Rebalancing Diversification for the Youth

What level of diversification for the youth? This is an opportunity for the readers to discuss what is the optimal portfolio for a young person just out of college.

What Is Diversification?

Picture from posterize
Diversification in finance means to reduce risk in a portfolio of assets through the increase in the variety of assets. Essentially by increasing the variety of assets you reduce the chances of losing capital. This is because if one particular asset loses money, you can mitigate your loses via gains in another asset class. If instead you only had one asset you might find that the asset goes down in value and that means all your wealth has gone down in value. Clearly the trade-off from having diversification is that your gains may be more moderate, however your loses are also more moderate.


How Much Diversification does my portfolio need?

As already stated, you don't want too much diversification otherwise you lose any possible chances of making large gains. Furthermore every time you buy an asset you will have to pay charges such as transaction costs and taxes. Clearly investing heavily in one asset gives you economies of scale that allows you to reduce your average transaction cost.
So how much diversification is the right amount?
Well the answer depends on your attitude to risk. If you consider yourself a risk averse investor you need to be investing in multiple asset classes: Stocks, businesses, property (commercial and residential), commodities, bonds, structured products, foreign exchange and cash. However if you are more of a risk lover choose three or four assets to invest in and concentrate heavily.
Furthermore you should have diversification within asset classes. For example you should have multiple shares. Buffett suggests 8 to 12 to concentrate on.

Young Diversification

My personal belief is that whilst you are young (just out of college) investors should be looking to invest in the following proportions:

  • 50% in structured products (linked to house prices, bonds and global stock-markets)
  • 30% in individual stocks
  • 20% in cash

The reasoning is as follows:
Most people at this age don't have enough money to properly invest in things like commodities or property. Furthermore, whilst time is still on a young person's side there is still a small need for diversification. The structured product allows for some natural diversification, individual stocks allow for some long term investment gains, and the cash allows for emergencies.
These young investors should be willing to invest in these sorts of products for at least 5 years. Therefore this cannot be money that they will need any time soon.

Readers, how would you rebalance this young person's portfolio and why?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

A Beginner's Guide to Making Money Online

Today's article is a guest post from Daniel Kidd at BestMoneySavingBlog. Daniel reveals 6 tried and tested methods for making money online. Definitely go check out his blog.

I’m sure everyone who reads this has typed into Google ‘how to make money online’. I’m also sure that the majority of you have never actually made anything. Fortunately, I’m someone who has. Admittedly not enough to retire just yet, but I’d like to share a few money making methods with you. Please remember that none of these are easy or guaranteed to make you any money – but if you do things properly, there’s a good chance that they will.

Make money through blogging

There are millions and millions of blogs out there, and there’s really nothing stopping you starting one too. You can choose a subject that you’re passionate about or just write about your life. If you have something interesting to say and network with other bloggers properly, you’ll see the popularity of your blog increase. With this increase, you have the opportunity to advertise, use Google Adsense or try affiliate marketing (we’ll get to that one later).
Sure, there aren’t many people out there who say they’ve made a fortune from blogging, but there are many  who bring in a nice bit of extra cash on a constant basis.
The beauty of blogging is that you don’t have to pay to get going. With Wordpress, Blogspot and many other platforms, you can try it out for free. I would recommend buying your own domain name at some point though as free platforms don’t allow you to take advantage of all money making opportunities.
To make any money from a blog takes time, imagination, ability and effort – but if you put all these into it, there’s a great chance that one day you’ll start earning from it.
I have a blog about saving money that I’ve just started and hopefully I’ll be earning from it pretty soon. That said, I’m putting a lot of work into it and haven’t seen anything yet.

Make money freelancing

Depending on the kind of industry you’re in, freelancing can be fantastic for picking up money online. I work in internet marketing, and by using freelancer sites like Peopleperhour – I’m able to get a few leads every month. There was even a point where all my work was from this site.
Internet marketing isn’t the only type of job where you can freelance though. Writers, sales people, graphic designers and many more professions have the chance to earn while sitting at home.

Textbroker

Similar to Freelancing, there’s a site out there called Textbroker – made for webmasters who’re looking for writers, and writers who are looking for money. You sign up, choose your specialist subject(s) and write an article based on a subject of their choice. Your article then gets marked out of 4 stars (1 being poor and 4 being excellent – 5 star ratings are for people who’ve been writing for a while). The higher the rating, the more money per article you make. You can get around £5 for a 500 word article on a 4 star rating – 5 star is considerably more.

