Ways to Get Rich

Years ago, I realized I had an addiction.

I started getting interested in Behavioral Finance and Economics and came across a NeuroEconomics article in The Economist (yes, I’m a nerd but also had airline mileage expiring)  measuring the brain activity and the release of dopamine between a crack addict, a gambler, and a stock investor.  Scans and test showed the same brain activity and dopamine levels that would want you to crave more of something.  Fascinating! (this is where you are probably leaving my site)

The good news is that I’m not a crack head and only gamble small amounts for entertainment.  Stock investing however is a whole other story.  It is my choice for a high.

The cliff’s notes explanation of NeuroEconomics is basically if psychology and economics had a baby.  Tricks the mind plays on you when faced with monetary decisions.  That’s my very technical explanation of it 🙂

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One of my professors in grad school on day 1, gave what I’ll call “The Ways to Get Rich” speech (guy was a crazy genius and I took all his classes despite hurting my GPA, but I was real close to going the PhD route in 2005 because of this guy).

Here it is paraphrased:  If you want to get rich in this country, you have several available options: Marry into it, illegal activity like drug dealing, win the lottery, taking your chance at the casinos (“but remember, the drinks are cheaper at the bar than at the tables”), real estate, or the investing in the stock market.

So, I figured today I look at this speech and why I chose the road I did…

Marry Into It

I’ll admit, I’ve never been really good at the relationship stuff.  I can diagnose and troubleshoot car problems, rebuild an l28e motor (respect if you know what that is), build you a custom kick ass PC you didn’t think was possible, or fix your existing computer despite no IT training.  Women on the other hand, complete mystery, that I can’t figure out.  Despite the mystery, I never wanted to think about money being the main motivator for marriage (either on my side or the other party).  Plus, I knew deep down that I would be well off eventually if I stuck to my plan.  So, as sappy as it sounds, if I was to ever get married, it would have to be with the right woman for the right reason, not money.  Marrying into money, not on the table for me.  You’ll probably end up with the wrong person, maybe even a psycho hose beast:

Illegal Activity Like Drug Dealing

I worked for 15 years in the investment industry.  I like to think it was to help people achieve their financial goals, but lets be honest, the only person to achieved their financial goal was myself.  I was naïve in college, not realizing working in the investment world meant you were more than likely going to be selling things people didn’t understand, not actually helping them.  Now, I wasn’t really good at my job because of this.  I hated the fact of selling people on investments they had no understanding of, especially when I knew the fees were exorbitant and performance trailed the benchmarks.  I even lamented the fact that my own retirement plan within the company’s retirement plan were those same crappy investments, making the executives richer.

So illegal activity wouldn’t be for me.

If I was dealing drugs, the conversation with a customer would probably go something like this:

Me: So you want to score some drugs?

Customer: I gotta get my fix!

Me: You know if you took the amount of times you scored a hit each week, multiplied it by 52,  invested that money over the next 10 years and earned an 8% rate of return… you’d have X amount of dollars saved up.  You also wouldn’t have that horrible looking sore on your lip that grosses people out or those track marks.

Customer: (slowly walks away looking at me like I’m crazy)

See, I’m horrible at sales.  Honesty is not good for sales.  So this is not a good road for me to go down.

But for those interested in dealing drugs:

Win the Lottery

I can show you how to calculate the odds of winning the lottery if you’d like.  I played the Power Ball earlier this year before leaving my job.  My friend took me out for a going away lunch at Chipotle.  We joked about grabbing tickets at the 7 Eleven around the corner and about splitting it if either us won.  We went and bought a couple of quick picks.  She tried picking her own numbers, but neither of us was actually sure of the rules for picking the numbers.  Winning the lottery, the odds are just not in your favor.

Casinos

I will never forget the professor’s line about “the drinks are cheaper at the bar, than at the tables.”  Don’t drink at the tables, you’ll lose more of your money.  The couple times a year I might set foot in a casino, it’s always the first thing that pops in my mind.  I’m just not into gambling, except for a little fun.

Real Estate

I dabbled in real estate for about 7 years as a landlord.  I’ll get more into the details of landlording in another post.  But like most things, there are pros and cons to it.  When there are no problems, the returns can be great, the incoming cash flow is nice, and any potential appreciation on the property never hurts anyone.  I eventually got tired of being a landlord, because of the renters.  Nobody ever takes care of your place like you will, literally being called in the middle of the night about a clogged toilet (hello, get a toilet plunger!), that little worry in the back of your mind about “what if they don’t pay rent this month” (the eviction process can be a hassle), and a place becoming infested with roaches.  It just seemed like things were always popping up, that I’ve never personally experienced living in my own places.  I just got tired of it to the point the money wasn’t worth the hassle.  And we’re talking unleveraged total returns during that 7 years of between 90-192% returns, not being worth the frustrations.

