My 1st Million At 33 – yes, you can do it too

Instead of writing on my blog, I have been working on my personal finance book. I have a lofty goal of making real changes in people’s personal finance affairs, hoping that more people can live under their means, and accumulate a great wealth for their retirement. The book is currently

Since the average number of books sold per title is less than 200, my expected revenue from my book will be 35% royalty of $0.99 x 150 copies = $52.50. My tax is about 47% (CA + Federal + AMT). Out of the remaining after-tax profit of $27.83, I have committed 25% to go to charity (see book for details). So I would net $20.87 at the end.

I’m obviously not motivated by a potential $21 profit. But if I can change just a few people’s lives in how they manage their personal finance, it’s truly worth all of my time putting into the book. The amount of wealth within your reach or for any other readers is truly in hundreds of thousands, if not a million.

Thanks for any PF bloggers to put this news out. I have an OnlineResource page in the e-book that I can try to reciprocate your promotions.

Here is the table of contents for Part I:

Preface
Chapter 1: My 1st Million At 33 – Reader’s Guide

• Profile of a Frugal Millionaire
• How I Got My 1st Million At 33
• Reader’s Guide to the Book

Chapter 2: Understand How Wealth is Created – The secret to making big money

• Becoming rich is extra-ordinary
• Your time vs. money
• The only secret to making big money
• Take on good debts & avoid bad debts
• My father’s business moto – How a business prospers
• Utility and Scarcity
• Attitude = Altitude

Chapter 3: Book-smart vs. Street-smart – Being lucky is a choice

• Difficulties are Opportunities
• Book-smart vs. street-smart
• A Tiger or a Dog – Finding a career path
• The true value of a brand-named college
• Consider free-lancing
• The three ingredients in starting your own business
• Being lucky is a choice
• Pursue what you love; love what you pursue

Chapter 4: Your Income vs. Expenses – Arbitrage the “geography”

• Are you the boss or the slave?
• Art & mechanics of budgeting – Running the saving marathon
• Know where to focus your energy
• Debit, credit, and cash management
• Choose a wealth-conducing location – Arbitrage the “geography”

Chapter 5: Why must you invest – Make your home as your best investment ever

• Nothing is certain but death, taxes, and the I-word
• Portfolio income is not a usable income
• Make your home as your best investment ever
• Avoid the scams and tricks from investment newsletters
• The biggest investment mistake that people make in following Warren Buffett
• Investment strategies by the size of portfolio
  • What to invest if you have only $10
  • What to invest if you have $100
  • How to invest if you have $1000 to $10K
  • How to invest if you have $10K to $100K
  • How to invest if you have $100K to one million dollar
• How much investment risk can you take?
• Finding a professional money manager: Things to know & ask

Chapter 12: Summary – Get your action plan together

• Summary – Yes, you can do it too!
• Becoming rich can be a certainty, not a dream
• Wealth is a (self-)responsibility – How I tithe
• Reference guide & resources

For those who are interested, here is the abridged table of content for Part II:
Chapter 1: My 1st Million At 33 – Reader’s Guide (Same as in Part I)
Chapter 6: Investment Theories – Active Investing vs Passive Allocation
Chapter 7: Dividend Investing – Untold secrets of legal tax shelters
Chapter 8: Treat Real Estate like a Business – Leverage & manage your cashflow
Chapter 9: Mega-trend Investing – Bubbles are troubles or Doubles!
Chapter 10: Stock Options – Risks vs. rewards in equity compensation
Chapter 11: Estate & Retirement Planning – Don’t tip Uncle Sam & others
Chapter 12: Summary – Get your action plan together (Same as in Part I)

The full book will go on sale along with Part II later. Part II is targeted for investors with more liquid asset. I split the book into two parts, so that you can buy just the first Part for $0.99. You will not pay more if you buy Part I first ($1), and Part II ($2) later. The price for the full book will be $3. Once the promotional pricing ends, the prices will be more expensive, and I may offer a slight discount on the full book.

It looks like housing prices may find a short-term bottom this year, assuming a stable low interest rate environment. The primary reason that I’m saying this is because of an ultra-low inventory of homes on the market, about some 30% to 40% lower than last year or the year before. Furthermore, there are a couple of programs that may reduce the number of foreclosures or short sales to come to the market:

1. Bank of America converting foreclosures to rentals to delinquent borrowers.

2. Fannie Mae implementing bulk sale of REO to investors to convert to rental.

The bottom line is that in majority of the US housing markets, it is becoming cheaper to own than to rent at the prevailing mortgage interest rate. This is bringing many big or mom-and-pop investors to invest in the housing market. However because of the low interest rate, I do NOT believe that this will be the final bottom before a sustainable rise. Eventually, the real bottom will be made near the peak of a bond market interest rate. With a rising stock market for the next several years, the mortgage interest rates will be rising as well, putting a cap over whatever advances that the housing prices can make.