Youtube

If you have a website, you can choose to use Google Adsense – ads from Google that pay you every time someone clicks on the link. This works by Google charging the company a certain amount every time someone clicks one of their ads, and passing some of the revenue down to you. If having a site isn’t your thing, you might be more interested in Youtube.
If you have a few videos that are getting popular, you’ll receive an email from Google asking you if you want to opt in to Google Adsense on Youtube. If you consent, the next time you put a video up, Google will put ads on it. It then works the same as if you have a site – Company pays Google, Google pays you.
You need to have a very popular video in order to make good money, but I know loads of people who it’s happened to, so why not you?

Fiverr

Similar to freelancing. If you have a talent for anything, and I mean anything, advertise it on Fiverr. People on here are offering all kinds of services, all for $5. Don’t count on it making you a millionaire soon, but there’s nothing stopping you earning around $100 a month on there. If you don’t have a full time job to attend, you can obviously make more.

Make money from affiliate marketing

My favourite method – if done properly, this can, and has, made people rich. Companies of all sizes and industries offer affiliate marketing programs – you refer someone to their site from your site/social networking account/forums etc, and they pay you a percentage of everything this person spends there. Percentages are different with every company, as is cookie validation time (how long the person has to buy something – if the time has expired, you don’t make anything).
Affiliate marketing is by no means easy. My advice to anyone starting out is to choose something you know a lot about, write a blog giving advice to people about it and put your affiliate links on there. People are much more likely to buy something if they’re getting expert advice.
That said, affiliate marketing is difficult and, like everything else, takes time and effort. Expect to put in a heck of a lot of hours before you see any kind of income.

The internet has changed pretty much everything about the way we live. It’s in the majority of homes in the developed world, and there are hundreds of thousands of ways to make money from it. Remember though, so many people try, but not many succeed. If you think you’ve got what it takes, start earning now. 

Thanks very much Daniel, it's really appreciated.

Readers: Have you got any other methods of making money online that you want to add?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Can Money Buy You Happiness? A not so simple answer

A brief analysis on the economics of happiness. I explain the conclusions of a research paper that I wrote on the topic of how relative income affects individual happiness.

Economics of happiness

Reasoning for Relativity Research

For those of you that don't know me, I have just finished my degree in Economics. As part of my degree I had to write an academic paper in an economic topic area of my choice. I chose to conduct some research into the economics of happiness. I really wanted to understand what it is that makes people happy. How do we achieve a happy life? What things can we do to improve the level of satisfaction in our lives?
Picture from xedos4

After much reading it became clear from the previous reaearch from the last 50 years that there was a  large disagreement as to how income makes people happy. The old saying "money can't buy you happiness"  can be argued to be false with the vast majority of people claiming a rise in happiness levels as they became richer. However, it became clear to me that there is a large discrepancy between researchers who argue why this is the case.

On side argue that money allows us to buy the things that make us happy. Hence money gives us the means to be happy. Thus money buys happiness.

On the other hand there is a school of thought that argues that it isn't money itself that makes us happy, nor the things we buy with it. Instead, it can be argued that it is our level of wealth compared to those around us, our friends, neighbours, and co-workers. They argue that when we receive an income boost, it is the increase in our status compared to friends (through the purchase of a new car etc) that generates happiness, not the object itself.

Cautious Conclusions

I conducted a large amount of research into the subject. I used survey data from a European survey of 30,000 peoples' happiness and income. By statistical analysis (that I will not bore you with the details here) I found some interesting results. Any conclusions must be observed sceptically and there is much needed research into this fairly young area of social science:
  • Richer people do indeed tend to be happier people
  • Poorer people tend to be less happy than their richer counterparts
  • People do make comparisons with those around them and these comparisons affect their level of happiness
  • People tend to compare based on a number of criteria: those of a similar age (within a decade of each other), same gender, similar geographic location
  • Richer people living in richer areas care more about social comparison (and it is more detrimental to their well-being if they fall below a considered norm) than poorer people living in poorer areas

The Happy Dilemma

Clearly we have a problem. We want to be rich because being poor makes us unhappy. However, as we become richer we begin to compare ourselves more to those around us. Keeping up with the Jones's has never been harder or more stressful.

So...is it so good being rich?

Well, personally it's not going to stop my goals but I think these findings highlight that as your wealth grows, care needs to be taken as to how you view yourself in comparison to other people. Comparison is dangerous. To be rich and happy it would appear that relative income should be ignored. Be happy with  yourself for your own sake and don't measure success against others. It's just the beginnings of a very long slippery slope.


Readers, what does happiness mean to you?
Furthermore, if anyone would like to read my academic journal, get in touch.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

The Payday Loan Trap

Ever thought about taking a payday loan? I advise against taking a payday loan and I explain my reasons below. I give advice about alternatives to taking out a payday loan.

