the capability to actually audit a company’s books and sign off on the validity of the financial information contained therein.

And it is not in the CPA’s best interest to fudge anything they sign their name to. Each state has a board of accountancy that can review work and revoke a license at any time. Believe us, these boards do not trifle with those who skate on the verge of unprofessional, unethical conduct.

This becomes an exciting career when you consider what you could do with that extra 15% you’re earning above and beyond accountants. Why not skip the new car, daily stop at Starbucks and invest the extra pesos like you mean it. We’re talking about income property because, when it comes to investing, it always comes back to real estate if you want to earn serious returns.

The bottom line is this, if you have a talent and tolerance for crunching numbers, check out the CPA possibilities. Even if you think it’s a less-than-exciting career, it certainly could fill your pockets with a nice paycheck.

The Young Wealth Team

And the smart young investors are using the power of the Internet to multiply their effort. Take Chris Stallman, 21 years old and owner/publisher of the website www.TeenAnalyst.com, which he runs from his University of Michigan dorm room. Or Sarah Harper, who wants to be a CPA when she graduates from Hampton University and runs an investment club she started on campus that now has a 100 members. Harper offers her insight on the topic. “Kids want to know: How can I become a millionaire with just an average salary?”

An interesting tidbit about young investors is that they are graduating from college with more bills and debt than ever before BUT more are also investing earlier than their parents did. Student Monitor, a marketing firm that specializes in young people, found that 23% own savings bonds, 13% individual stocks, 11% bonds, and 7% mutual funds. Hmm, where in all these numbers is the number one return on investment in America, income property? Sigh, guess we still have some work to do when it comes to financial education.

The future may not be so bright we have to wear shades just yet, but it does appear, for the time being, that the younger generation is finally beginning to pick up on the importance of investing. Save early and often and you can set yourself up for an incredible life style later.

Onward and upward!

The Young Wealth Team

Flickr / Schroder+Schombs PR_Brand | Media | Lifestyle

Get back to you on that one.

But for the good news, Consumer Reports brings us amazing news that the percentage of people carrying more than $10,000 in credit card debt shrunk from 30% last year to 23% today. The median balance is also down by $1,100 over the same time period. It’s official. We’re using our cards less and even reducing debt loads. These are significant numbers that might even be said to reflect a basic change in attitude toward the plastic devil cards. The woefully inadequate financial education in public schools insures that younger Americans will leave high school and college with not even a smidgin of common sense related to how freaking fast a credit card will eat your lunch and leave you wondering what the heck just happened.

Why the sudden restraint among credit card users? Well, we could point to new regulations that force parents to co-sign for card holders younger than 21, or how the terms of payback must be spelled out more explicitly than before. All that is poppycock. People are people. No smarter or dumber. The truth is a healthy dose of fear did it. We’ve got no sense that this recession thing is going to end anyone time soon and self-preservation mode just kicked on. Nothing says financial education like kick in the proverbial teeth.

The Young Wealth Team

Flickr / kainr

We have it on good authority that a member of our staff, during his college days, used to sell his blood plasma (as opposed to someone else’s) twice weekly to support his Red Lobster habit. But the opportunities to make money as a human guinea pig go even further than that, especially if you happen to have a medical school nearby. Normally there are at least a few clinical trials ongoing. Some may only pay $20 for answering a few questions but others are in-patient tests that continue for weeks and pay thousands. Check out www.clinicaltrials.gov for a nationwide list.

Seen those god-awful but strangely appealing cars with the full-on paint job advertising a business? Well someone’s getting paid to drive that thing. Maybe $400 to $500 a month. Just think, It could be your sled. Free Car Media matches up driver’s who don’t mind their car getting a painted promo makeover with a company who will pay you just for driving around. As might be expected, this is a popular choice for many younger drivers, so be prepared to go on a waiting list. But then again, you never know – maybe your demographic and location is perfecto.

Bodily fluids aren’t the only thing you can sell to make money and eBay isn’t your only choice. Used CD’s and clothes can earn you a buck or two each when you take them to your local secondhand store. Hit the garage sales on the weekends and snag stuff you think you can re-sell. And eBay is always there if you want to get more serious about the whole thing.

Last but not least, don’t forget the trusty old bottle and can redemption centers. While you can make money without a real job using these methods, don’t expect to get rich, although you might make enough to take your best girl (or guy) to a movie on Friday night.

The Young Wealth

Flickr / Serge Melki

Use a Secure Browser
If you don’t have a clue whether or not your browser is secure, look for the “locked” icon in the status bar and the “https” at the beginning of the web address. If you’re on an order page and about to disclose credit or debit card information but don’t see both these items, take a moment and re-assess if you really trust the website.

