Mar 132017
 

I recently came across an informative and inspiring thread on the financial independence subreddit about additional income streams that people have. Here are some ones I thought could be relevant to people who read this blog.

Ideas for Extra Income

  • Rent your car. Turn a depreciating asset into an income stream. 🙂 “I rent my car out on Turo. It’s the AirBnb of car rentals. I live walking distance from work and rent it out all the time. I rent my Wrangler for about $50/day and have been making around $800/mo in gross margin.” ~plz_callme_swarley
  • Invest in a rental property. “I’ve got two rental properties, both I pay someone else to manage. I made 8k off of one last year and 21k off of the other one in net profit (new roofs are expensive). They’re both paid off and provide a small but steady trickle of income, I’ll probably try to save enough to get 1 more each year for the next 7-8 years.” ~SEJeff
  • Buy profitable blogs and websites. “Bought a few niche websites on Flippa, earning a little over $100 per month. Import some stuff from China and sell it on Amazon as well.” ~jb611
  • Walk other people’s dogs. “Signed up through rover.com but now my clients pay in cash to avoid extra fees. I only have 2 clients because I’m too busy to take on more. I mostly work on lunch break from my job with occasional overnight stays. Make about $300/month….I recommend signing up on Rover.com. The process takes a little effort and you need 2 references – I had my girlfriend write one and a buddy wrote the other. The site isn’t extremely easy to navigate which is partially why my clients pay me under the table now.” ~CalPolyJohn
  • Write online. “I make about $3,000/month editing Wikipedia for pay. I get my clients from https://www.buildersociety.com/, they’re great! I know a lot of other people doing this so if you want in, just start editing Wikipedia, learn the rules, and then all you need is just clients…..I can do a new page in about an afternoon and I charge $500-$1,000. It’s only 3-6 actual jobs/month. If you want to do it, make sure you spend some time editing the Encyclopedia to learn the rules.” ~TaylorSwift2015
  • Become a freelance translator. “Freelance translating (Japanese>English). Brings in $4200/month pre-tax for 50 hours/month of work…Professional (and non-professional) translators usually create profiles on both ProZ and TranslatorsCafe to look for and offer work. People with no real translation background may use a site like Gengo, whose rates are considerably lower (3 to 8 cents/word). Finally, it is also common to Google “Translation agency” and send your resume to as many translation companies as possible (rarely works, but then again you really only need 1 good client to establish yourself).” ~nakoyao
  • Monetize your lifestyle/hobbies. “I rent out my place on AirBnB when I’m travelling ($6300 in 2016). I offer private lessons as a cross-country ski instructor ($1600 this season). I host house(boat) concerts ($1-2000/event). My friend sells the overflow from my vegetable garden at the farmer’s market ($700). I take tourists out fishing/netting/ice fishing/canoeing ($3200 in 2016)” ~Holy_BatLogic
  • Teach English online. “I teach online classes for $20/hr. Just started last month, made $692 in half of February.” ~OzarkCatholic  “There are online tutoring gigs for ESL, you can get 16-20 an hour pretty easily. Check out VIPKids” ~brikky

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Feb 272017
 

New stock market highs aren’t that special. Here’s why.

Some people inaccurately believe that any time the stock market reaches a new high it must mean that we are near a peak, and it’s a sign that stock prices will probably fall soon. Many undisciplined investor may choose to pull out of the market when this happens. However doing so will almost always be the wrong decision. This is because stocks reach new highs all the time. And they usually go up even more in the following years.

This Bloomberg article explains that over the past 102 years from 1915 to 2017, the Dow Jones stock market index in the United States had hit 12 new highs every year on average. 🙂 That’s once per month. Another way to think about it is that the Dow experiences a new record high about 5% of the time. So it’s not really not that rare. 😉 The table below shows how the frequency of new highs are distributed over the decades.

If someone starts investing at age 30 and plans to live until 80, then he’ll have 50 years of time to invest in equities. Based on historical data for the Dow Jones, he will see roughly 600 new record highs during his investment duration. This is why selling stocks because we may have reached a new peak in the market is a very silly thing to do for long term investors.

Trying to sell high and buy low rarely works. Again, the facts clearly explain why this is the case. Over the same time period, (1915 to 2017), the one year average return for the Dow after it had reached an all-time high was 9%. The 3 year cumulative return was 21%, and the 5 year return was 32%. So even when stocks are at all time highs, they tend to move even higher in the years after. 😀

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Feb 202017
 

For buy and hold investors, some like to actively pick and choose individual assets to buy, while others prefer to invest in the entire market. But which is a better investment strategy? Similar to a cronut, the answer is simple, but may not be obvious.

passive vs active

Which Investment Style is Better: Passive or Active?

