One of The Best and Most Boring Investments You Never Thought Of

Trucking

     That computer you are looking at, that desk it is laying on, that chair you're sitting in, and those clothes you are wearing were placed on a truck and shipped to where you bought it from. Oh, and all the resources it took to make it's parts were shipped to a factory to be made then shipped to another factory to be assembled even before it was shipped to where you bought it from. Think of how many different points of shipping there are for everything that you used today...yeah, it's a lot. 

     Trucking is one of the biggest industries in the U.S., and is estimated to be worth about $700 billion a year (4% of the United States' GDP) and creates about $39 billion in highway and diesel taxes which help maintain our nations infrastructure. The industry employs about 7.1 million people with 3.4 million actually being truck drivers. All those employees are employed by 1.2 million companies and roughly 90% of them operate with 6 or less trucks.

One of Old Dominion's 222 service locations

     How do you invest in this $700 billion dollar industry? There are several ways, trucking companies, logistics companies, and the companies that make those trucks or the parts for them. Trucking companies have the poorest margins out of the three but make up the majority of the industry's revenue, the poor margins are due to the expenses of fuel regardless of the current cost of oil. But a few companies are good at making the best out of this scenario, one of the best being Old Dominion Freight Line (NASDAQ: ODFL).

     Old Dominion is one of the stand outs among all the other public trucking companies. In a sector that struggles to have high single digit margins it has advanced it's margins into the double digit territory with a Q3 15' margin of 10.82%. Old Dominion's closest competitor is Knight Transportation (NYSE: KNX) with a 10.24% margin, but Knight has half the revenue showing Old Dominion's ability to be a larger company while keeping margins higher. One may argue that Knight does pay a dividend which may make it more attractive but it is a mere 1% payout. I would rather see a company use that money to try and capture a larger percentage of the market share, especially since ODFL only owns about .39% of the shipping market. Old Dominion has a positive future because our economy is based on consuming, the more consuming, the more shipping, the more business for trucking and hopefully Old Dominion. Old Dominion is slightly over valued with a P/E of 16. I would recommend waiting until it becomes fair or undervalued  to start a position with Old Dominion.

U-Haul's Various Rental Options

     Our next company is a bit of an out-liar in the trucking world, Amerco (NASDAQ: UHAL) is the parent company of U-Haul self storage and moving trucking rentals. They are also somewhat of a cheater in this sector because they also own Amerco Real Estate Company (commercial real estate), Repwest Insurance (insurance for U-Haul customers), and Oxford Life Insurance. This company has taken the two biggest cost factors in shipping, fuel and employees, out of it's business model.  With those costs gone they can now reap much larger margins than other trucking companies, they had a Q3 15' margin of over 19%. While one would think the insurance and real estate business helps with this, it does, but Self Moving rentals amounted to about 70% of total sales. In past studies the average american moves about 11 times, given this statistic and an increasing population, Amerco has a positive future. And if for some reason moving starts to decrease there are additional revenue streams that can help offset lower moving rates. Amerco is also slightly over valued and someone looking to start a position in this company could benefit from waiting for a better value to enter into a position.

Cummins' Global Footprint

     The company that powers a large part of the trucking industry is Cummins (NYSE: CMI). If you look into it, right away there is a glaring problem, a slowing global market has negatively impacted the revenue of Cummins. While North American segments are growing (4%) all other global
segments besides India are decreasing (-18%), fortunately for Cummins they are heavily weighted towards the North American segment (60%). They have also taken action to help offset their loss of revenue in foreign markets, specifically, laying off 2,000 of their workers. Currently Cummins has lost over 45% of it's share value and has a P/E of 9.1. They also have quite a solid financial status, small amount of debt, plenty of cash to continue paying dividends of 4.58% and a new $1 billion share repurchase plan. Global markets will not always be in a slump and Cummins engines and products are not going out of style. With a long term positive industry outlook, good financial status, and great value Cummins presents itself as an addition to your portfolio.

     With several options to choose from you are presented with "which company has the best long term capability for return?" I  believe the cheater wins in this battle, while U-Haul isn't your typical trucking company they have flourished in the world of moving "stuff" from one spot to the other. Their business model is not going anywhere soon and as long as the population increases and people continue to move throughout their life they will continue to profit.

In It to Win It

In It to Win It: 

What if you could own part of your favorite sports franchise?

     What are the publicly traded sports companies out there? Technically there is only one that is publicly traded and is the sole business of that company, Manchester United (NYSE: MANU). However a few others include the New York Knicks (NBA), New York Rangers (NHL), and New York Liberty (WNBA) who are all owned by Madison Square Garden (NYSE: MSG). Then we have the Atlanta Braves that are wholly owned by Liberty Media (NASDAQ: LMCA) who also own

Could you own part of the Braves?

several minor league affiliates. Liberty recently announced that they would be publicly offering the Braves under a tracking stock (no voting rights) with the ticker symbols of BATRA, BATRB, and BATRK.

     What if you could own part of your favorite sports team? To answer that question we will have to answer a few others first. What are the benefits to a company and to it's shareholders when it becomes publicly traded?
     What does the company get when they become publicly traded? #1 They get a boat load of cash. That is really one if not the only benefit received from being a publicly traded company. Companies run the risk of losing majority control of the company, their business practices are much more regulated, and may come into conflicting decision making based off of what's better for the company or what's better for the shareholders. 

     What rights do you get when you own a share of a publicly traded company? #1 You get to vote, generally individual shareholders own so little of a company that their votes wouldn't matter. But, in actuality if given the proper motivation and percentage of voters, shareholders could change the businesses decisions. #2 You get to profit or lose money depending on how successful the business is.

     Does it make sense for a professional sports team to become publicly traded and does it make sense for you to be a part owner? Lets take a look at the beloved Browns to try and answer this.

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      The Browns are owned by James Arthur Haslam III (Jimmy Haslam) and have been since he bought them in 2012 for nearly $1 Billion (actually had to sell his stake in the Steelers first). Forbes values the Browns at around  $1.5 Billion, presumably that is what the Browns would be able to raise if they had an Initial Public Offering (what makes your company publicly traded). The Browns could use this money to renovate their existing stadium, build a new stadium, hire better management, sign better players, create a marketing campaign, and the list goes on.

     Should the Browns become a publicly traded company then? No, they (Jimmy Haslam) could possibly lose their majority interest in the company and have to succumb to the interests of their shareholders (fans). This could possibly put the future of the franchise in the hands of fans that do not know how to run a professional sports team business (sorry it is true). For the Browns I would think the risks greatly outweigh the benefits.

Washout Quarterback

     Should you, a perennially disappointed Browns fan, invest in the Browns?  Yes, you should if the Browns were ever silly enough to become publicly traded. Despite their annual losing records Jimmy Haslam and the Browns actually run a decent business. The valuation of the Browns has increased almost 50% to $1.5 Billion, revenues have increased almost 52% since 2006 to $313 million, and they had an operating income of almost $35 million in 2015 according to Forbes. All these positives would surely increase the value of it's shares and thus your net worth if you owned shares. You would also then be able to voice your opinions a bit more loudly as a fan base if you actually owned part of the company.