Privacy Policy
Some very legit websites have ridiculous privacy policies. Laws require they disclose how your personal information will be used – i.e., sold to any third party who will thereafter mass e-mail you some truly disturbing offers. Find the policy at the bottom of the home page or in the “About” or “FAQ” section. If you don’t like, our financial advice is to consider taking your business elsewhere.

Keep Your Private Info…Private
The whole idea behind having private information like Social Security number, telephone number, address, credit card or banking account numbers is that they stay that way. You’ve probably heard this song and dance before but let’s review. Don’t give out your password, don’t download files from strangers, and don’t click hyperlinks you don’t recognize. Doing so could open your computer to hijackers, making it ever so easy for them to steal your information.

The Young Wealth Team

Flickr / Joe Shlabotnik

The first exchange that approximated today’s stock market appeared in Belgium in 1531. Since then, successful practitioners of the art and science of the stock trade can tell you a few things. Whether you listen or, better yet, incorporate them into your own investing strategies remains to be seen. The following simple statements are the wisdom of the ages when it comes to participating in financial markets.

1. Time is Money: This means invest early and hang on for a long time. According to research by the Wharton School of Business, since 1802 a broad market portfolio would never have lost money for a stretch longer than 17 years. The short version – buy and hold.

2. Diversify: So utterly boring to contemplate but so intrinsically true. Sectors and entire industries rise and fall. So far, the only sure bet has been that the United States economy will continue to grow, sometimes fitfully and only after wicked pullbacks but always moving forward. If you guess wrong on this one, your portfolio will be the least of your concerns.

3. Gambling is not investing: Young whippersnappers sometimes think they have a gift for stock picking. Actually it’s called being delusional. Old timers know the market goes where it wants to go. Smart money hangs on for the ride.

There you have it. Nearly five hundred years of market wisdom wrapped up in three neat little investing strategies. Now go forth and conquer the world. Of course, there’s more to it than this but at least you’re facing in the right direction now.

The Young Wealth Team

Flickr / epicharmus

Don’t get depressed about it and start yammering though; instead create a plan to make money young and go somewhere else if the roof caves in. We hear Central America is nice this time of year (and any other). Seriously, places like Costa Rica, Panama, and even Nicaragua are drawing American expatriates like flies. What’s not to like? Tropical weather, low prices, affordable property.

A retired couple can live quite high on the hog in coming-of-age locations like these for $1,500 to $2,000 monthly. Develop a few sources of passive income and you’re good to go. Now this is not to encourage America’s talented youth to make money young and bail out on your country, although if you want to move somewhere else, by all means go.

No, the point of this missive is to encourage youth to think ahead and don’t feel like your way of life is invincible. It can vanish in the blink of an eye. Here’s an idea. Do a little traveling off the beaten path, specifically to countries that won’t be sitting in the crosshairs of a superpower when all hell breaks loose. Maybe take a few vacations to a place like Costa Rica. Eventually you might want to buy a house there to spend summers. Heck, rent it out if you can’t get away to make it worthwhile, but the point is this, some day, if you have to run from America, you’ll have somewhere to go and that’s a great reason to make money young.

The Young Wealth Team

Flickr / The|G|

Avoid the Irrelevant. Yes, sometimes being thorough is a bad idea. Case in point…

“When I’m not programming, I perform magic. I like solar applications, optical stuff, cool technology and anything to do with radio waves. I juggle and twist balloon animals. I bungee jump on occasion, and I would like to experience skydiving soon.”

Be specific, except when you shouldn’t…

“Since the project was coming to a close and it was obvious I was leaving anyway, after the last bugs were fixed, I was fired, and my credits in the game were all but removed to make it more difficult to get a job with a competitor. It’s a given that Mike Stevenson, my old boss, has been calling up everyone in the industry spreading God only knows what types of hideous rumors about me, to scare off any competitors from hiring me.”

There’s a fine line between self-confidence and insanity…

“My objective is simple: I want your job. I don’t mean the one I’m applying for, but your job. I’m a communications major with a minor in creative writing at a California school. I still have two semesters to go, but I know more than some of my teachers. Once I hit the real world, though, you’re gonna hear from me.”

That’s all we have the stomach for now. Thanks to John and Rachel for saving and sharing these truly atrocious examples of resume’ styles. If you don’t see anything wrong with what we just presented, stop job hunting right now until a boulder falls on your head and knocks some sense into you. That’s all.

