A New Way To Invest
7 Proven Steps to Get
Rich before you Retire
Jim Jorgensen
Radio talk show host / author
Published by Jim Jorgensen at Smashwords
Other books by Jim Jorgensen
The Graying of America
Your Retirement Income
Stay Ahead in the Money Game
How to Make IRAs Work For You
Money Lessons for a Lifetime
It’s Never Too Late to Get Rich
Smashwords Edition License Notes
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© 2009, James A Jorgensen. All rights reserved, except as permitted under the Copyright Act of 1976, no part of this publication may be reproduced, recorded, transmitted or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the author.
ISBN: 978-1-4523-1550-8
Cover Design by: Laura Shinn
While a great deal of care has been made to provide accurate and current information, the ideas, suggestions, general principals and conclusions presented in this text are subject to local, state and federal laws and regulations, court cases and any revisions. The reader is thus urged to consult legal counsel regarding any points of law – this publication should not be used as a substitute for competent legal advice.
First paper printing 2010 / Bull Run Press, San Francisco
The paper edition of this book is available at special quantity discounts to use as gifts or for use in corporate training programs. Call Special Sales Manager at 925-209-7442 or e-mail jim@financialsavvy.com
Dedicated to:
My wife, Nancy Jorgensen
who taught me everything
I know about life.
Contents
Step 2 Stay out of the same rut
Step 4 Work on your retirement plan
Step 5 Build your retirement plan
Step 6 Be aware of the time clock
Step 7 Be proactive, never give up
Introduction
Once upon a time in a city somewhere in America lived a hard-working employee who used his experience and felt comfortable solving the daily problems. But he felt the money he was pouring into his retirement plan was going nowhere. He also realized he could no longer understand what was happening to his money invested by some people in a far away land. And he often felt helpless while he watched much of his previous payroll contributions disappear.
He began to understand if he wanted to build a realistic retirement nest egg he would have to take responsibility for his own actions and make his investment decisions. In short, he could no longer wait for good things to happen. It was time to trust his ability to solve his own money problems.
What had taken him so long to come to this conclusion was not that his plan was continually losing money, but that he knew he’d have to spend the time to remain constantly alert to recognize the buy and sell signals to protect his assets. And he’d also have to learn a new system of handling his money. It was time he continued to tell himself he didn’t have. But now it became apparent that he had to find the time if he wanted to retire with enough money to pay his bills, play golf and plan the vacations he’d always wanted.
He found himself looking over a maze of investment plans but most of them were too complicated and required too much time. They also required other people’s help which he now felt he could no longer trust. What he needed, he told himself, was a plan where he could watch over just a few socks and spend maybe 15 minutes a week to stay on top of his game. Then he discovered Trend Investing and if he was faithful to the weekly drill he was convinced he could do as well as others using this plan. At least it was worth a try; his current mutual fund program had been a bust, never making much money in an up and down market and costing him a lot of fees and expenses.
With the discovery of Trend Investing came a spring in his step. At last he knew what to do to lock in profits in an up and down stock market instead of waiting for a phone call to help him that never came.
In my 35 years of advising investors and from letters and callers on my nationally syndicated radio shows, I’ve witnessed scared and confused investors watch their retirement plans lose money beyond their control. I’ve felt their pain from opening mutual fund statements and with glazed over eyes looking at what’s left of their once hefty IRA or 401(k).
I’ve also found most investors don’t take advantage of the ups and downs in the stock market to make double-digit returns each year. They feel frozen in panic when the bottom appears to be dropping out of their investments and miss the stock market rebound.
But knowing how to invest your money is only half the game. That’s because, after you have a plan to become rich you have to want to become rich. You have to be willing to work the plan and no matter how difficult it becomes, never give up. I remember a 74-year old man who made the 240-mile trip to visit his 80-year old brother, who was ill, driving his lawn mower all the way. He chose his John Deere riding mower as his vehicle because he didn’t have a driver’s license. Hitched to the back of the mower was a trailer in which he hauled supplies and camping equipment. He averaged only five miles an hour and the trip took six days.
What I discovered talking to people on the air and at seminars, along with the man on the lawn mower, if you want to become wealthy and you stick with your plan, you can. The problem is most people underestimate what they can do with a plan and a few bucks a day. They look at the money they have and think becoming rich at retirement is beyond their reach.
“But Jim,” I heard the caller on the radio say, “I only have a couple thousand to invest and it won’t make any difference anyway.”
Don’t laugh. You’ve probably said this before. Almost everyone has. But it’s not true. There are a lot of distractions as we plow through life, but I’m reminded of a story of a man who in spite of a meager income saved a few dollars each day. He never missed the few bucks stashed in the cookie jar, and today he’s retired with a hefty income and money in the bank. But I’ll never forget what he told me about the secret of how he saved his money.