     I know you know the Browns suck, and I am sure their management knows too, but how cool would it be to actually own a part of your favorite sports team?! You could even possibly influence their draft picks instead of yelling at your friends about if they should draft another wash out Quarterback. The best thing is even if they do poorly (win loss wise) you could still actually profit off of your team and possibly not end another season in disappointment.
     

Is She Worth It?...Oprah Winfrey

Is She Worth It?

Oprah Winfrey and Her Purchase of Weight Watchers

     On the 16th of October Oprah Winfrey purchased a 10% (6.4 million shares) stake in Weight Watchers (WTW) worth $43 million. In 2 days that stake was at one point worth $119,404,000, some may think that's a bit fishy, using your name to solely increase the price of a stock. The company has seen a steady decline in revenue over the last 4 years which has been attributed to mobile fitness devices and apps. For Oprah it makes sense to enter into a deal and purchase a stake in the company,
her media empire could do wonders for bringing in customers. Right off the bat her name alone has increased the valuation of the stock, but does her expertise and possible help in marketing bring enough to the table to turn this company around, not in valuations, but in real earnings?

     No is the short answer. But we aren't in the game of answers that short, we like to expose the facts so that you can make informed decisions in the future. To give you transparency here are the details about their partnership (taken from their website):

• Member – Winfrey has joined the program and will candidly share her experiences and perspective along the way.
• Board Member and Adviser – Winfrey will bring insight and strategy to program development and execution that reflects not only her own experiences as a member, but also her unique ability to inspire and connect people to live their best lives.
• Owner – Winfrey will purchase newly issued shares representing 10% of the shares outstanding and will receive options to acquire an additional 5% of the fully diluted shares.

     First lets talk about what challenges they have going forward. The first one is being able to gain and retain new customers. Weight Watchers has been primarily losing customers to apps people can easily access on their phones, and for free. The next one is a bit of a conundrum, their business isn't actually good for business. If their program works then the people that sign up will pay, lose weight, and then no longer need Weight Watchers and cancel their membership. They will need to figure out how to retain customers after they have lost their weight. 

New Weight Watchers App

     Even before they signed a deal with Oprah Winfrey Weight Watchers has rolled out new offerings that include subscriptions that offer either entirely online & app based weight loss products starting at about $20 a month or online, app, and in person meetings starting at about $33 a month. The challenge they face here is having a premium enough service to were a free app is not an effective alternative. Perhaps they could offer a freemium app that requires payments for increasing amounts of service or goods. 

     Next they have to keep people paying past the point of weight loss, after all the most important part of weight loss is keeping it off. If they can monetize this part of their customer base they will have created a steady predictable portion of their revenues. Going forward they should add services that will help do this like identifying diet trends that have made you gain rather than lose weight or having a different point system to maintain weight. Monetarily they could offer discounted memberships for those that get to and maintain their healthy weights. This would give them an incentive to stay with weight watchers and stay at their healthy weight.

Will her Media Empire Help? 

     So how does Oprah Winfrey solve these dilemmas that weight watchers faces? She solves maybe one at best solely through her marketing power, and that's gaining new customers. The other problems will only be helped by giving their solutions better marketing power than what they already posses. 

     Should this change your view on investing in weight watchers or not? I would say not yet, as with any company I would not recommend investing in anything that does not have positive results. Weight Watchers definitely lacks positive results seeing as their most recent reporting Q3 15' showed they were down 20.8% since last year. Right now a purchase in Weight Watchers is simply an educated gamble. 

Diseny, What do They Do? A Compelling Reason to Invest

Disney, What do They Do? A Compelling Reason to Invest

     The Walt Disney Company (DIS) is an international family oriented multi-media company. The company operates in 5 different segments: Media & Networks, Parks & Resorts, Studio Entertainment, Disney Consumer Products, and Disney Interactive. October 16th, 1923 is considered to be the formation of the Walt Disney Company when the company signed a contract to produce their first animated cartoons. The company has grown into something Walt Disney probably had never imagined. It is now valued at $168 billion and has a share price that currently fluctuates around $100. 

     Their media department consists of Disney Channels, ABC/ABC Family Channels, ESPN, all of their associated studios and several Television Stations. These assets have produced the #1 morning show "Good Morning America", Emmy Award winner "Modern Family", "Dancing with The Stars", Emmy Award Winner "Lost", "General Hospital", "20/20", "Scandal", and "Sports Center". I would be willing to bet that you, your dad, or your mom has religiously watched one of the shows I mentioned (my mom LOVES GH, shout out to Judy!). The main earner, ESPN, creates revenue in excess of $10 billion as of 2014, which is half the GDP of Honduras. Media Networks ended 2014 with $21,152 billion in revenues (up 4% from 2013).
     The Parks & Resorts department consists of two U.S. amusement parks Disneyland & Walt Disney World (about the size of San Francisco), 4 international parks Shanghai, Tokyo, Paris, and Hong Kong, a Cruise Line, Vacation Club, and many Resorts. Their flagships Disneyland & Walt Disney World made the majority of this segments revenue at $12,329 billion (81.6%). Their

international sub segment is almost complete with it's largest project since Paris, Disney Shanghai. It is a joint venture with the Shanghai Shendi Group (majority owner at 57%) and will hopefully begin providing a revenue boost to this segment when it opens in the Spring of 2016. While both Domestic and International sub segments grew in 2014, Paris dragged down growth with a decrease of hotel bookings and park attendance. As the second highest revenue stream for The Walt Disney Company, Parks & Resorts grew their revenue by 7% and operating income 20% from 2013-14.
     Possibly the most famous segment is the Studio Entertainment portion headlined by Pixar (has won 30 Academy Awards), Marvel, Touchstone, and Walt Disney Studios Motion Pictures. They have produced movies such as Academy Award winning Frozen, Oscar Winning Big Hero 6, Pirates of the Caribbean, Toy Story, Iron Man, Captain America, Avengers, Pretty Woman, Good Morning Vietnam, Dead Poets Society, Armageddon, and Pearl Harbor. The list from just Touchstone Pictures is over 200 films. Possibly the highest performing sector, revenues grew by 22%. Net income grew by 134% attributable to keeping operating costs down and large increases in home entertainment and theatrical distribution.  With the acquisition of Lucasfilm and Marvel having a vault of over 7,000 comic characters I can't see this segment flat lining as long as they keep their creativity.

     The Disney Consumer Products segment consists of Licensing, Publishing, and Stores (online/physical over 200). This segment takes all the popular characters and monetizes them through selling books, magazines, toys, and other consumer products or the rights to create those goods. While not explicitly stated I believe this segment will rise and fall with the popularity of their Studio releases and as stated in the 10-k 2014's segment revenues were helped by the popularity of "Frozen" one of their hit studio releases. If their creativity continues as it has in the past this segment will keep up it's double digit growth, 12% revenue and 22% operating growth from 2013-14'.
     The last segment, Interactive, is relatively new as it was founded in 2008. It encompasses their famous video game Infinity, mobile game Where's My Water?, virtual online world Club Penguin,

and babble, a parenting blog site. Largely due to success with their Infinity game this segment turned a profit in 2014 making a meager $116 million. Inserting new characters into the Infinity game will be key in keeping that revenue source going in the future, and they have already done so with Star Wars characters.
     Disney's future will be determined by it's ability to monetize the outcomes of it's creativity. They have shown in the past they are extremely capable of this by creating characters that captivate and entertain their audience but can also be turned into a source of revenue for all business segments within Disney. Detriments to it's future might be the beginning shift away from cable and satellite TV packages that include their most profitable product, ESPN. But the acquisition of Marvel Comics and Lucasfilm will more than make up for any revenue decreases in that segment. There is no doubt why Disney is in the Dow Jones Industrial Average and their should be no reason why it isn't in your portfolio. A company that was founded on creativity and breeds it in all aspects of it's business I believe will have no problem continuing this. But don't take my word for it...do your own research.
     