The Young Wealth Team

Flickr / Tom Raftery

Let’s look at the stock market, specifically the video game industry, though this idea works anywhere. Some factors that contribute to a company’s worthiness are easy for anyone to track – revenue, profit, growth. But then there are the intangibles that come along with intimate knowledge or interest. Maybe you’re a huge gamer with knowledge that can work to your advantage to build wealth through savvy stock picks.

Here’s a real world example. Take Two (TTWO) and Activision-Blizzard (ATVI) are competing NASDAQ companies who sell video games. At a cursory glance, they seem about even for potential investment. Maybe their side-by-side numbers look dead equal. However, what if you, as a hard core gaming addict, knew that Take Two was about to release another in it’s uber-popular series of games called Grand Theft Auto (GTA). GTA sales have always been through the roof and no one would expect this time to be any different.

You know about GTA’s imminent release down to the hour because you’re wet-your-pants ready and have already pre-ordered it from Amazon. That simple bit of “insider” knowledge could make the difference in how much wealth you build off a gaming industry investment. In this instance, Take Two clearly becomes a better bet at this point. So, when it comes time to pick stocks, what are you interested in?

The Young Wealth Team

Flickr / Rob Boudon

Next up was his role as founder of the private space travel company, SpaceX, and the electric vehicle company, Tesla Motors. Mr. Musk also created his own charitable foundation, the Musk Foundation, that supports education and research in the fields of space exploration, pediatric care, and renewable power. So far, his life has been a testament to the power of thinking outside the box when it comes to generating a return on investment. This young investor saw the potential in finding profitable ideas in answer to problems he observed in the world around him.

A multi-millionaire by the age of 31, he wasn’t content to sit around on a beach the rest of his life, basking in the bliss of the next margarita. Nope, it’s always been onward and upward for this young investor and, perhaps more than any other attribute, shows us what is possible if you have enough energy and thirst for conquering the unknown.

Way to go, Elon. Excellent job. We’re excited to see what he’s going to get into next. Time travel? A non-aging pill? Whatever it turns out to be, we’re betting it will make a splash.

The Young Wealth Team

Flickr / OnInnovation

Now a company named Varolo has stepped into the mix with a brave new approach that might just as quickly go down in flames. They don’t actually claim that watching their ads will help you build wealth but you can earn money by doing it.

Works like this.

Varolo has completely upended the advertising model by paying you money to watch them and pays you more the more people you bring into your “friend” network who watch ads also. If you think all this sound suspiciously like a social network, you’d be right. It is. The catch is you don’t earn money until you get friends into your network. Watching on your own gets you entered into weekly prize drawings which increase in size as more people tune in.

The good part of the whole deal is the ads are tailored to topics you might be interested in. In the market for a car? You’ll see car ads. Ready to go on vacation? Travel ads. While Varolo’s concept may not usher in the end of traditional internet advertising, it is the kind of out-of-the-box thinking that sometimes works – sometimes.

Time will tell if cyber-surfers are ready to turn their YouTube viewing hours into a chance to build wealth, or collect pennies as the case may be.

The Young Wealth Team

Flickr / JMRosenfeld

Sony Corp. (SNE)
Is there anything in the entertainment industry that Sony isn’t dabbling in? They’ve got electronics, video games, entertainment, and financial sectors covered. Products like PlayStation, high-definition televisions, computers, digital cameras, and much more. This market variety provides built in diversity and stock price protection for when Adam Sandler releases “You Don’t Mess With The Zohan II.” Please, God, we’re just kidding. Don’t let the day ever come when he does that.

Carmike Cinemas (CKEC)
Or you could take a different approach with your stock picks and invest in a company that actually shows the movies. Carmike controls a total of 2,350 screens through a combination of ownership, partnership, and leasing. And here’s a weird little but not unexpected factoid. Recessions don’t normally effect movie attendance that much. When real life gets to be a drag, people don’t mind raiding the dog food fund to pay for an evening at the movies.

Regal Entertainment Group (RGC)
Or you might want to aim your stock picks at Regal, the largest theater owner with 6,385 screens. Even better, in these days of vanishing stock dividends, Regal pays a not too shabby 6.8 % to shareholders. Not too shabby! Wait, we already said that.

There you go movie aficionados. Don’t say we never gave you any completely unqualified stock picks. Enter positions at your own risk. However, if you decide you’d like to actually have a good chance of making profits with your investments, we have another idea – income property!

The Young Wealth Team

Flickr / fauxto_digit

The concept of compound interest is simple. No matter the asset you invest in, take the profit every year and, rather than running out to buy an iPad and drawer full of video games, turn around and plow it right back into the investment. Let’s assume an anemic 5% rate of return. After 5 years an investment of $20,000 has grown to $25, 525. After 10 years $32,577. After 20 years $53,065. And that’s without ever adding another cent to the pot above what you’re making in profit from the initial investment.

