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  • The median age in the U.S. is 36.8
  • The median income in the U.S. is $51,939
  • The average 401k match is $1 for $1 up to 6%

A 36.8 year old investing 10% of their $51,939 income with a $3,116.34 match:
With just average stock market returns of 10% would have $1,114,479.31 by retirement.

Join 15,000+ other readers who have learned how anyone, even beginners, can easily make this desire a reality. Download the free ebook: 7 Steps to Understanding the Stock Market.

How to Find and Invest in Tax Free Municipal Bonds

“I’m proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.”

Arthur Godfrey

No one likes to pay taxes, imagine an investment that allows you to avoid paying taxes on your returns, legally. Is there such a thing?

Yes, there is, and they are called municipal bonds.

In our continuing series on bonds, this week’s adventure is going to explore the world of municipal bonds.

Funny fact, but that quote above actually appeared on the home page of the IRS at one point! I kid you not, who says they have no sense of humor.

Taxes aside, these bonds can be a great source of income and fantastic investments in their own right. We will discuss in this post the formula to determine whether a tax-free muni would mean greater take-home than a taxable bond.

After all, that is what this is all about, finding the best investment for us all.

In this post, we will learn:

  • What a municipal bond is.
  • What kind of rates they pay.
  • The different kinds of municipal bonds
  • How to determine the best tax-free rate for us.
  • How to Buy a Muni
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Examples of Big Stock Market Fears that Never Played Out

In a recent episode of the Investing for Beginners Podcast, Andrew and Dave talk about some various stock market fears in an episode that is titled, ‘Investors Don’t Know Anything (About the Future).”  I mean, isn’t that just a hilarious and truthful title?

The truth is that none of us know anything about what is going to happen in the future.  It’s all just a giant crapshoot.

Sure, we will do as good of a job as we can to understand how things are going to look in the future, but at the end of the day, all that we’re really doing is taking a look at things that have happened in the past, trying to think of likely scenarios of the future and then applying them to our potential investments and our portfolio strategy. 

Nobody knows when the market is going to crash or when the start of the bull market is about to occur.  Nobody knows what sort of natural disaster might occur and cause oil to spike or what global event might make stocks crash, such as the recent trade wars and the coronavirus.  Hell, I can’t even perfectly predict how a stock is going to perform the day AFTER I know their earnings.  I can’t remember the exact stock at this point, but it recently beat earnings and revenues and the prices dropped the next day.  I was dumbfounded.

Point is – this is an unpredictable world.  And the most unpredictable thing in this world is the people living on it.

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Capital Gains Tax Calculator for Relative Value Investing

Turnover of investment holdings is a natural occurrence in any portfolio that triggers realized capital gains and taxes, which can eat into a portfolio’s return. The larger the profits from the investment, the larger the capital gains tax that needs to be paid.

The turnover rate is of particular importance when considering a relative value investing approach where similar assets are constantly being compared and substituted for whichever is cheaper.

By considering capital gains taxes and EVALUATING THE NEXT INVESTMENT IN TERMS OF AFTER-TAX DOLLARS that are available, investors will be reducing the turnover rate of the portfolio by creating a higher threshold to sell one investment for the next and in doing so, minimizing taxes. Imagine Warren Buffett’s case with Coke where the share price has increased around 1,750% since Berkshire’s initial investment. The capital gains tax implications would be huge when considering relative value between investment alternatives.

As the famous quote from Benjamin Franklin goes,

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes”

While investors cannot avoid paying taxes, we can certainly try to delay paying them. This article is a follow-up to our Should I Lock in Profits or Let My Stock Ride? – 3 Important Considerations. Here we will go into more details on one of those considerations which is capital gains tax implications.

The below Excel file can be used to aid investors in their analysis of at what valuation would they would be indifferent between selling their shares for a new investment or continuing to hold on to the current investment. For our readers in both the United States and Canada, we have included two separate tabs to take into account the tax difference on capital gains from each country.  

