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

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.

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 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.

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.

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

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 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.

Think of it this way. Most of your consumer debt is attached to a high interest rate. What’s the point in making a nice investment return when the new profit is running out the back door to pay for debt? Your profit is already taking a hit from inflation and taxes. Tack on debt payments and it’s the very definition of spinning your wheels.

Be patient, grasshopper. The time for investing will come. Pay off debt first, however long that takes. Throw every spare dime and penny at it until the debt beast is dead, dead, dead. Then it will be time to crank up the investments – stocks, bonds, mutual funds, real estate – go crazy with it all, though we would seriously suggest you visit http://www.JasonHartman.com to learn how we make money with our investments no matter what the economy or inflation is doing.

Use the time spent eliminating debt to learn how to invest so you’ll be ready to hit the ground running when the time arrives.

The Young Wealth Team

Flickr / alancleaver_2000

Introduction

Life as a young adult can be very confusing and chaotic.  In the midst of completing your formal education and beginning a career, there is a constant level of uncertainty concerning what will transpire in the future.  At the Jason Hartman Foundation, we are specifically concerned with helping young adults develop the necessary skills for financial success.  These principals are encapsulated in the three C’s of Financial Success; Credit, Capital, and Competency.  These principals serve as the fundamental building blocks not only for financial literacy, but for creating long-term success.

The 3 C’s of Financial Success (Credit, Capital, Competency)

The achievement of long term financial success will require the development of three key attributes.  The first is Credit, which will be necessary for obtaining loans, lines of credit, and can even have an impact on your insurance rates and employment prospects.  The second is Capital, which is the money to invest in future opportunities.  The final and most important factor is Competency or financial literacy.  The first two C’s can be developed over a few years, but competency and financial literacy must become a lifelong endeavor if you wish to achieve long-term success.

The First C – Credit

Credit represents your ability to borrow from banks and financial institutions at attractive interest rates.  Most people only pay attention to their credit for the purposes of buying a home, but there are many more important roles that your credit score plays.  One of these roles is to influence your insurance rates.  Insurance companies frequently use credit scores as a proxy for the risk profile of customers, since there is a higher correlation between customers with poor credit engaging in risky behavior than customers with good credit.  Furthermore, some employers will also pull the credit score of applicants to gauge the extent to which they are responsible with their finances.

Then we get to the ‘real’ advantage of strong credit . . . namely the fact that it allows you to purchase leveraged investment properties with an interest rate that is fixed for three decades.  The reason that this is such an advantage is because leverage allows you to control a much greater asset base than can be purchased with cash alone, and a fixed rate mortgage protects you against price inflation in the future.  With that being said, let’s take a look at how leverage and inflation work.

The way that leverage produces benefits can be demonstrated with some relatively straightforward arithmetic.  Let’s suppose that you purchase an investment property worth $100,000 with cash.  If the value of that property increases by 10%, you will have earned $10,000 on the $100,000 that you initially invested.  Now let’s say that you purchased the same $100,000 property with $20,000 (20%) down and $80,000 borrowed from the bank.  If the value increases by the same $10,000 (10%), but you only have $20,000 invested which means that your return on investment jumps from 10% to 50%!

There is a very important thing to keep in mind with leverage though, and that is the impact of large negative cash flow or price disruptions.  When properties are bought for speculation, and not rented out to tenants for income, it means that the owner of the property must ‘float’ the interest payments until the property can be sold.  If market values decline, and the property is no longer worth what you paid for it things can get very sticky.  Consider what would happen if you purchased a $100,000 property with 100% financing and the value went down by 10%.  Not only are you on the hook for your monthly mortgage payments, but you owe $10,000 more on the mortgage than your property is worth!  One of the best ways to mitigate these risks is to choose investments that generate cash flow to cover your mortgage payments.  This will give you the flexibility to ‘wait out’ declines in market value while the tenants pay for your mortgage with their rent revenue and you can choose to sell when values are high instead of being forced to sell when values are depressed.