If you decided to add an additional $1,000 per year over that two decade span of time, you’d end up with $85,000 for your $40,000 investment. Pretty darn good, even assuming a terrible rate of return and very little follow up investing. The idea of compounding interest is why you need to start investing young. Most people spend their lives working hard for their money. The smart ones figure out how to make their money work hard for them. The magic of compounding interest is one way to go about it.

Another benefit to the reinvesting of dividends strategy is that you pay no tax on the dividends when you do so and most brokers will do it at no charge. They want more money in your account because it means more for them to skim with fees. If investing young can be this good with mediocre assets like stocks, imagine the possibilities with a standout asset like real estate.

The Young Wealth Team

Flickr / mansionwb

It’s not that loaning money to a friend is always a bad idea. After all, you may have a better idea about their propensity (or lack of) for paying off debt incurred. Actually, you should put on your banker’s hat when considering the request. Maybe it’s a loan to get out of debt, cover the month’s rent or open a business. Maybe it’s your friend’s money management skills that should be called into question. Do you believe it’s a one time occurrence or is there evidence of a continuing pattern?

If it’s a pattern, you might not want to get involved. After all, it’s easy to tell a little white lie and claim financial exhaustion yourself from “unexpected” expenses. But it’s long been an American tradition to turn to friends and family when economic times get tough. It’s part of the informal economy. Do a good favor and it might be returned down the road.

The downside is that there is a distinct possibility the money will never be paid back. Keeping that in mind, we suggest that any money you decide to loan to friends or family should be considered a gift. Don’t expect to ever get it back and don’t get touchy if you never see it again. Better not to lose a friendship over a little money. If you can’t afford to never have it paid back, you can’t afford to loan it in the first place. That’s real money management.

‘Nuff said.

The Young Wealth Team

Flickr / kevindooley

Assume that each year brings at least some amount of inflation, which causes a decrease in your purchasing power. For every rise in inflation, there is a corresponding drop in the value of a dollar. That’s why the idea of the COLA is critical to those living on fixed incomes, like retirees. But how does the COLA apply to a young whippersnapper just out of school?

Pay attention. Here comes another financial education lesson plan that was probably neglected by your school. It has to do with investments. At the end of the year, when you add up your total return on investment, it had better be higher than the COLA or you’re not making any money at all. Here’s an example. The government reports an annual increase in inflation that is usually around 5%, a laughable number, in our humble opinion. We believe it’s more like 10% or maybe even higher.

The point is that if you have a mutual fund that performs at a decent rate and returns about 10% per year, you’re only breaking even. Yes, the number of dollars in your account might be increasing but, in terms of purchasing power, unless you’re making more than the real inflation rate of 10%, you’re not coming out ahead. You’re actually losing money by investing, even if it shows a profit on paper.

What you need is an investment asset that profits in the face of inflation. Don’t think it exists? Wrong. Real estate investors who employ an income property strategy correctly could see annual returns in the 20% to 30% range, a high enough level to overcome inflation.

The Young Wealth Team

Flickr / Stefan

We’re talking concepts here. In almost any educational endeavor, get the concepts right and the rest follows naturally. The concept at hand is universal demand. Learn it, live it, put it in your youth investment tool box for safekeeping. Universal demand can be defined as those items humans can’t live without. Notice we didn’t say “don’t want to live without.” It’s true you (and 12 kazillion other people) don’t want to do without an iPad but the truth is life will continue in the absence of one.

Examples of true universal demand items are food, water, shelter, clothing. These things will always be in high, consistent demand because we must have them. Perhaps food is the biggest universal demand item of all. Unfortunately, to invest in it requires you buy stock from Wall Street or a commodity exchange brokerage. Recent years have shown that the stock market is one of the least effective mechanisms through which to invest. Learn it now or learn it later. Now is preferable. Too much of your money is siphoned away through administrative fees and commissions.

Let’s look elsewhere to invest in a universal demand product. We suggest you consider shelter for your youth investment dollar, specifically shelter in the form of houses which can be rented to tenants, or what is called in the industry “income properties.” Great appreciation plus cash flow. Don’t try that with the stock market. With income properties you also cut out the middleman and administrative fees.

Trust us, the concept of universal demand can make you a lot of money.