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Economic Goodwill vs Accounting Goodwill: What Warren Buffett Says

The next lesson that Buffett teaches us in his book, ‘The Essays of Warren Buffett,’ is the difference between economic goodwill and accounting goodwill.  You might vaguely remember these terms from a previous accounting class or maybe they’re brand new concepts to you, but either way, let’s first define them so that we can all operate under the same definitions for this post!

Economic goodwill is the subjective value of the intangible advantages a company has over its competitors such as an excellent reputation, strategic location, business connections and represented in its higher market value (over book value) if the company were sold.

An example that Buffett goes into is that in 1972, a company called Blue Chip Stamps bought See’s for $25 million.  The company only had $8 million in tangible net assets, so the $17 million variance was recorded as a goodwill charge and was charged to the company in an annual charge of $425,000 to Blue Chip Stamps for 40 years to amortize it ($425,000*40 years = $17 million).

Now, since Berkshire Hathaway owned 60% of Blue Chip Stamps, that meant that they theoretically also owned 60% of See’s.  So, Berkshire was also paying those amortization amounts but at 60%, so they owed $10.2 million over the 40-year period, but that meant that they also were being charge 60% of the $425,000, so an annual charge of $255,000.

11 years later, after Berkshire had paid down about $2.8 million, meaning they still owed ~ $7.4 million, they purchased the remaining 40% of See’s. 

Berkshire paid $51.7 million over the net identifiable assets so they were assigned economic goodwill of $28.4 million, resulting in an amortization charge of $1 million for the next 28 years and then $700,000 for the 28 years after that.

In summary, because of the timing of this, the assets of See’s were valued very differently and were now on a completely different amortization timeframe and on a different value.

The frustration on the part of Buffett is that while See’s last year earned $13 million in net income on $20 million of net tangible assets, the accounting goodwill continued to decrease annually but the economic goodwill increased.

Buffett really attributes this this to inflation, stating that “true economic Goodwill tends to rise in nominal value proportionally with inflation.”

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Is Financial Autonomy Possible for the Average Person?

So, you’ve landed on this blog because you’re trying to find out if it’s possible for the average person to ever achieve financial autonomy and do whatever they want with their money.  Well, I have some good news and some bad news for you.  First, let’s start with the bad:

Americans have a lot of debt.  And I mean A LOT of debt. Check out this data from debt.org:

  • Under 35: $67,400
  • 35–44: $133,100
  • 45–54: $134,600
  • 55–64: $108,300
  • 65–74: $66,000
  • 75 and up: $34,500

Now, at the same time that these people have all of this debt, Synchrony Bank says that they also don’t really have much of a retirement savings built up at all:

  • Americans in their 20s: $16,000
  • Americans in their 30s: $45,000
  • Americans in their 40s: $63,000
  • Americans in their 50s: $117,000
  • Americans in their 60s: $172,000

So, hypothetically speaking, the “average” 45-year-old has $63,000 saved for retirement and they’ have more than twice that racked up in debt.  So, can the average person really become financially autonomous?

No.  The average person cannot become free and completely autonomous.  But, can an average person change their mindset completely and break out of this endless cycle of debt that they’re in and try to become financially autonomous? 



So, how do you do it?  Well, it’s really a fairly simple process to follow, but don’t let that trick you into thinking that the actual process of getting there will be simple…because it won’t.  It’s going to be hard.  Very hard.  But you have to be motivated and focused on your goal. If you’re not, you’re going to fail. But if you can stay focused and dedicated then I have great news – you’re poised for success!

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IFB138: How The News Can Affect Your Investments

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave (00:36):

All right folks, welcome to Investing for Beginners podcast. This is episode 130, tonight, Andrew and I are going to talk a little a bit about how the news can impact the market. Lately, there have been some bigger news things that have hit the news and have had a big impact on the market lately and Andrew and I thought that this would be kind of a timely subject to talk about. So we thought we would chat a little bit about this. So Indra and I were talking off-air about some of the things that are going on in the world and whatnot. And we thought we would share our thoughts on those and how they can impact the market. And you can see some of the things that are going on right now, which are very, very fresh in everybody’s mind. You know, we’re recording right now in February of 2020 and so some of the big things that are talked about in the news recently are Coronavirus has been a big thing.