Now let’s think about inflation for a bit.  The way that inflation comes about is when the government expands the supply of money in circulation faster than the rate of productivity growth for goods and services.  What happens in this scenario is that the amount of ‘money’ circulating goes up while the amount of products and services stays the same or goes down . . .  more money chasing less goods can only result in higher prices.  When the prices for goods and services go up, it frequently results in higher interest rates as investors become unwilling to purchase bonds at rates of low rates of interest that are being eroded by inflation.  When you take out a fixed-rate mortgage on an investment property and inflation strikes, it results in higher home values, higher rents that your tenants pay to you, but exactly the same mortgage payment that you pay to the bank!

The Second C – Capital

When talking about business and investments, the term ‘capital’ is used to describe the money, equipment, or other tools that are used to produce products and services.  In the context of personal investment, capital represents the amount of money that you have available to purchase assets that can generate cash flow and appreciate in value.  There is an old cliché that states “It takes money to make money” and in many situations, it is very accurate.  Any investment you make will require some form of capital.  In some cases it will be your money, in other cases it will be money that you have borrowed, in many cases it will be your time, and in certain situations it will be funds from investors.  Banks and investors typically want you to have some of your own money at risk so that they know you have a vested interest in success.

So what is the best way to build-up capital?  If your surname is something like Rockefeller, Vanderbilt, Hilton, Carnegie, or Kennedy then capital may not be much of a problem.  However, for the other 95% of us out there we will need to figure out ways to build capital on our own.  The most straightforward way to build a base of investment capital is to save a portion of your salary (frequently 10%) and place it into a separate account that will be used exclusively for investment.  Another thing that many people do is use the equity in their home for investing.  Taking out a line of credit on your house may give you the necessary capital to begin an investment program after you have become educated in different investment options and strategies.  A third option for building capital can be to borrow it from friends and family or take on partners.  This is frequently the most tenuous of strategies, since partnerships can be difficult to manage.  Jason Hartman is fond of saying that the hardest ship to sail is a partnership.  In the end, this is for you, the investor to figure out.  Each person needs to find the solutions and strategies that are best suited to their situation.

Another thing that many people frequently ask is how much capital they need to accumulate.  The answer to this question is highly dependent on the type of investments you will be undertaking.  In many cases, packaged investments with low capital requirements such as mutual funds tend to offer relatively average returns.  Conversely, investment ‘deals’ such as foreclosure rehabilitation may require more capital and will definitely require more expertise.  It is also important to bear in mind that some phenomenal deals require very minimal capital and some deals with large dollar requirements can be big losers.  Ultimately, it is your responsibility as the investor to evaluate which investment opportunities are best suited for your level of expertise, experience, and capitalization.

The Third C – Competency

The third and most important of the three C’s is competency, or your financial literacy.  In practical terms, this represents the most valuable capital that anybody can possess . . . namely the brain sitting behind their eyes and between their ears.  Credit and Capital are necessary tools, but they have no inherent wisdom, no soul, and no creative intelligence.  Both of these ingredients require a competent person to build them into investments that produce things people value.  The person who builds these deals could very well be you.

Another way to communicate the notion of competency is financial literacy.  Specifically, the knowledge of how financial products and processes work.  Becoming educated in the workings of investment and finances allows you to make intelligent decisions.  It will allow you to quickly determine what kinds of deals represent the best opportunity and which are too risky or generate returns that are too low for serious consideration.  It will help to guide your everyday decisions toward financial success.  Financial literacy helps to significantly limit your risk of failure.  This does not necessarily mean that you will never lose . . . investments involve risk, and sometime luck aligns against you.  What it does mean is that you will be investing with full awareness of the risks and rewards so that intelligent decisions can be made.
Thus, the most import concept to internalize is that one should become educated before engaging in an investment program.  Deals come and go, but the knowledge necessary to assemble and execute deals is crucial to successful investing over the long-term.  Practically speaking, this means that you will probably be doing a lot of studying, research, and reading before initiating your first investment.  Sometimes it can be difficult to be patient while absorbing the necessary education, but always remember that there are two components to success . . . knowledge and action.  Knowledge without action becomes nothing more than expensive ‘infotainment.’  Action without knowledge is extremely risky, and likely to produce spectacular problems.  Those who realize financial success build their knowledge base, and then act on it.