Payday loan adverts: Bombarded and Bored by Adverts

Picture from Danilo Rizzuti
If you have ever wasted your time watching daytime TV you will notice a trend in the types of adverts in between shows. They tend to be some lawyers telling you how to claim for any accident or injury, some other lawyers telling you how to claim back PPI (payment protection insurance), and finally some woman with a fixed smile telling you how the payday loan that she just took out was the solution to all her problems.  I just wanted to wipe that smile off her face, and here's why...

What is a Payday Loan?

A payday loan is a loan that a company issues you that are extremely short term loans. They are short term in the sense that you can apply and within 15 to 60 minutes could have the money in your bank account. They are also short term in the sense that the money is to be repaid from anywhere between 1 to 30 days. The loans tend to be anything between £1 to £1000. It's called a payday loan because people take it out to help tie over their finances until the next paycheck comes in. What's the catch? Well about 1500% to as much as 4000% APR (Annual Percentage Rate).


What's Wrong with a Payday Loan?


For one particularly well known site I put in some specifications to see how much it would all cost me. I said that I wanted to borrow £100 and pay it back in 30 days. They told me that the total amount to repay in interest plus fees was £136.72. A 37% increase from the amount I had borrowed. That is a staggering amount to pay back for only a months borrowing.

Interestingly, payday loans are targeted towards (obviously) people who struggle to keep up with bill payments, or overspend on credit cards, or can't keep up with payments. Ironically these are the very same people who can clearly least afford to pay these high levels of interest. Furthermore, the people who can afford to pay these sorts of rates, don't need these types of loans, qualify for more reasonable rates at banks, or for credit cards, or are plain sensible enough to steer clear.

Those who struggle to pay for bills will struggle to pay for a payday loan and so they will rack up more debt. Their problems will build rapidly in an upwards cycle.

If it hasn't already, it should become clear to you by now:
If you're thinking of taking a payday loan...DON'T!


But if I Shouldn't Take a Payday Loan, What Should I do?

  1. Firstly don't take a payday loan
  2. You need to deal with your debt in a sensible way. Seek help if needs be. For more advice, read my article on Destroying Debt
  3. If you can, borrow from a bank at a proper rate and pay off slowly
  4. If you don't qualify for a loan from the bank then do anything but take out a payday loan: borrow from friends or family, sell things, cut your expenses
  5. Just do anything but take out a payday loan, even if it required eating beans on toast every meal for the next few days because taking out that loan may mean that next month you won't be eating anything at all
  6. There are emergency loan services provided by the government called crisis loans. You qualify if you're struggling with any payments. The benefit of these loans are that you don't pay any interest on them

What are your thoughts on payday loans? Surely there can't be anyone out there that actually thinks that they're a good idea?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.


What is Financial Freedom?

This article discussed what, why and how to achieve this mystical target of 'financial freedom'. I hope that the reader will gain an insight into my motivation and to gain an understanding of what efforts are needed for 'financial freedom'. This article follow on from a much earlier article: Why Get Rich?

The Financial Freedom Need

In Britain many people worry about money. It is thought that as much as 40% of British adults have angst about their finances. Financial matters are one of the biggest causes of arguments between couples. Given that all this is true I find it hard to believe that there isn't a single person out there that does not want to remove all financial based causes of stress and worry. To strive for financial freedom should be everyone's goal. But what exactly is financial freedom, why do I want it and how do you achieve it?

Financial Freedom: The What and Why

Picture from photostock
For me, financial freedom means that my level of income generating wealth AND CASH should be at a level where I never have to work again but also that my spending habits should not be constrained in anyway.

As you can see there are several elements to financial freedom and I shall briefly discuss each one below:

Wealth and Cash: You should have enough income generating wealth built up in businesses, rental accommodation, dividend earning stocks, such that if you would wish to, you would never have to work again. (Disclaimer: this doesn't actually mean that you shouldn't actually work again, just that you COULD choose not to). I specify that you should have cash as well. This is because not all your wealth is as liquid as cash, but your spending needs should not be hampered by this. The question is: what level of wealth and cash is required for this? That is a very personal number. It will depend on where you are living, how long you think that you will live for (post retirement), what you want to pass on, what your spending habits will be. There are many pension calculators on the web that should give you a decent idea about how much you will need.

For your interest. I have worked out that if I want to reach financial freedom by 55, whereby I have about £80,000 to live on per year for the rest of my life. If I want to achieve this I am going to need to have build up a pot of wealth worth about £3,000,000 in today's money. Of course this is a substantial sum. No one said financial freedom was easy. This is why so few people truly achieve it. It takes grit and determination.