Heaven forbid, these guys end up being your renters and you’re dealing with the complaints:

The other thing about real estate, transaction cost are high.  When you sell, you pay 6% for someone to open the front door.  Luckily I sold my last place without an agent, and the paperwork was super easy to do.  Also, taxes are high.  As your depreciation on the property goes down gradually, you pay more taxes on your rental income at ordinary income levels.  Sure you can delay taxes on the sale of the property by doing a 1031 exchange, but you have to jump through the hoops and buy another rental property (I’ll post a really cool article for landlords about 1031 exchanges sometime).  Or you can move into your rental property and live in it for a few years to lower the tax bill on the sale (I did this).  If you want to get some cash from your property, you can’t just sell a portion of the property.  You can do a HELOC, but then you are just going on margin against your property.

I won’t rule out doing a flip down the road, but the short sale and foreclosure listings are not what they used to be.  I am just unwilling to put up with renters ever again.

So while real estate was alright to me, it’s not as easy as some would have you believe.  I also got to the point where in one day, I could make several months worth of rent without having to worry about middle of the night calls.  So that leads to the last option:

Investing in the Stock Market

Real Estate was good to me, but investing in stocks has been great (yes even despite the recession).  It can take a while before you start to notice the difference in the daily fluctuations in your account balance.  After all, having $1000 saved up and getting a 1% return for the day is only $10.  However when you start to build a little nest egg, you begin to see the benefits of the capital markets.

I used to tell the young guys starting out at work “you need to get to $100k liquid invested in the market as soon as you can.”  My reason for that: $100k invested in the stock market, and a 1% move up, you just made $1000 for the day…without lifting a finger.  That’s more than most people make at work in a week.  Think about that for a second.  Now start multiplying that $100k by a factor and think about it some more.  If you have $500k invested and the market moves up 1%, you just made $5000 for the day.  Without lifting a finger.  Hell, having $1million invested on a day that the markets only move 1/10 of 1% (0.001%), still gets you $1000.  Not bad for one day of not working.  My personal best 1 day return took place last year, $25,000 (personal worst day also happened last year -$45,000, intra day was -$50k-I almost threw up all over my desk.  In case you were wondering what it felt like to drop that much, it felt a little like this):

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So the stock market, is my ultimate high.  You can make more in 1 day than having to show up to your job for several months.  In a good year, you make more from the markets, than working your job all year when you’ve built up a decent balance.  I could also make more in 1 day than renting (and putting up with a renter) a place out for a full month.  That crap should blow your mind.

Throw on top of it any dividends (and growing dividends) you receive and you can literally replace your earned income with investment income.

Some of the beauties of securities investing.  Taxes.  Taxes on dividends in my brokerage account are 15%.  Long Term capital gains 15%.  Those rates are lower than my income from working.  I also have not sold a stock in a long time, so I actually haven’t paid any capital gains in years.  Liquidity- if I need a little cash, I can sell a few shares pretty quick and easy.  I can’t just sell the front door on a rental property (I suppose I could, but a renter might not like that).  Transaction Cost- I use Ameritrade and pay $10 to buy or sell, pretty reasonable.

With stock investing, you have to take the good with the bad (go up a few paragraphs and see my best and worst 1 day gains/losses).  Some people don’t like the intangibility of stocks.  You can’t touch, taste (?), or see it like a rental property.  I’ve also seen guys break out into pools of sweat, clicking the buy button on their mouse.  It’s not for everyone, because of that potential stress.  But trust me, over time it becomes the ultimate rush.

So, in closing…

There are several ways to get rich. My preferred method is stock investing.  I’ve tried real estate, but it’s not my cup of tea.  I’m pretty sure I’d be bad at illegal activities, and gambling is just for my entertainment.

One thing I should mention in regards to real estate or investing in the markets, it takes time.  So if you are trying to build your own real estate property ladder or a bad ass cash flowing dividend stock portfolio, the earlier you start… the better.

Also, you can start your own business to work towards FI.  Personally, I’m not creative enough to come up with an idea for a product everyone needs.

So reader, what’s your preferred hustle to hit FI or build the FU money?

May we all one day say the famous words:

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Readers Comments (2)

  1. I hated property management because of the tenants. They were awful and helpless. They acted like children. Did not want their problems to become my problems. I can’t imagine myself being a landlord because of that. I’m with you on stocks. Easy, passive, and is understandable.

    • I remember one time the renter said the toilet was acting up. He removed the lid and the cap on the fill valve and left. When I got there, water was shooting all over the place and pooling on the floor (because he removed the cap to the fill valve). I lost my shit. It was a clogged toilet. Dude was in his 50’s and should never leave the front door without his helmet.

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