The Cronut is a pastry that combines together a croissant and a doughnut. It was invented by New York City pastry chef Dominique Ansel and is trademarked. You should try one if you ever visit NYC. 🙂 They cost $5 each. But you can also find cronut knockoffs in Mexico that are much cheaper than the real thing, so you don’t peso much. 😄

Anyway, why is this relevant to investing? Because much like a cronut, the better investing strategy between passive and active, is not one or the other, but both. 😀 By combining individually selected assets, and index funds into one single pot, we can create the ultimate investment portfolio. This takes advantage of low-cost index funds, while adding alpha (excess returns) in certain segments of our portfolio. 😉

So how can we implement this? First, we actively pick and choose specific investments in the areas that we have extensive knowledgeable about. Then use the passive investing method to buy index funds for all other asset classes that we have insufficient knowledge about.

For example, I selected individual farms to buy in 2012/2013 because I knew how to look at soil quality, flood risk, earnings potential, etc. Therefore, I knew how to find undervalued land. Historically speaking higher quality farms appreciate faster than lower quality ones so I made sure to only buy farms above a certain quality. Farmland funds however, invest in all quality land. As a result I have outperformed every farmland or agricultural based ETF I could find on the stock market. So within the context of this asset class, passive investing would not have done me any good.

On the other hand, when I decided to get into the United Kingdom stock market last year, I decided to buy a low-cost stock market ETF. European stocks are beyond my comfort zone. I wasn’t about to perform due diligence on all 250 stocks of the FTSE 250 index. So that’s why I invested in a broad market UK index fund instead which contains those 250 individual stocks. 🙂

This is why self knowledge is very important for investors. We should try to use our strengths and specific knowledge to produce better than average outcomes in certain types of industries or asset classes. Then we can aim for average market returns in all other areas that we do not understand. Overall, this should give us a higher investment return than either a completely passive approach (which will give us average market returns), or a completely active approach (which will most likely result in under-performing the market.)

But in order for this combined investment approach to succeed we have to know the limits of our knowledge and capabilities.

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Feb 132017
 

Some psychologists believe that you are the average of the 5 people you spend the most time with. Whether this is accurate or not, the truth is we are influenced by everyone around us to some degree. This is why it’s important to surround ourselves with positive and highly productive people. Our environment should work for our success, not against it. 🙂

It’s not that we should trivialize or avoid negative people. We can treat everyone with the respect they deserve. But it would be beneficial to us if we make a conscious effort to spend more time with successful people. For example, to reach my goal of becoming independently wealthy I like to surround myself with friends who have the following personality traits.

  • They can see the big picture.
  • They don’t make excuses and know it’s up to themselves to make things better if it’s important enough to them.
  • They have or plan to have lots of resources, ie: wealth.
  • They are optimistic about the future.
  • They are curious about the world.

This is just my personal list I’ve thrown together. But there are many different definitions for what a high quality or successful person is. Of course if you work in the music industry, then you should surround yourself with “creative” people. We should also be aware of our biases. Being surrounded with too many “like minded” friends may trap us in an echo chamber of similar opinions. Doing so could make it difficult for us to expand our knowledge.

Unfortunately we can’t change the cards we’ve been dealt. But we can make the most out of our situations by developing the best environment for us to thrive. Part of this means choosing the right people to surround ourselves with. We can’t control what other people think, but we can manage our social circle, and choose who to hang out with. 🙂

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Random Useless Fact:

Even though the children below are born from different parents, they are actually siblings, genetically speaking.

 

Jan 302017
 

How to Find the Best Financial Planner

Financial planning can be simple, but it can also be very nuanced. So who is the best person to help you create your perfect financial plan? The answer is simple.

That person is you. 😀 Here’s why.

Unlike a meal plan or other short term aspirations, a financial plan isn’t an event that you can predict and design a specific result for. Financial planning is more of an ongoing process, with assumptions and approximations. Money is a part of life, and as long as we’re alive, we’ll need to make plans for it. 🙂 Financial professionals can give us guidance, but who will look after our money when they move, or retire? The best financial planner for you is you because you are always with you.

Give a man a financial plan and he’ll probably be okay until his plan needs to be adjusted. But teach a man to make financial decisions for himself and he will be free to explore the endless possibilities on his own.

A Few Analogies to Financial Planning

Who’s the best person to write up a business plan? The entrepreneur of said business, of course.

Who’s the best person to create a road trip plan? The person who’s organizing the road trip!

Who’s the best person to design a personalized career plan for Alex, who’s about to graduate high school? The answer is Alex.

In each of these cases the “plan” is based on future probabilities and assumptions with an approximate outcome in mind. As time progresses, events in reality will replace those assumptions chronologically. Adjustments will have to be made to each plan, but the overall goals are maintained. The company may alter its business plans due to unforeseen market forces. Road closures may force the road trip to take a detour. Alex may change his mind about his major in college.

Plans don’t have to be made alone. Individuals can consult business planners, school counselors, or other professionals. But it’s ultimately the responsibility and the decision of the individual to create the best plan for him or herself.

That’s why the best person to create, update, and adjust your financial plan, is you. Nobody knows you better than yourself. 😉

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