“I don’t buy things because I have money; I buy things because I need them.”
Like many of the richest people in America he began at age 25 investing $200 a month in good stocks and continued to do this until he reached age 65. Over this 40-year period with $200 a month he’d invested a total of $96,000, yet his retirement nest egg had grown to more than $1 million. He told me what surprised him was he made most of his money over the years on the growth of the money he’d already invested.
A listener in Chicago called my radio show and said he had a simple way to understand how he got rich with very little money. “Try to visualize it this way,” he began. “To make a loaf of bread you let the dough rise. The bread gets bigger over time. You don’t do anything; the yeast makes it rise. That’s the same way your money grows in your IRA, but instead of yeast, it’s the incredible power of compounding over time.”
Remember, as you read this book; hide some money each month in the cookie jar where you put your spare cash. If its $200 a month and you start now you could retire rich. Of course, like everything else, the more money in the jar each month the bigger the payoff at retirement.
The good news is that the principles of building wealth on a shoe string have remained the same since the guy rode his lawn mower. But the stock market and the way we invest changed dramatically in the 2000s, compared to the roaring 1990s. Investors in the 90s started to think the annual 20 percent gains from Standard & Poor’s 500 Index funds were their constitutional right and that making money in stocks was easy.
But the bubble bursting stock market in early 2000 and the recession starting in 2007 have been a very different story indeed. A continuing unfolding of one major corporate scandal after another has severely shaken investor confidence in the whole system of investing. All of the major institutions that were supposed to protect investors—the corporate board of directors, auditors, accountants, stock analysts, investment bankers, stock exchanges, attorneys general, state and federal securities regulators—all failed to uncover or stop massive fraud and shareholder abuse by a laundry list of American corporations including Enron, Adelphia, Qwest, WorldCom and many others.
But the decade of the 2000’s told us one thing: In uncertain times its best to invest in the common stock of some of the nation’s big blue-chip companies with long established well-known brands, and a long history of profits.
The purpose of this book is to outline my investment strategy that has made money in up and down stock markets for years. If you put these rules into practice and into your life, you can end up a far richer, more comfortable investor than the vast majority of Americans who are still hiding their investments under that proverbial rock.
Step 1 Save Some Cash
It may sound crazy, but it’s true. You have to have spare cash to invest in the stock market. I learned that early in life talking to the farmers at the farm equipment store where my dad was keeping books. As was my custom, and with a wink at my dad, I reached into the five-cent Coke tub, dipped my hand into the ice water, and took out a bottle.
The farmers were talking about the new hay rakes and money. I drew closer to listen to their words, not because I was interest in anything about hay rakes but because I knew these farmers always had money. And money in my youth was a precious commodity. It was easy to tell the farmers from the salesmen, the farmers wore bib overalls. Not just any overalls, the garment of choice, as far as I could tell, had the logo “Oshkosh B Gosh” sewn on the top flap. As you might guess, it didn’t take long for a high school kid who wanted to become rich to wear the Oshkosh B Gosh label.
Farmers are a strange bunch. You pretend to be comfortable with them, but you never are. They know it, but they also pretend they don’t. But much of what I learned in life came from talking with the farmers.
If I had to wrap up all the financial planning ideas in the world they could be boiled down to one simple premise told to me over a hay rake: First, save some money, and then spend the rest. Everyone in town knew it worked for the farmers; they paid cash and drove Cadillac’s.
I was on roll now so I went for the good stuff. “If I’m not too personal,” I said, “how did you learn to pay yourself first.”
“The problem most people face is they can’t save any money because no one has sent them a bill. To get started I made up a bunch of bills, put them in envelopes addressed to me, and gave them to a friend. Each month he dropped one in the mail and I paid the bill. And now,” he said with a smile, “I can pay cash for everything.”
At the time I didn’t have much money, but from talking with the farmers I knew I had a head start on most people accumulating wealth. Later we lived near a golf course with a pond and I quickly made the tools of my trade: a long handle net to scrap the balls off the bottom of the pond and back in our basement I built a wooden slide lined with brushes powered by a garden hose. With my homework, trips to the pond and work in our basement I was a busy guy. But in high school it paid better than a paper route and I learned that after some holidays the pond was full of golf balls and I had a real payday. At $2.50 a box the stray polished golf balls piled up the money and when my passbook account when to double digits I started buying stocks. I didn’t know much about Wall Street, but from pulling my wagon full of groceries home with my mom I knew the names of my favorite drink Coca Cola, the people who built my electric fan General Electric and the Pepsodent toothpaste my mom required I used each day. I figured that was a good place to start. If they were in my house they must be in other people’s homes. Later I learned all of these companies had well-established consumer named brands and people would pay extra for the comfort of knowing they had the “real thing.”