The Great White Buffalo

The Great White Buffalo

     As elusive as they may seem they do exist, they really do. In true popular culture definition A Great White Buffalo is "the" perfect mate, that is usually unattainable. On Wall Street I would be willing to bet this would be equated to Berkshire Hathaway (NYSE: BRK.A) a company that has risen it's share price by over 10,000%! But what if I told you that The Great White Buffalo could be yours? Would you believe me? Well you should because it's true. They are called "Blue Chip" stocks, they are not as unattainable as they may seem and you probably already know most of them.
     The Dow Jones Industrial Average (DJIA), or The Dow for short tracks some of the best Blue Chip stocks. It is a composite of the top 30 public companies: American Express (AXP), Apple (AAPL), The Home Depot (HD), McDonald's (MCD), Walmart (WMT), and Disney (DIS) to name a few (you can find the full list here). Since 12/SEP/15 when The Dow was at 809.23 it has grown 1,889 % to 16102.38 almost 40 years later.

DJIA 75' to 2015' Taken from Google Finance

The Dow is where these Buffalo's live and should be hunted. While firing money at The Dow Rambo style would probably yield acceptable results it isn't very efficient. So let's practice some trigger control and take the best shots possible like Chris Kyle.
     Hunting these companies is pretty simple, most of the work is already done by the formation of the list. You will simply have to buy them at the best price which can be as complicated or simplistic as you make it. You could simply attempt to buy it at the lowest Price to Earnings ratio as possible or you can add in as many valuation criteria as you want. And to get even more complicated you could do your own industry research, sift through all the companies annual reports, and attempt to understand it's business model more than it's CEO does.

Get it?!? No tear formula!!!

     To get the idea look at Johnson and Johnson (JNJ), John and Johnson is a holding company, they own many different companies but all deal in Health Products. Their famous brands are Neutrogena, Listerine, Band-Aid, Visine, Acuvue, to name a few, and if you have ever had any kind of surgery
you have probably been operated on with Johnson and Johnson products. The industry they operate in is something that isn't affected by slowing consumer purchasing. In a bad economy people are still going to buy shampoo, medicine, and have surgeries. They boast an impeccable dividend record, having never decreased or stopped it since it's inception in 1987 with a current yield of 3.28%. They are fairly valued with a price to earnings ratio of 16 and boast the highest profit margin of any health product conglomerate I could find (25.39% for Q2 15'). Bottom line is it backs up it's position in the DJIA with great stats.
     Your search for The Great White Buffalo is much closer to an end than you think.  Sometimes the best companies to invest in are right in front of your eyes and with a company like Johnson and Johnson in your portfolio you are probably on your way to a no tear formula for investing. But don't take my word for it, do your own research.

Update: Has Fast Casual Been Perfected

Pie Five: Fast Casual Piefection

     While doing research on Pie Five I stumbled upon a few of their competitors, the main one being Blaze Pizza. I immediately started looking for excuses to visit any of their locations so that I could draw comparisons between the two. I just so happened to be traveling through Columbus, Ohio which which conveniently had a Blaze Pizza that was not too far out of the way. But before we start comparing the two lets talk about the ingredients that make a good fast casual restaurant so that you can see where Blaze is failing and Pie Five is succeeding. 

     Number One is good location, in short the store should be located in a high traffic area that contains your targeted demographic (the people you are trying to sell your product to). Number Two is the stores layout/format, it must be conducive to efficiently moving as many customers through the point of sale while maintaining positive customer experience. In a close Third is fantastic product w/ quality ingredients, it helps create the buzz to come visit and the memorable experience to come back again and again. In Fourth we have friendly and knowledgeable employees. This contributes to the overall experience and if passed over can contribute to losing your customers to the eerily similar chain across the street. And last but certainly not least, a fair price for the quality of food you are selling. Your restaurant could have the best food in the world but if it is priced too high you might lose tons of customers.
     While I can not speak about all locations I have been to one Pie Five and one Blaze Pizza. Pie Five was in an okay location just off a main strip and a major highway exit. Blaze Pizza was right across the street from one of the largest college campuses in the world. Picking from the two locations I would definitely chose Blaze, Blaze- 1 Pie Five- 0.
     The format of the stores were similar in the sense that they had quick lines that both ended by the fountain drinks, cool outlets to charge via USB, and easily accessible cafe style seating. But Blaze lost, while this wasn't the case (unfortunately for them), if very busy their line would have directly interfered with people trying to get drinks from the soda fountain. It would also make for awkward who is going which way interactions with other customers while trying to move towards the line. I also thought the giant gas fired pizza oven was a bit much. It required a single person to be able to track multiple pizzas at the same time throughout the entire day, if he isn't paying attention a pizza could be over or under cooked ruining the customer experience. Pie Five's traditional conveyor pizza oven ensures uniform cooking for all pizzas.  Along with not having a state of the art bathroom like Pie Five they were missing witty decorations to add that smile to their experience that might get them back. Blaze- 1 Pie Five- 1.
     I attempted to get the same pizza at both locations and while the Blaze pizza was larger I thought the Pie Five pizza was slightly better in taste and quality. Blaze only had 1 style of crust besides their gluten free option, Pie Five has 4. The toppings including sauces were similar but at first glance the ingredients at Pie Five had a slightly more premium look. And my favorite part, Pie Five used way more cheese. Oh, and they offer to sprinkle your pizza with "magic dust" right before you check out. Win for Pie Five, Blaze- 1 Pie Five- 2.
     While the customer service was not horrible it was not the gold standard of "Starbucks" customer service. Comparatively the wait to start eating my pizza was much longer than Pie Five, which boasts a pizza in five minutes or less. The assembly process of my pizza at Pie Five even seemed to be more carefully constructed. And while waiting at the cashier for my finished product I had a pleasant conversation with the "magic dust" lady and cashier. Blaze- 1 Pie Five- 3.
     And what causes the most confusion for me for these "Chipotle" style fast casual restaurants is the price, and how they turn a profit off of these premium products. Bottom line Pie Five is roughly 46 cents cheaper, Blaze $7.45 and Pie Five $6.99. The premium product at an affordable price is evident at both but Pie Five wins. Blaze- 1 and Pie Five- 4.
     With many premium locations already taken up by the likes of Panera, Chipotle, and Starbucks it will be difficult for either to find footholds, but not impossible. If Pie Five keeps the wins and ups their game in choosing locations they will easily edge out competitors. 

Has Fast Casual Been Perfected?