Spending Habits: Having about £80,000 a year to spend is a large amount. This amount is especially large considering that I hope to have no debts at this point. The idea is that the amount is large enough so that I can do whatever makes me happy. For example, if I want to see the Great Barrier Reef at the weekend then I want to be able to go and not be heavily constrained by finances. Of course these spending habits will have to be slightly controlled. It wouldn't serve me well to buy a Ferrari every week. My spending habits require only that I can be happy, not stupid.

How to Achieve Financial Freedom

Now that you've decided that you want financial freedom (who wouldn't?!), there is just the simple task of achieving it. Ideally you want to check out the Get Rich Plan. The basic ideas are as follows in several steps:

1. Get a good education
2. Get a well paid job with prospects
4. Eliminate Debt
5. Save 20%-50% of your net income
6. Invest in businesses, property, and dividend paying shares
7. Protect your wealth from Inflation and Tax
8. Enjoy Life
9. Time and Patience

Seems simple enough! In fact the most important step is understanding number 9. Getting rich does not happen quickly. It takes decades of patience. I wish you all luck along the Multimillionaire Road to Financial Freedom.

What does financial freedom mean to you. Please write in the comments box below.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Strategy 2 for Beating Inflation

This article is the second part of a two part series that explains the problems of inflation to the average person and two strategies to help that person beat inflation. I hope that the information will not be too economics based and will actually be practical advice that the reader can utilize. This first part can be found here.

Inflation Interpretation - Reminder

Picture by jscreationzs
Let us say for example that you have an annual income of £20,000. You also have £10,000 of savings in a savings account that receives an annual rate of 5% (I wish!). However, inflation is rife at 10%.

For your spending habits, this means that if you buy the exact same goods as last year you  will only be able to buy 10% less. This will feel like you can only spend £18,000. This led us towards our first inflation beating strategy and that was to increase your spending power by finding cheaper non-branded goods so that the effects of inflation would not harm you personally.

For your savings this means that you are actually losing money! This year you will gain £500, however you will have lost £1,000 in spending power. This amounts to an overall loss of £500 in the spending power of your savings. This is where we turn to our second Inflation Beating Strategy.

Inflation Strategy

It's really annoying when you work, earn and are sensible enough to save, but then inflation begins to erode away your efforts. As you can see in the example above, that if you save you are actually losing money. Some would argue at this point that you should just spend all your money. That way you get to boost your spending power and not have savings eroded. However, this is not the frugal way and it's hardly the path to becoming a multi-millionaire.

The simple savings saving strategy is to move your savings into a higher risk return financial product. This seems to be the only way to retain your savings. Now, some people may not like the idea of higher risk. However I would ask that person: would you rather lose money for sure (this is inflation) or take on more risk to potential lose more money but also potentially gain more (moving to a higher risk investment).

Still not convinced?

The only way that I think I can appease your worry is to tell you that if you are ever going to invest in a potentially higher reward financial product you are going to have to accept more risk. There are no two ways about it. If it looks too good to be true, then it is. There is always more risk with higher returns. However you can mitigate this risk through diversification (buying multiple different asset classes - the old 'don't put all your eggs in one basket'). Furthermore, you should be willing to invest for the long term, say 5 to 10 years. This should allow for whichever asset class you are investing in to truly demonstrate its worth. For ideas on investing read some of my previous articles.

Readers, do you just accept that you will lose savings or bite the bullet and take on more risk? Please share in the comments box below.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Strategy 1 for Beating Inflation

This article is the first part of a two part series that explains the problems of inflation to the average person and two strategies to help that person beat inflation. I hope that the information will not be too economics based and will actually be practical advice that the reader can utilize.

Inflation Information

Picture from Kittisak
Quite simply, Inflation is a measure of the rise in the average price of an 'average' basket of goods. There are a few different measure that include different weightings for different goods. People tend to view inflation  above 2% in a negative light. Higher inflation means that the cost of living is going up and that savings are being eroded.

Inflation Interpretation

Let us say for example that you have an annual income of £20,000. You also have £10,000 of savings in a savings account that receives an annual rate of 5% (I wish!). However, inflation is rife at 10%.

For your savings this means that you are actually losing money! This year you will gain £500, however you will have lost £1,000 in spending power. This amounts to an overall loss of £500 in the spending power of your savings.

For your spending habits, this means that if you buy the exact same goods as last year you  will only be able to buy 10% less. This will feel like you can only spend £18,000. This is where we turn to our first Inflation Beating Strategy.


Inflation Strategy

As I mentioned above, the problem with Inflation is the loss in spending power. Inflation is calculated on the 'average' basket of goods that the average person in society buys. This does not mean that all goods have increased by this price. Some have increased by more and some by less. Without actually having watched the prices rise week to week, it is difficult to know which goods have increased by more.