Dave (01:31):

The trade Wars and also with the Tesla stock, a big shock here in the last week or so since our earnings came out. Those are some big items that Andrew and I thought we could talk a little bit about. So why don’t we talk a little bit about Tesla first, how they have some fun with that. That’s always a fun conversation for us. Our favorite, right? Yeah, exactly. I’d like to hear what you were talking about before we hit the record button because you’re, I mean, we should have been recording then and there you got the fire that yeah, it was, it was pretty interesting. So for those of you that have been under hiding under a rock recently Tesla put out their wait as to quarterly earnings, which came out, I believe it was towards the end of January. It might’ve been January 29th or 30th.

Dave (02:23):

I can’t remember the specific day. But anyway for them they had a good earnings report. They showed some free cashflow for change. They had revenue increased. It has been increasing over the last three or four quarters. So good for them. They are selling more cars, which is awesome. But I was kind of looking through the earth through the financials before we came on the air. And I was talking to Andrew A. Little bit about it. So some things I wanted to kind of point out. So number one, their earnings per share for that quarter was $.056. Whole cents, wait for it. 56 whole cents. Yeah, huge numbers. Right? And so for a company that has orange or marker cap, then gosh, I can’t think of anybody else for combined. Yeah, exactly there. Thank you. Very good point. So obviously 56 cents per share, it’s a joke.

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Corporate Bond Trading for Beginners: How to Buy Bonds Online

Ben Graham, the father of value investing and the creator of security analysis as we know, was a huge proponent of investing in bonds. In his seminal book, “The Intelligent Investor,” he recommends allocating anywhere from 25% to 75% of your portfolio to bonds.

Graham recommended this allocation as a way of protecting your capital, basing that decision on market conditions at any one time.

Trading corporate bonds can be a great way to increase your margin of safety and protect your capital. Unfortunately, this is an area that is not explored much and is largely ignored by the general investing public.

The reasons for not investing in bonds are? Pretty easy. It comes down to a lack of knowledge and unfamiliarity with corporate bonds and how they work.

My goal with our continuing series about bonds is to help enlighten all of us about bonds and how they could help us.

Let’s talk about corporate bonds, shall we? They are a bit scarier than treasury bonds that we discussed in the last post. Corporate bonds have a bit more moving parts and can be a bit trickier to analyze.

But that is why I am here, to try and demystify corporate bond trading for you. In today’s post, we will discuss:

  • What are Corporate Bonds
  • How to Analyze Bonds
  • What are Bond Ratings
  • Different Flavors of Bonds: Investment grade and High-Yield
  • Risks of Trading Corporate Bonds

All right, let’s get to it.

What are Corporate Bonds?

According to Investopedia:

A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company’s physical assets may be used as collateral for bonds.”

Besides using issuing shares to raise money, bank loans, or lines of credit, issuing bonds is also another way for companies to raise capital for any project or initiative that they may be working towards to increase its value.

Corporate bonds backing is usually based on the company’s ability to pay back its debt. They can also use their physical assets as well, but think of the strength of its balance sheet as an indicator of the company’s ability to pay back its debt.

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My Bag Holder Experience in Tesla — Seeing -55% Disappear in 25 Minutes

A bag holder is a stock market sucker. This is an investor who buys a stock, hoping it goes higher, but then gets caught “holding the bag” as the stock eventually crashes.

For some reason, we investors like to believe we’re never the bag holder of a stock, and never will be.

I’m ashamed to admit this– but today, I was the bag holder. I don’t even know how it happened… all I can blame is sudden greed. And Tesla (TSLA), with its parabolic rise, was the perfect stock to do it with.

Note: This is a special contribution from someone who wanted to remain anonymous for now. It’s a great example of what NOT to do.

man losing money from bag

If you’ve ever seen the movie with Mark Wahlberg called The Gambler… you see this greed in action. In fact, the biggest irony is, I just watched this movie for the first time over the weekend.