Pie Five: Fast Casual Piefection

     "You have got to try Pie Five" said Kelina, "What is that?" I said with a grumpy attitude after a long day of work. With an enthusiastic attitude she said "It's this new pizza place over by Panera that you can get a customized personal pizza in five minutes!", I fired back with "you would love that place". Cue a death stare from Kelina. The next day she dragged me to Pie Five to try out this new "phenomenon", I was admittedly quite skeptic. I had no idea what I was getting myself into...

Two Custom Creations

     Yes that is some pizza from Pie Five, and yes it was done in 5 minutes, it is quite shocking how fast you can get pizza here, good pizza at that! But before we go any further you can get that pizza for $6.99, yes, for under $8 tax included you can get gourmet pizza. But wait...with literally any number of toppings you want (we'll get into how they make money later). To back track a bit here is what they offer: 4 types of crust including gluten free for an extra charge, 4 cheeses, 7 sauces, 8 meats including meat balls and giant pepperoni slices, and 16 different types of veggies roma tomatoes, 3 different olives, red & green peppers, mushrooms, red onions, marinated artichoke hearts, and sun dried tomatoes to name a few. Besides the 10 different types of house pizzas you can order a personal pizza about a million different ways, which if you got different ingredients every day would last you about 2700 years without repeating a choice...talk about variety! Long story short their pizza is amazing.
     Got it, the product is amazing, what about the rest of the place? Well, I am so glad you asked. If you could perfect a store format for fast casual I think Pie Five has found it. An easy line to navigate with menus you can take with you down the line to order ingredients. A few feet away after a quick check out is a "freestyle" coke machine with over 100 choices. Next you have enough comfortable

seating to have a chat over your pizza, some even have outdoor seating to enjoy your pie under the sky. But don't stress there are outlets near most of the seating so you can charge your phone while you eat. But What if you forgot your wall charger? Well they have USB outlets too, yeah USB outlets. Did you try too many coke flavors or get greasy hands from the pizza? Oh no worries, there is a state of the art bathroom. In reality the toilet is just a toilet, but the sink, my god! Auto water, auto soap, and auto super duper jet dryer that blows the excess water off your hands and down into the sink. The restaurant is an attempt to target a younger crowd; attempts at consciously sourcing food, witty decorations recyclable pizza boxes, no paper towels in the bathroom, USB outlets, freestyle coke

machines, oh, well, and delicious pizza. To top it all off they have a rewards program that gives you a free pizza every 20 points with 10 points to start and 2 points per every regular priced pizza or salad that you buy.
     Immediately upon ending my meal with Kelina I enthusiastically said "Damn that was good" followed up by a calm and serious "I need to find out if they are public". Long story short Pie Five is not a public company, they are however wholly owned by RAVE Restaurant Group that also operates the Pizza Inn brand which is a chain that franchises over 300 stores worldwide. Rave also franchises 55 Pie Fives in the U.S. in 15 states and Washington D.C. the first one opening in 2011 in Fort Worth, Texas. Now would it be a good investment? No, at least not right now. First they are extremely small, with a market cap of about $120 million they are a micro cap. They also don't seem to be growing that much since the inception of Pie Five. Revenue is down $1 million and Net Income is down $2.93 million (215%) since the Pie Five debut. Their assets, specifically property/plant/equipment, are growing but with a franchise business I can't give you an  honest assessment of why that is. Lastly I have serious reservations about how their franchisees' make money, with premium ingredients and only a price of $6.99 their business model can't be anything other than getting as many people through the line as possible. After all their main selling point is a good pizza in less than five minutes. While RAVE has been public since 1994 their flagship product "Pie Five" is quite young and small as they only have 55 stores since 2011. I would seriously keep an eye on this company and their Pie Five product. This restaurant has the potential to have Chipotle like success. Oh yeah and they have dessert pizzas! But don't take my word for it, do your own research and get a pizza!

Going Bankrupt: Not Just a Saying

Going Bankrupt: Not Just a Saying

   
     Bottom line up front, Bankruptcy is bad m'kay!? Seriously, this is the last thing you want to do if you are having financial troubles. You are much better off trying to use a commercial debt consolidation agency or trying to argue better loan terms with your creditors. Bankruptcy will ultimately destroy your credit and make it extremely hard to secure any future loans. But here are the basics of it...

     What happens when you have no money, not enough or zero income, and your debts and bills still need to be paid? You go bankrupt and no, that is not just an idiom. It is actually a legal matter that you file with the federal court system under the federal bankruptcy code, and for individuals specifically chapter 7 or chapter 13.
     Chapter 7 filing is the greater of the two evils that individuals can file, to be eligible for Chapter 7 you must be in this case an individual,  partnership, corporation or other business entity. Your income must not be equal to or over the median income for your state, if it is then you are subject to a test to determine if your filing is abusing the use of bankruptcy. If the test is not passed your bankruptcy will either be converted to Chapter 13 or be dismissed.
     What happens under chapter 7 bankruptcy? It includes the liquidation of all eligible assets in an effort to pay off a debtors creditors, note that there are assets that are exempt from liquidation. The exemptions include things that will help you get back on your feet such as dwellings, transportation, household goods, clothing, and retirement accounts. These exemptions usually have a cap on value for instance in Ohio they include:

• Homestead: $132,900
• Vehicle: $3,675 in one vehicle
• Household goods: $12,250 with up to $575 in one item
• IRAs (including ROTH): $1,171,150

While this may sound like a good option you are still losing assets and may potentially lose the assets that you think might be exempt because they are over the value limit for that specific exemption. 

     If you still choose to file for chapter 7 you must give a petition to the bankruptcy court that includes multiple forms that require you to know: your creditors and the amount you owe them, income (source, amount, frequency), your property, your monthly expenses, and several other financial schedules (detailed lists in well organized manner), and a tax return. It also costs you money to file for chapter 7, $245 to file the case, $75 admin fee, and a $15 trustee fee (the person that liquidates your assets). There are also a wide range of nuances in the chapter 7 filing that could eventually still allow for loss of exempt property as well.
     The lesser of the two evils is chapter 13 bankruptcy. It essentially makes a plan to pay off your creditors in three to five years, three if you make less than median monthly income of your state (or have cause for longer) and five if you make over the median monthly income of your state. Your liabilities must not exceed $383,175 in unsecured debt (debt not backed up by collateral) and $1,149,525 in secured debt. You also must have been to credit counseling in the last 180 days (this applies to chapter 7 as well). Just like Chapter 7 you must submit a petition with all the same schedules, this is important in Chapter 13 because this information is used to notify your creditors to stop or not start their collection actions during the period of bankruptcy. There are also fees, $235 to file and $75 admin fee.
     If approved the debtor must submit a payment plan to the courts with the petition or within 14 days of filing. The debtor then has 30 days to make his first payment even if the payment plan hasn't been approved of yet. The payments will be submitted by the debtor to the trustee for distribution to the creditors which usually aren't paid in full unless they are a priority creditor such as a tax collection agency.
     Chapter 13 allows the debtor to stop all collections against their assets or property by creditors. This allows the debtor to keep much needed property such as housing and transportation, however this doesn't mean the debtor can pay the smallest amount possible. Priority debts will more than likely be paid in full unless the creditor agrees otherwise. Secured debts will have the outstanding payments paid off in full during the bankruptcy period and continue to pay throughout the life of the debt (typical of home mortgages). However smaller secured debts may be reduced to the liquidation value of the collateral borrowed against. If your payment plan is violated the court may convert your case to a chapter 7 and your assets would be liquidated or it may be dropped altogether and you would no longer have collection protection.