However, there is one thing that you can control when is comes to buying goods. You can control your spending power. In our scenario you have lost £2,000 worth of spending power when it comes to purchasing the 'average' basket of goods. The simple strategy is therefore to try to recoup this lost spending power. This can be achieved by downgrading the type of brand of goods that you buy, ideally to non-branded goods.

Some of you may argue that surely some of these have gone up in price as well, and you would be right. However, this does not matter. Inflation is quite personal to how one is affected by it. If you normally wouldn't have bought non-branded goods (or store branded) then you will notice the increase in your spending power. It doesn't matter to you that this particular good cost 10% more the previous month. All that matters to you is that it costs less now that the alternative that you would have normally bought.


Readers, what are you inflation busting tips? Please share in the comments box below.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

The Need to Build Credit

This article follows on from previous articles I have written about credit and credit cards: Why I Use a Credit Card , and Is it Worth Paying for a Cashback Credit Card. This article discusses how one might go about building credit, if you have little.

Buying the Castle

There's a well-known saying in England:
"An Englishman's home is his castle"
A current problem at the moment is that many Englishmen, and women, can't get on the property ladder. This is due to many reasons but one of them is that they may not have build up enough of a credit history.

Apart from applying for a mortgage, other reasons for needing a credit history are if you wanted to take out a personal loan or apply for different types of credit cards with cashback and other rewards.
Picture from digitalart


Personal Credit Crisis

I myself had this sort of credit problem. I was applying for my first credit card with the bank that I currently do some of my banking with, a couple of years ago. The card had a 0.5% cashback, just the thing I needed to help me take my baby steps on the Multimillionaire Road.

In my naive and excitable way I went into a meeting with one of the banking assistants, and gleefully declared that I was ready! The banker gave me a sneering look and with a knowing look in his eye declared: "Ok, but let's first take a look and see if you're credit worthy". I wasn't.

I didn't understand. I explained that I had never been in debt, never gone into my overdraft, always paid my direct debits (mobile contract, gym membership, and economist subscription) on time and had a small, but regular income. How could I not be credit worthy? The banker explained that I was close to being accepted but not close enough.


The Catch 22 Credit Problem 

Thinking this was all just a bit of a misunderstanding I asked the banker what it would  take to get more credit, to become credit worthy enough to gain access to the holy grail of credit, the credit card!

Ironically he told me that to get more credit I would need to use things like a credit card.

This is stupid! To get a credit card I would need to use a credit card to get credit worthy enough for a credit card. But I wasn't allowed a credit card because I'd never had a credit card. So how was I meant to get a credit card to help get a credit card.

Seeing the Problem?


Solution to the Credit Problem

Firstly, let me make it clear that this problem if even harder if:
  1. You don't have any income (for at least 6 months)
  2. You've never had any direct debits (for at least 6 months)
  3. If you regularly go into your overdraft
  4. If you've missed payments for things
  5. If you owe money
If you have any of these problems, take the time to correct these first and wait at least six months before applying.

Consider getting a free credit report. You can usually apply to free trials online. Just search "free credit history report". Plug in all your details and then look for the results. Anything above a score of 700 and you should be Ok to apply for your credit card. Make sure that you cancel your subscription to the credit report service immediately after, otherwise you'll be forking out monthly for a service that you don't want or need.

If you find that your credit score is low, or you are constantly rejected from credit card companies, here are a few tips to increase your credit score:
  1. Pay for regular things such as bills, gym, mobile by direct debit
  2. Focus on paying off debt
  3. Buy something on credit such as a car or a laptop (this is not really recommended as it isn't particularly frugal to essentially overpay for something via interest just to get a credit card)
  4. Apply for a credit card with an extremely high APR (30%-40%), this are specifically for building credit and many do not even  require a regular income. Take care with these sorts of cards and make sure that you can definitely pay off the card in full each month so as not to incur any of the extremely high interest payments
After 6-8 months of performing actions 1,2, and 4 you should be ready to reapply for the credit car that you want.

Note of caution: If you have applied and been rejected from two or three credit cards in the space of a month do not apply for any more as this can actually harm your credit score. Wait another three months or until after your 6-8 month credit building period.


Dear reader, do you have any other tips for building credit? Have you got a similar story to tell about how you built up your credit history?



Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Disclaimer

Information on this site is not appropriate for the purposes of making a decision for carrying out a transaction or trade nor does it provide any form of advice (investment, tax or legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments, or products.
Always seek advice of a competent financial advisor with any questions you may have regarding a financial matter