When I went to the university driving my golf ball paid for convertible, I learned that business professors never talked to the farmers, never drove Cadillac’s, and saved only a few dollars a month instead of creating investment portfolios. Maybe that’s why none of them taught courses on getting rich. I learned how to accomplish that from the farmers.
But today Wall Street appears turned upside down. In fact, after the last decade with a stock market crashing one day and standing still the next, you probably feel like Howard Beale in the 1976 film Network when he says: “I’m mad as hell, and I’m not going to take it anymore.”
You’re mad because your broker or financial planner told you to buy Enron, Washington Mutual, Lehman Brothers or some computer stock set to double in price because they were making huge profits. You’re mad because you later lost your money when the profits turned out to be nothing more than a classic case of cooking the books. You’re mad because the rush into mortgage debt was said to be as safe as cash and turned out to be almost worthless. And you’re mad because analysts on Wall Street made millions of dollars while they told investors to buy new issue stocks they privately ridiculed. All the while you were glued to the doom and gloom each day as the stocks and funds continued to slide. Like a caller on the air told me, “the stock market shock feels like a guy in a bath tub holding a toaster – and in this plunging market no one knows when to let go!”
More likely your past investment statements have been tucked into a file box unopened while you stuck you head under the covers and followed the once time-tested buy-and-hold approach to investing. But now, in 2010, you can buy a share of Citigroup – the nation’s largest bank – that sold for $55 at the beginning of 2007 for $4. Or, for the price of a single spark plug you can buy a share of General Motors stock.
Like most investors, in this prolonged period of a crashing stock market, you probably avoided making any changes in the way you manage money. Instead, you waited for the stocks or mutual funds to regain their value. History tells us, however, when you stand pat things could get worse and they usually do.
But is fear and denial the best way to manage your financial future? Not if you want to build a sizeable nest egg for your retirement years. In fact, this book is about ways to encourage you to make a commitment to change the way you invest in the future.
As you survey the smoking wreckage of your IRA and 401(k), you probably wonder: What should I do now? My answer is start with Rule #1.
Rule #1
The secret to prosperity is your
ability and desire to adopt changes
in the way you manage your money.
If the recent market turmoil hasn’t frightened you, if you’re not ready to take charge of your own investments, then I want you to consider Time magazine’s January 28, 2002 cover issue that told investors: “With so many choices and no one to trust in today’s world, you’re on your own, baby.”
The article asked: “Can I count on my broker? Who’s looking after my 401(K)? What’s happening to my mutual funds in my employer retirement plan?” Time concluded that the old safety nets are gone. And it really is true: You’re on your own baby!
But if you can change what you believe, you can change what you do. As a result, the first thing you need to believe is that like Time magazine you’re on your own and you have to manage your money. I’m not going to claim to know everything about investing – I only know what has worked for me (and what hasn’t) over the years. A wise man once said, “If you want to know how you feel about someone, talk about their youth.” So let me tell you a little about mine.
I was born in Omaha, Nebraska in the 1930’s and grew up in a household that today would be called economically disadvantaged. I didn’t know that at the time, but I did know since my family didn’t own a car, and if I wanted to go someplace, I walked. And when I went to a birthday party I had to bring a gift. My mom usually bought the gift, but one day she gave me a dollar to buy one. “What can I buy?” I asked. She said, “Buy whatever you’d like, I’m sure Johnny will like it, too.” I went to the store and found just what I’d always wanted. All I had to do was convince my mom to let me keep it. I tried the ploy that Johnny might not like it and maybe we should get another gift. Mom didn’t buy that. Then I said it had batteries and maybe we should open the’ package to make sure they were still good. Mom said we’d trust the batteries. I even tried to get sick the day of the birthday party in the hope that Mom would forget about the gift.
Do you know what it’s like to give a birthday gift that you’ve always wanted to someone else? That’s the whole deal with birthday parties, except I never forgot that day and I vowed that someday I’d learn how to make enough money in the stock market to buy the things I wanted.
I was able to do that by investing early in some of the items each week in my wagon from the grocery store. Buying and holding stock in these household names has, over the past 40 years, made a lot of money. How much? $100 invested back then, or as I like to say the equivalent of forty boxes of golf balls, could be worth about a half a million dollars today.
But as I entered Wall Street a new world opened up for me. The traders on the floor of the Exchange told me about buying on the dip and selling on the curve. This concept became Trend Investing. In other words, the trend of the share price indicated when you buy or sell a stock. But to make this work you have to become an active manager of your investments.