     Now that we know bankruptcy is bad hopefully you will be more careful about going into debt in the first place. The easiest way to go into debt is to not take out any loans or arguing for better terms with whoever is trying to loan you money. What is the worst that could happen? They say no and you move on to the next bank that may or may not agree to your terms. After all they should fight to get your business since you are paying them more money than you took from them in the first place. But don't take my word for it...do your own research. 

Should I buy a house?

 

Housing:

Why buying is not a good long term investment 

 

 

     If you are buying a house as an investment then you might want to reevaluate your choices in what you invest your money in. If you are buying your house so you can live in it and have a place to raise your family then you are making a great decision with your money.

     In the investment world a good long term investment is something that you can buy at a fair price and will eventually be worth much more than you bought it for when you sell it. In the investment world a bad long term investment is something you purchase that will eventually be worth around the same or less than as when you bought it. And you generally don't want to have to put any more money into your investment than what you already have when you first purchased it.

 

     The average sale price of a home in March of 2015 according the the U.S. Census Bureau was $343,300. And the average interest rate on a 30 year fixed rate mortgage in march 2015 was 3.77% according to Freddie Mac.  Based off of your purchasing price with a down payment of about 20% ($68,000 which is very unrealistic) your loan amount comes out to $275,300. If you paid off in full in 30 years the amount of money you would have paid into your mortage would be $460,108.80.

     The final price of $460,108.80 is what it would cost you to own a house in 30 years in a perfect world. However, there are many more expenses to owning a home such as property tax, home owners insurance, and home maintenance. If you based your tax rate off of my home towns of 2.76% (2014), the national average of $952 for home owners insurance, and the national average of home maintenance of 1% of value annually ($3433) it would cost you an extra $131,632.8. So now your house needs to be worth $591741.6 if you decide to sell it in 2045 to break even. You are paying $248,441.60 in order to own your house at the price of $343,300. Paying more than something is worth to own it is by definition a bad investment.

 

     What we have discussed so far goes against what a long term investment should be. As we stated it should be something that you can sell for considerably more than when you first bought it. A house purchased at $343,300 should be worth considerably more than that in 30 years for it to be a good long term investment. However appreciation of .2% annually would give your house a value of $364,506.64 netting a profit of $21,206.64. But that profit would be wiped out by all the interest due on your loan, the property taxes, home owner's insurance, and home maintenance.

     On the inverse let's look at what would happen if we took that $68,000 down payment and $1,643.72 monthly payment and invested it into a low cost index traded fund that mimmic'd the SP 500. From 1950-2009 the average annual return was 11% adjusted for inflation it was 7.2%, which is what we will use to find out what our new long term investment would yield over the same 30 year period. The principal amount that would be invested is $659,739.20 however the interest we would accumulate amounts to $1,893,866.82 for a combined value of $2,553,606.02. Even if you got taxed at a rate of 20% you would still come out ahead of your housing investment by a long shot with an after tax profit of $2,042,884.82.

     So what does this all mean to you? Well I am for one not telling you to never buy a house. It actually is a good idea to be a home owner but just not if the idea for owning a home is for investment purposes. There are a few things that aren't expressed in dollar signs when you buy and eventually own a home, specifically the pride of having your own piece of land and dwelling where you can have the freedom to do what you like within the confines of laws. It is also usually cheaper if you buy for the long term than rent for the long term, especially since you have an asset at the end of your 30 year mortgage  that can be sold or borrowed against.
     What I am telling you is to find "the perfect house" which is very cliche but it is quite true. An investment that isn't very good sure better make you happy in the long run otherwise you will be kicking yourself in 30 years. That perfect house also won't mean anything when you retire if you don't have any money to retire on, so make sure that you live within your means when purchasing a house otherwise you are going to have to sell that perfect house in the future because you need money to live off of. But with the right research in the area that you will be living you might be able to break even if you ever do decide to sell your house.

 



Listen But Don't Trust: Your Instincts

 

Listen But Don't Trust: Your Instincts

 

     Sometimes we make bad decisions and when we make those decision we are rarely thinking, rather we are using past experiences to determine a future outcome on the spot. Think back to when you were a child for the first time you saw people playing pokemon, you saw them laughing and smiling. You knew that from past experiences that kids laughing and smiling signified people having a good time. Automatically you wanted to spend the next 12 months of allowance from your parents on pokemon cards.

...Flashforward 20-30 years...



    

     "Dude, you have to get a pair of these shoes?!?" said one middle aged dad to another "I don't know man, they look pretty lame." said the other middle aged dad "Not the fanciest but they are like work slippers, I can do anything in them, every other guy I know has a pair." Said the other middle aged
dad that was wearing a pair of shoes called CROCS (NASDAQ: CROX).  The third middle aged dad was standing by eves dropping and heard the name "CROCS" and "everyone is getting them" his wife just so happened to tell him that we should start thinking about investing for retirement. He googled CROCS and found out he could purchase shares in their company in hopes to build a future for his family. With the popularity of CROCS the third dad thought he was making a great buy and snagged CROCS at $27.34 on April 27th of 2007 (a bit over a year after going public).
     Middle aged dad went with his instincts, he knew from past experiences that popular things usually do quite well (Pokemon). In a split second his instincts told him that Crocs would be a great investment. However what that middle aged man didn't know was that it wasn't, or there were just better options out there. What You See Is All There Is (WYSIATI), a term created by Nobel Laureate Daniel Kahneman to explain how the human mind makes decisions. We make decisions based off of only what we know from life all the way up to that point and rarely spend the time to gather further information, this is an Instinctual Decision (gut decision). While instinctual decisions have their place for circumstances like heavy traffic or wet floors (life or death situations), they have no place in investment decisions. Investment decisions have good or bad long term consequences, but to ensure that the majority of them become good consequences you must make an Informed Decision.
     Informed decisions are exactly what they sound like, they contain information, information that you do not yet know of but need to know in order to make the correct decision. To make these decisions you must go in search of the information that will help you come to a conclusion, and not necessarily the one that you want, more so the one that you need.

Sometimes fads aren't just fads

     While he made the right decision in putting money into the stock market he made the wrong decision in which stock he chose. He based his decision off of what he knew at the time, the shoes were comfortable and everyone was getting them, he also knew that popular things usually do well so he bought into the stock. But he didn't know alot of things about Crocs as a company and it's industry of fashion retail. He didn't know that it was a fad that was growing at amazing rates but would eventually fall very hard. With a little bit of digging he would have found that fashion retail is a very poor industry to invest in when compared to others, and that CROCS was a poor company to invest in when compaired to other fashion retail companies.
     The stock market is a good neighborhood to invest in, but CROCS is not a good house to entrust your future in, there are literally about 4000 other actively traded companies that you can choose from. While you should not ignore these instinctual decisions you rather should question them. Questioning them will bring about new factual evidence that will either refute or defend your first gut feeling. And if you end up being correct (and bought the stock) then you can rejoice in earnings and almost more importantly a correct decision. But whatever you do, do your own research before you decide, because what you see (or have seen) is sometimes not all there is.