And I was disgusted with Wahlberg’s character, as we had to watch him win tens of thousands of dollars, only to continue gambling it, with bigger and bigger bets, until he inevitably loses it all (multiple times, I might add). I cringed during the movie.

It was hard to watch someone get so consumed by greed.

Wahlberg did a good job with the role– you could see the character absolutely go into a daze, a craze, a trance… consumed by something un-human.  I’ve also witnessed this gambling trance consume my friend at a casino– like it sucked the money right out of him through the ether. Both of these men started a winner, and came out the ultimate bag holder. 

I’d like to provide you with some context before I dive in to this embarrassing confession.

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Building a Dividend Growth Portfolio with Tomorrow’s Dividend Aristocrats

If you’ve ever listened to Andrew on his podcast then you know that Andrew is the self-proclaimed DRIP King!  You might know this but always wonder why…well, let me show you the true power of having a great performing dividend growth portfolio.

In the past I have written about the importance of Dividend Reinvestment Plan, or DRIP which gives you a good 101 entry into what exactly DRIP is and the importance behind it.

Essentially, DRIP is when you take the dividends that you’ve received and then they’re automatically reinvested right back into that same stock instead of you simply just taking the cash.

In my previous blog, I walk through an example how if you were to invest $2000, and DRIP your investments, you could end up with over $235,000 in 50 years…from just $2000!  But, if you didn’t DRIP your investments, and instead you just banked that dividend and held onto it – your value would be just under $160,000.  Still an amazing investment, but a solid $75,000 less than the DRIP option.

So – you’ve decided that you want to start to create your own DRIP portfolio – where do you start?  Well, my #1 piece of advice is to make sure you stay within your circle of confidence.  Only invest in companies that you know, or are interested in getting to know, especially when you’re first getting started. 

Personally, I think Dividend Aristocrats are overrated…I like to find the future Dividend Aristocrats!  Instead of finding that company that has already made its way to that prestigious Dividend Aristocrat title, start smaller. 

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How to Earn Interest on Your Cash Allocation with Low-Risk Treasuries

When large investors have trouble finding great companies to buy or invest in, they’ll see an increasing cash allocation in their portfolio. So what do they do? Most invest in treasuries, and investors can do this with the cash in their portfolios too.

Did you know who is one of the largest players in the treasury market is? Surprise! It is Warren Buffett! Bet you would have never guessed that! I know I was a little shocked, but it makes sense because he has been saying for years that he has had trouble finding companies to either buy or invest in because of the size necessary to move the needle. So he uses Treasuries as a liquid place to store his money until he finds an investment he likes.

Many very famous investors use treasuries as a way to have their cash earn a few bucks while keeping it fairly liquid in case there is an opportunity that presents itself.

Today, we are going to discuss in-depth Treasuries ranging from:

  • Bonds, bills and notes
  • What they are
  • Are they worth investing in?
  • How to purchase them
  • Discussing ladders, what they are, and how to use them in a cash allocation strategy to stay liquid while still earning interest.

Let’s take a moment and look at the size of the bond market. Currently, as of Jan 13, 2020, the bond market is valued at $42.8 trillion, of which treasuries account for $15.6T, with corporate bonds valued at $9.2T, and mortgage-backed securities at $9.7T.

Compare this to the nearly $20 trillion for the domestic stock market, and you get a picture of how big this market is and how much of an impact it can have on our economy and the world.  

Based on the size of the market and the possible benefits you could reap from treasuries, I think it bears learning a bit more about this market.

So, let’s dive in.

What are Treasuries?

Treasuries, for those not familiar with them, are government debt. Pretty simple, huh?

Ok, let’s dive a little deeper.

According to Investopedia:

“U.S. Treasury securities—such as bills, notes, and bonds—are debt obligations of the U.S. government. When you buy a U.S. Treasury security, you are lending money to the federal government for a specified period.

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