If you want to invest, make sure that it is both net P&L positive and cash flow positive on a 30-year fixed rate financing. The action of mortgaging will reduce the potential impact from the downward pressures of the falling bond market and therefore the rising of interest rate. With a rising rental market everywhere, it is a good time to invest in real estate as long as you can make the math works.

Several friends of mine have concerns about their stock account safety, due to the concern of recent MF Global blow-up. So I read through the customer’s agreement and emailed the following five commonly used online brokerage firms: TD-Ameritrade, Scottrade, FirsTrade, Interactive Brokers, WellsTrade. ALL of them spelled out exactly and replied back to me with affirmative answers that they CAN re-hypothecate (or re-pledge) any of your assets in your margin brokerage accounts. For some of them, like Interactive Brokers (and a few others), it is not possible to move your stocks into your cash side of your margin account (unless your account is a cash-only account), even when you don’t use the margin buying power in your account. But of course, any gains or losses due to the re-hypothecation of your assets are not yours. ALL stock accounts are protected by SIPC coverage ($500K, including up to $250K cash, in the event of theft). But as you know, there are probably trillions of assets protected by the very small amount at SIPC. If there is a big theft like Madoff’s Ponzi scheme, SIPC is very hard-pressed to cover everything.

The best thing to do is still to exercise your proper judgment, and go with a firm that doesn’t do any proprietary trading (usually against their own customers like many big Wallstreet firms). On paper, everything is “safe” until the money in the pot is just not enough for everyone.

I also suggest to move your assets to cash accounts if possible. When you get a dividend-in-lieu instead of a regular dividend from your stocks, or you don’t get any mails or emails about voting events for your owned stocks, you can be very sure that your “own” stocks have been sold short by someone against your own interests.

Also close any accounts at JP Morgan (or Chase bank), which has basically but “legally” confiscated MF Global customers’ funds for the failed trades by MF Global. Don’t ask me how it can be legal. Thanks to Federal Reserve for allowing this to happen.

Regardless, I think if MF Global customers cannot recover their funds and at the same time Corzine doesn’t go to jail, there is something deeply wrong in this country.

It’s (ex-)Goldman Sachs again. No surprise. The former head of Goldman Sachs ran MF Global into bankruptcy, and was almost going to pocket 12 million dollar “severance” package. What a way to finish!

Actually, I highly suspect that Corzine is that stupid to buy up European debts using a leverage of more than 40-to-1. I suggest investigators to look into the counter-party of whom selling the European debts to MF Global. Maybe Corzine was to lead MF Global to pay up what Goldman Sachs bought previously (while leaving Morgan Stanley to burn and drop).

And the story doesn’t stop there. As with all futures market, there is no equivalent of FDIC nor SIPC insurance. MF Global even dared to use clients’ money of some 600 millions to mop up their mess. That is a serious crime. People should go to jail for this, but I doubt that would happen. And that was done under the helm of ex-Goldman.

After 3 years since 2008 financial crisis, nothing is learned, and nobody went to jail. Occupy Wallstreet will only get bigger.

The article at New York Times has the best coverage in my opinion. You do need to create a guest account to read it.

Where is the Volcker’s Rule? Yeah, and Goldman Sachs became a bank in the shortest amount of time ever in 2008, and still borrowing from Fed for nothing, trading the money from the subsidy by taxpayers into oblivion. If Federal Reserve didn’t save Goldman Sachs, it would be dead by now.

Frugal at 1stMillionAt33.com

In the last two months, the stock markets have gone through a wild gyration. The bears had about 5 attempts to break lows, but they never materialized. Now that with Euro crisis “temporarily” out of way, S&P may get back above 1300.

Markets may continue to act volatile, but taking no risk equals to taking no returns. There is a good chance for the leading tech names like AAPL, GOOG, or INTC or CSCO could push for new 52-weeks highs. Financial & banks will turn up as well, although I prefer not to catch a falling knife even in a counter-rally.