Credit: The Middle Class's Welfare

Credit: The Middle Class's Welfare

     Credit has turned into something much different than it used to be. Credit combined with modern day consumerism has created a trap for the average citizen in which they can fall into overwhelming debt. Do not be confused by "good" interest rates, reward & cash back credit cards, or any other gimmicks to get you to own one. If people could live within their means then credit would not be such an issue for so many.
     Credit started a long time ago presumably when one person did not have enough of their product to exchange for someone else's product that both parties were interested in possessing. Thankfully the party that had enough goods, the creditor was willing to give up their goods to the party with less, or the debtor, because they believed that the other party would give the agreed amount of goods back at a later date. This was more than likely done between people that knew each other in small communities. Their knowledge of each other would give them assurance that the debtor was going to pay their part of the deal and more than likely at little to no interest.  These deals were also largely based off of buying or trading goods that were needed to stay alive.

     In the 1920's the U.S. citizen had access to all numerous manufactured goods but no way to pay for them in whole. This is where today's definition of credit begins. Modern day credit was born when a diner patron couldn't pay for his meal because he forgot his wallet and created credit cards to avoid embarassment again, eventually called The Dinners Club Card.
     Flash forward almost a seven decades and it is 2015 a midst the height (every year is the height that's how it works) of consumerism. Credit has morphed into something extraordinary, very profitable for a few, and potentially suffocating for others. There are many types of credit now, but we will focus on one, consumer credit. Consumer credit materializes itself in many forms, the most popular being credit cards (you can buy almost anything on this), auto loans, and mortgages. Consumer Credit paired with modern day consumerism has allowed millions of families and individuals to buy things that they really need (definition of needed things has changed over centuries) such as adequate housing, transportation, and household appliances. In contrast it has also allowed millions of families and individuals the opportunity to buy things that they really don't "need" at quite a cost.
     Credit is now a very one sided deal what once started as an agreement between friends or family members has shifted into an agreement between corporations and individuals with very little human interaction. Creditors make money off of consumers by loaning out money in a lump sum that will purchase a need or want of a consumer and eventually be paid back in more than full based on the interest rate the creditor will give you.  While many Americans will be able to pay back their debts in full many (surprisingly a lot) also will not be able to, an article published in U.S.A. Today outlined this. One third of all Americans have debt that is negligent meaning they are not paying their bills on time. Those debts have been moved to collection agencies that will take a debtors assets in order to pay off the debts, meaning you would lose the goods (or other assets) you took a loan out for and not get back any money you have already paid toward the debt. However the majority of people that are negligent aren't negligent on mortgage debt, which is generally regarded as good debt.


Taken from myFICO.com

      Credit has been so ingrained into our society that it is almost impossible to live life without ever taking out a loan or owning a credit card. This has led to a way to evaluate someone's ability to repay credit, behold the almighty Credit Score. It allows corporations to evaluate you as a customer, the higher the score the less risk you are of not repaying your debt/credit. You get better credit by paying all your bills on time credit, loan, rent, utilities, etc.      Should I take out loans or own a credit card even though they are "bad"? The short answer is Yes, but the longer more painful answer is no. Most people don't have the funds or the patience to pay for everything with cash which is why loans and credit are so popular today. It is also extremely hard to buy a house without a good credit score or any credit score at all, almost forcing you to build credit through loans or a credit card in order to have a score to get a mortgage. If you are unwilling to go against the norm you have to make the most out of this horrible situation. First thing is first, stop buying things you don't need, luxury is good for personnel morale but don't make it a habit. Never, I repeat NEVER carry a balance (money left unpaid on your credit card month to month) on your credit card. If you carry a balance on your credit card you will soon figure out why 1/3 of Americans can't pay their bills because of the ungodly interest rates that they hold, usually around 15%. Build up a savings of about 3-6 months of your monthly expenses in order to pay for emergency bills like car repairs or even worse, income if you lose your job.
     If you want to go the rebellious route you must be an extremely financial savvy person to buy everything in cash. This requires you to build a huge savings for surprise purchases like housing or vehicle repair or for planned things like appliances, cars, and houses. To prevent yourself from waiting till you die to buy anything, living within your means will help as well. Just ask yourself if that dryer that folds your clothes, car the drives itself, or house that has one too many bedrooms is worth it. It might be perceived as a harder life but you will own your house, car, appliance outright the moment you buy it. There is nothing better than not having a monthly debt to pay off and you can brag that you paid for your possessions in cash, most people can't do that. But don't worry with a spot on budget and patience you can accomplish all of these things.


From creditcards.com

     The concept of buying things on credit has morphed from a gesture of good will to an opportunity to make money off of someone. Reallistically it is unlikely that you will be able to live your life to a standard you deem liveable without taking on any debt, most people that own credit cards have multiple ones. The best course of action is to live without it until you truly need it to buy a house or car, pay for school, or pay any emergency bills (that your savings can't cover). And lastly live within your means and try your best to not take out a loan for frivolous things like self driving cars. Trust me, accomplishing the "American Dream" will feel much better if you do it without the "middle class welfare" that we all know too well.

     

     

     

Fiber v. Copper: Investing

Fiber v. Copper: Investing

     Upstream: The first way to get into an investment in fiber optics is through the actual producers of the cables. You should look into the well diversified company Corning Inc. (GLW). While corning is most famous for Gorilla Glass it is also the inventor of Optical Fiber. Because of it's diversification it is well poised to take advantage of any shift from copper cabling throughout networking and has made advancements in making it easier to do so for those that want to. If you question this just check out there presentation on why they will be the best.
     Financially Corning is doing just fine and we will use The Steadfast Investment Strategy to evaluate it:

1. P/E: 13.09 = 2
2. DIV: 2.1% = 4
3. DIV Inc: 8 yrs = 4
4. DIV Payout Ratio: 31.6 = 2
5. Net Profit Margin: 25.45% = 1
6. Net Profit Margin Inc (4 yrs): -10% = 5
7. Interest Coverage Ratio: 30.01 = 1
8. 5 year Revenue Growth: 46.5% = 1
9. CEO Score: 4 of 5 = 2
10. Industry Growth Potential: 1
11. Future Earnings Potential: 2

     Corning Inc comes out with a total score of 2.27 that gives it rating between Buy and Hold. The only thing that concerns me is their decrease in profit margin of 4 years. While this sometimes may be due to business improving practices it is never a bad practice to be concerned about such an adverse statistic. And as far as their dividend goes they are still maturing in their shareholder return strategy but have increased their dividend 4 times in the last 8 years. They also announced a $1.5 billion share buyback program in December of 2014. Corning looks like a pretty good investment right now but if you are nervous about it's future you may want to wait for a better price. 