The Young Wealth Team

Flickr / cote

A post-graduate real job entails regular income. Great! But what if you still treat your paycheck like free money found on the sidewalk. Disaster! You’re eating out every meal for a week and now the money’s gone – with rent due tomorrow. Trust us, kiddies, it happens. To avoid this troubling scenario, you need to learn personal money management skills, a concept likely skipped over at every institution of education you attended. Just like Adam Lambert didn’t learn to sing in a day, you shouldn’t panic at your lack of control over finances and put yourself on an ironclad responsibility regimen all at once.

If you can do it cold turkey, that’s great. For many, it’s a recipe for failure. Most need to ease into the adult life of budgeting slowly, to get acclimated. The first step (we’ve been here before, people) is to write down every single cent you spend for an entire month and then, at the miserable end, pull it out and analyze the bloodbath. You might well discover that 95% of your income goes to video games and shaken green tea from Starbucks. What’s left for rent, gas, insurance, and emergencies? Ring ring…”Hello, Dad? Mikey here. I’m a little short this month…”

Get started on the journey to real personal money management by creating a realistic budget and sticking to it. When you fall off the wagon at some point during the month, get right back up and recalculate your budget from what you have left. If the damage is bad enough, like an impulse purchase of The Lord of the Rings box set – the extended versions, you might have to start from scratch again with your next pay day.

Remember, no matter how bad it gets, no matter how embarrassing, keep trying. This is important stuff.

The Young Wealth Team

Flickr / playadura

Why does a line like that appeal to young investors? Easy. Because it feeds a very natural human trait called greed; the desire to make something from nothing and do it quick, then head to the beach for the rest of their life. Adults in the 18-25 age group are often especially susceptible to these come-on lines from fraudsters at the very point in their financial development when they should be holding onto what they’ve got with both hands.

Read the following example from YoungMoney.com:

A defendant in Florida, headed an investment fraud business which took in money from more than 1,500 victims throughout the United States and Canada. In 2006, the defendant pled guilty to failing to file a federal income tax return and various mail and wire fraud charges.

The perpetrator and another individual formed Pacific Achievements International (PAI) and used PAI to solicit investment funds, primarily through the internet. Based upon various false promises, investors transferred more than $13 million into PAI bank accounts in Oregon, Washington and Florida.

Individuals were led to believe that for every $5,859 invested, they would see a return of $9,720 within three weeks; and they could earn more than $1 million per month thereafter. As with most investment fraud cases such as this, the perpetrators used a ponzi scheme. They took money from late investors to pay early investors so that it appeared that PAI was successful.

The defendant and another PAI promoter diverted more than $2 million from investors to fund their lavish lifestyle. For his crimes, the defendant was sentenced to six years in prison and ordered to pay over $8.7 million in restitution to the victims.

And this kind of stuff happens every day. Don’t be one of the young investors who falls for this kind of scheme. Stay alert, stay real, and stay in control of your money.

The Young Wealth Team

Flickr / anonymous9000

Think this digital information revolution might have a little bit of an effect on your future financial life as a young entrepreneur? You bet your sweet petunias it will, especially if you jump in and hold on with both hands. The old media has lost control. No longer does it require a journalism degree, years of working the trenches, and finally finding gainful employment with one of the Big Three (or Four) networks to get your voice disseminated to the masses.

Anyone with an opinion and internet connection can bleat their thoughts to the world. Blather and bloviating is no longer confined to a select few organizations who managed to set themselves up as the information gatekeepers. Equality and democracy in media has never been more evident than it is right now.

What does this have to do with the young entrepreneur? Everything! The worlds of investing, publishing, marketing, and business require new tools and new ways of thinking to succeed. But it’s for the better. Believe us, it is all for the better. Your assignment for today: put your brain to work dreaming up ways digital media can make you filthy rich.

The Young Wealth Team

Flickr / Yutaka Tsutano

This explains why so many recent graduates walk out the doors with a shiny new diploma but lacking even the basic money management skills necessary to create a personal budget or balance a checkbook. Consequently, it’s not much of surprise that saving is down and consumer debt is up.

Jason Hartman decided to create a non-profit foundation to help correct this woeful level of financial ignorance by not only developing a constantly growing website filled with financial literary educational blogs but also to help deserving entrepreneurs and others in a way that really helps – with grants of money for appropriate projects. Jason’s ultimate goal is to help as many young citizens as possible learn how to build wealth and create their own version of the American Dream, whatever that might be. To do so requires particular tools and knowledge – the kind you won’t get in school.

Our country can truly be an economic miracle, even today. Jason Hartman firmly believes that. But nothing comes easy. It’s up to you to believe it can happen also, then to take advantage of the opportunities contained on this website.

Good luck!

The Young Wealth Team

Flickr / @MSG