For those who didn’t buy anything, maybe try early next week. The short covering will be strong today and Friday. I think it’s likely the good time will last for 1 month, but beyond that news on economy may dominate again.

Good luck in trading pits.

Frugal at 1stMillionAt33.com

I always check my taxes for next year at around end of September every year. That gives me 3 months to withhold any additional taxes for next year to avoid any under-payment penalty. I also check my accumulated capital gain/loss to plan for certain tax loss sales if any.

By paying taxes from withholding your paycheck, they get treated as if they are paid evenly throughout the year. You won’t get hit by any quarterly assessment of tax penalties, just because you pay them closer to the end of year. If you run a business, this option is not available to you, and Uncle Sam wants you to pay up every quarter.

This year due to extra stock option sale earlier in the year (before stock markets crashed), I need to withhold all of my income for the next three months. It certainly doesn’t feel good to “work for free” especially after I have already paid so much in taxes. My combined state & federal marginal bracket is at about 50%. It is amazing how much government can take, and still manage to run a deficit year after year.

Oh, well. Certainly, paying taxes is far better than taking unemployment benefit checks. My best wishes to anybody who has been left behind by the rolling recessions in the economy.

Fannie Mae has this program since June 15th. It will end at the end of October. It has been extended once already a month ago. I’m guessing it will be extended again.

The 3.5% must be in the form of closing costs, which you can use for any settlement costs, and buy down the (already-low) interest rates. You do have to buy one of the foreclosed property from Fannie Mae, and it’s pretty to search through their properties online.

You can find the details of home path program here.

Freddie Mac also has a “home steps” program for extra home warranty and $1500 condo association credit. But it’s most likely less than 3.5% unless the property is extremely cheap.

I still expect the home prices to drift down further, but if you are ready to buy for non-financial reasons, by all means, you should take advantage of this offer.

It looks like euro is not going to hold past the end of October. Very likely Greek will be kicked out, and stock markets will choke before that. I’m holding only about 6% of my net worth in the general stock markets, and about 40% in cash waiting for QE3. The rest is in miscellaneous stuffs. Now, even 6% feels like too much.

Going forward, gold-related investment (not silver) is still preferred. The next is agricultural investment. When markets turn around, I will put money into tech and energy (oil & natural gas, not solar yet but no nuclear) again.

Markets have been gyrating with huge volatility. The best thing to do is to stand aside now. After storms are over however, there will be very few people left who still have the stomach & nerve to buy. That will be the time to put in the majority of your cash.

Best luck.

It is amazing how fast the markets can change in less than a week!

While it is obvious that the markets are panicking, I think it is prudent to put cash on hold. I sold out my GOOG and AAPL right before the plunge, nibbled probably using 10% of my cash, and then stopped. Both GOOG and AAPL are still good companies, but markets do what they want to do.

It definitely feels like 2008/2009 again. After my positions took a big cut on Thursday, I realized one thing: I simply look too far into the future, while the market is extremely short-sighted. Of course, the economy is not so good, and the unemployment rates still suck. But markets “apparently” are quite oblivious to these facts.

Nevertheless, I still project the stock markets to rise into 2016 due to currency devaluation & inflation mainly, not due to a better economy. The fireworks in Web 2.0 may continue and grow into a bigger bubble. But that is 2016, not 2012. In this market, anything that is 1 minute later, is too far into the future.

Both GOOG and AAPL are dropping to previous support, and it should be a fairly good entry point. I’m preserving my cash pile of more than 20%, anticipating for the final short-term pop in physical precious metals. Buying on pullback on precious metals-related complex still works better than the general stock markets (in the short term as well as in the long term). However, the volatility in precious metals is 2X to 3X higher than the general stocks, and it truly takes nerves of steel to hold onto your positions.

Obviously in my previous post, I have been mistaken. The key thing is to realize your mistake and correct it as soon as possible. My cash level went down to 26% of my total networth. It was 64% in early June, and 30% last November. I usually kept about 20% in cash in an uncertain market. I do intend to become fully invested before the end of this year.

For the first time in many years, I bought into GOOG, AAPL, and general market indexes. If it is not obvious to you, let me state it clearly: markets will be higher in two years.

I made further allocations into gold/silver mining stocks after realizing my last mistake. I would like to add more on a pullback, but I won’t be chasing prices at this level. I have quite a lot already, and much more than any “normal” portfolio. Further greed on my part could easily back-fire.

The next significant pullback will probably be in the month of September. But markets could steamroll ahead between now and then.

Best luck trading.