     Midstream: TE Connectivity is the middle man between the manufacturer of fiber optic networking and copper networking and the service provider. However they are actually a combination of both upstream and midstream. Their products range from sensors that collect data, cabling that transfers the data, to building the networks that manage the data. They even make those sensors in the ground at traffic lights that know when there is a car present. As per TE Connectivity they operate in three segments: Transportation, Industrial, and Communication with their largest being transportation. The fact they are well diversified in the realm of connectivity will give them the ability, if done correctly, to take advantage of a larger demand for fiber optic networks.

     Financially TE Connectivity earns a grade 2.54 using The Steadfast Investment Strategy and is detailed below with the following financials:    

1. P/E: 17.58= 3
2. DIV: 1.69%= 5
3. DIV Inc: 8= 4
4. DIV Payout Ratio: 31.7= 2 
5. Net Profit Margin: 12.86%= 2
6. Net Profit Margin Inc (4 yrs): 3.77%= 2 
7. Interest Coverage Ratio: 13.96= 1
8. 5 year Revenue Growth: 15.25%= 1
9. CEO Score: 2 of 5= 4
10. Industry Growth Potential: Strong= 2 
11. Future Earnings Potential: Strong= 2

     A grade of 2.54 puts TE Connectivity at the lower end of being between a Buy and a Hold. While most of their financials are representative of a effectively functioning business they have some room for improvement in several areas, specifically CEO Score and Dividend. At a brief glance CEO Thomas J. Lynch may not embody the characteristics of a leader that constructs a company that changes it's industry. Rather it seems he is a leader that adapts to the changes in the industry. On the bright side their poor dividend score is due to a brief history as a dividend paying company and will improve in the future, they also returned $1 Billion to shareholders in 2014. On the upside they have an amazing opportunity in front of them in the Fiber vs. Copper battle and their Transportation segment. I am slightly concerned about the valuation of the company right now so waiting for a better entry price might be a good strategy.

     Downstream: Verizon Communications Inc. (VZ) is the end supplier of the data that is transported over fiber, copper cabling, and through the air in it's wireless network. Verizon offers any type of telecommunication service from land line voice to machine to machine communication for individual consumers and businesses alike. Verizon has identified where the future is going and is adapting appropriately and early with the launch of Fios in 2005 (fiber to the home FTTH), the first 4G LTE network in 2010, and is attempting an A La Carte cable package. But the biggest positive is this excerpt taken from their 2014 annual report.

"A look at the communications marketplace in 2014 shows Verizon sitting at the sweet spot of the trends driving growth in our industry. Almost one in every three people on Earth has a mobile broadband subscription—that’s 2.3 billion people, double the penetration rate of just three years ago."

With Verizon offering the most popular operating system in the world, Android, holding a market share of  roughly 34% of wireless connections in 2014, and offering all of the most popular phones Verizon stands to take full advantage of the continued growth in telecommunications. Finally I had a personal experience where I received a free upgrade on a broken phone and amazing customer service from a human over the phone that ended in a reduction of $20 on our phone bill because the agent realized we were being over charged. While I can't speak for everyone else's experiences with Verizon mine have been pleasant as of late.

     Now let's take a look at their financials by using The Steadfast Investment Strategy:

1. P/E: 21.09= 4
2. DIV: 4.36%= 3
3. DIV Inc: 15 yr= 2
4. DIV Payout Ratio: 57.4= 1
5. Net Profit Margin: 9.41%= 3
6. Net Profit Margin Inc (4 yrs): 5.39%
7. Int Coverage Ratio: 3.98= 1
8. 5 year Revenue Growth: 19.25%= 1
9. CEO Score: 4 of 5= 2
10. Industry Growth Potential: 1
11. Future Earnings Potential: 2

     A grade of 1.9 gives Verizon a slightly above buy rating, and is the first Public Company to do so being evaluated by The Steadfast Investor Strategy. Their financials are quite strong with revenue growth and dividend statistics leading the way. However Verizon is slightly overvalued with a P/E of 21.09. While their interest coverage ratio does score highly it has been one of the lowest I have evaluated yet and with +100 billion of debt on their books this makes me slightly nervous, regardless of it's use in acquiring the full stake in Verizon Wireless.  However I think the move to acquire the entirety of Verizon Wireless from Vodafone for $130 billion will eventually pay off especially with the massive growth in mobile users. Here's a look at Verizon's CEO's (Lowell Mcadams) outlook on the telecommunications world and the digital economy. Verizon again is a company that you might want to wait for a better entrance price.

     Regardless of if you invest in any of these companies the massive amount of competition being created in the telecommunications industry and digital economy will only create an environment that will benefit the entire world. Hopefully this competition will result in companies offering faster internet speeds through the extensive use of FTTH services. And don't be discouraged by waiting for a better price to enter into any position in any company. If they company to YOU is worth the price you are paying for it then you shouldn't hesitate. Just remember we are in this for the long run and please don't take my word for it...do your own research. 

     

Fiber v. Copper

Fiber v. Copper: 

How will our networks support our data

   
     Think of our global data network just like our water infrastructure. There are places where we store our data just like we store our water at reservoirs. The water coming directly out of the reservoirs is transported in huge pipes because it needs to supply an increasing population just as data does. From the huge pipes it goes into smaller pipes located in the cities and eventually into the small plumbing in the houses and businesses that supply water to the end users just like data does. The only difference is that the end user data usage is changing quickly to ever increasing levels. This means that the current infrastructure at the end user level won't be able to support massive amounts of data that we want and need.
   
     Fiber optic network cables have been around for a very long time. It was first developed in 1970 by Corning Glass Works a precursor to Corning Inc. the famous Gorilla Glass producer. But it was not widely used until about 1990 and is now the backbone of data transfer over the world just like those huge pipes that transfer our water.
     Copper cabling is not going anywhere, it will be here for the foreseeable future because it is the only way to transport electricity. But for networking purposes we are going to need something that will be able to handle massive amounts of data to the end user.

     Copper Cabling can hold up to 10 gigabit ethernet (at short distances) but that won't cut it in the future for data transfer because of one thing, the attenuation or loss of strength that occurs during transmission of data. Copper can support ever increasing amounts of data but when that occurs you shorten the distance that you can transport that signal strength. This requires highly engineered cables that may be to expensive for the customer and need to be upgraded in the future to hold larger data demands.
     Fiber however can transmit massive quantities of data, over longer distances, with lighter & thinner cables. This allows for use of existing framework of networking like the cabling ducts in building and pipelines underground. The only negative to fiber is that some networks may need to be completely overhauled.

Copper vs. Fiber Networking

     There are some very attractive long term savings for switching to fiber networks. The number one advantage is the overall longevity of the fiber network. The fiber network will be able to hold data loads well into the future because of it's immense capacity. Data requirements will catch up to copper networks much faster meaning an overhaul would be needed sooner. Fiber networks are also more durable than copper ones and will require less replacement of cables.
     Fiber networks require much less energy to operate. Copper networks require electricity to transmit and cool networks because of the heat created by the electricity flowing through the network. Because signals are transmitted with light on fiber networks they require much less electricity to transmit and almost none to cool. This also means there will be very little risk of a fiber network being a fire hazard for your building. Overall reduction of electrical usage will make your building much more environmentally friendly and less costly to operate.

Advantages of Fiber

     Copper networks need to be engineered carefully because of the electro magnetic interference they create. This interference can ruin the signals of other surrounding wires and can also be monitored by outside sources that you may not want monitoring your network. Fiber optic cables on the other hand do  not emit electro magnetic fields because there is no electricity flowing through them. This means there is no interference with other cables and the only way to monitor the data would be to physically
tap into the connection making it's physical security very easy to control.

     The advantages of fiber networks will materialize when the Internet of Things comes to full fruition. The amount of data being transferred when everything is connected will be chocked by copper networks inability to handle it's demands. Company's that switch their networks to fiber will not only be saving money in the long run do to less maintenance, upgrades, and electrical usage but can reap the benefits of having a business connected to the Internet of Things.
   


     

     

Five Basic Financial Tips

The Top Five: 

A Few Basics For Everyone

     In order of importance here are the things you need to focus on to insure you can secure your own future: 

1. Get an education 
2. Pay off your debt quickly
3. Get insurance 
4. Save for emergencies
5. Invest your money as soon as possible

     

     Getting an education is one of the single most important things anyone can do in their life to secure their future. It is as easy as looking at this graph I found in the "College Pays 2013" 

When you acheive a higher education you are more likely to earn more money. The median income of a person with a Bachelor's Degree is more than 60% over that of a person that only received a high school diploma. This graph doesn't show you that you are also more likely to have health insurance, pension plans, lead healthier active lifestyles, and yes are more likely to have a job. 

     But college costs way too much, can't I just get a decent job right out of high school and earn money while college kids are studying? Yes you could but as the study says the average college graduate will earn enough by age 36 to compensate for the four years they were out of the workforce and the expenses of tuition & fees. To top it off the gap between high school diploma and bachelor's degree earners widens with age giving more of a long term incentive to obtain a higher education. 

     Paying off your debt comes in at a close second in the realm of intelligent financial decisions. First, avoid debt at all costs! I can't stress this enough because debt comes with interest and that means you are actually paying more for the money you borrowed. For example, you buy a house worth $200,000 at a 3.7% interest rate with a 30  year term. If you pay off your house in that 30 year period and pay your exact amount monthly of $920.57 you will have paid $331,405.20 for that original $200,000. I am not saying you shouldn't take out mortgages, credit cards, or student loans. What I am saying is you should pay for the things you want in cash if you can, if not then Pay off your debt as quickly as possible!
     This brings me into the second part of this debt portion. Focus all of your financial ability on paying off your loan as soon as possible without neglecting other necessary things. The sooner you pay off loans the less money you are losing. Take a look at that loan again from the last paragraph, same principal (original money borrowed),  same interest rate, same term, same minimum payments. But you decide to pay more than the minimum by $300, which is called pre-paying a loan. If for the rest of the life of the loan you pay $1,220.57 you will save $52,425.12 and pay the loan off almost 11 years early. While this is a bit of an extreme case it applies to all types of debt and in special cases like credit cards you can get away with 0% if you pay off your monthly balance.

     The worst part of insurance is that it is usually quite expensive and you don't get much out of it, a part from housing and loans it will probably be your third largest expense overall (vehicle, property, health, etc.). One common example is insuring a vehicle. In 2015 it cost on average $1,403 to insure one of the most popular vehicles, the F-150. That coverage gave you $100,000 single injury, $300,000 multiple injury, and $50,000 property damage.But some may decide insurance is too expensive and you would rather save the money. If you don't get pulled over or get in any accidents you will save money. If you get pulled over you face a list of legal actions possibly including losing your licence (could lead to losing your job), registration, traffic tickets, and other fines. If you get in an accident you may possibly become liable for injuries and property damage that occurred in the accident. Check out these statistics from Rocky Mountain Insurance Information Association:

"In 2013, the average auto liability claim for property damage was $3,231; the average auto liability claim for bodily injury was $15,443. In 2013, the average collision claim was $3,144; the average comprehensive claim was $1,621"

     While the average amount of coverage people buy may seem outrageous it isn't when you realize what might happen in a serious accident that was caused by you. If you cause a crash in which a vehicle was totaled, say that vehicle was a 2015 Ford F-150 it would cost you almost $35,000 if you weren't insured to buy them a new vehicle. If that person was seriously injured say a fracture in their lower body you would be liable from almost $6,000 (single) to almost $40,000 (multiple fractures). If you don't have cash to cover that they will come after your assets like cars, house, or any valuables.
     This information is just for one car in one accident! What if you are the sole cause for multiple cars being totaled? That would equal your finances being totaled, that is if you were uninsured. Bottom line, get insured, and not just automotive, purchase health, dental, vision, property, etc. as well.

     You can usually buy insurance for just about anything, but sometimes it just isn't cost effective to do so. That is why you save for emergencies. Think of it as paying yourself for an insurance policy. These emergencies include things like home repairs not caused by natural disasters (average of 1-4% of homes value per year), vehicle repairs not caused by accidents (average of almost $400), and the loss of a job to cover monthly expenses while job searching. The average emergency savings you should have on hand at one time is 3-6 months of your current monthly income.

Average Vehicle Repair Cost

     The last thing I would like to talk about is investing your money. This is a pretty scary decision for most since there is risk involved in it, the risk of losing your money that you invested. This is especially so for young people that have entered the work force and don't understand the concept of saving for retirement. For those that don't really understand it simply look at the following example. This graph will

show how much money can be amassed  if you start contributing the maximum of $5,500 (about $458 montly) to an individual retirement account at the age of 22 and didn't take it out until the age of 65.

I would like to point out that the average mutual fund will return about 8-12% annually. This will give you according to the graph anywhere from $1.8 million to well over $3.2 million. This however is very dependent on the stock market and the risk you are willing to accept in your investment portfolio.
     The next question would be, will that money last me through my retirement? This is very dependent upon your lifestyle, however either of those numbers should be more than enough to live comfortably baring financial disaster. Here is why, when you finally hit your retirement your investment portfolio will be converted into something that is much more risk averse and easily liquidated for income purposes. These types of portfolios only give returns of about 3-5%. While this return rate is low it serves the purpose of not having to withdraw any money from the principal (money you started with at retirement) and living off of the interest you will receive. To get a better picture of how your $1.8-$+3.2 million will serve you in retirement take a look at this next graph. Note that this graph is based off of retiring with 30 years left to live in life at an annual rate of return of 3%. The bottom axis will tell you what your monthly income would be based off of the the amount of money you have saved at retirement.

     Right off the bat you might notice that our minimum return ($1.8 million) that we had figured would bring us a monthly income of $8000 ($96000 annual) in retirement. Our top range of $3.2 million which isn't even on our retirement graph would last us 32 years at a monthly income of $13000 ($156000 annual). While these incomes are all fine and dandy I would not recommend drawing the maximum that you can while being able to live 30 years on the money. This will give you a buffer for financial disasters and if all goes well give your children a nice inheritance.

     It all starts with an education, paying off that education as quickly as possible, purchasing insurance for the things you buy in life, saving for the uninsured things, and investing in your retirement. Balancing the top five is difficult at times and they are not the only things in life that will matter financially, however if you follow them to the best of your abilities you should end up in a secure position once you would like to retire.