April 24, 2014

FAQ’s

There are four questions I typically get asked a few thousand times per month on Facebook, through email, friends-of-friends, etc.  I’m just going to answer them here so we can get on to other issues.

#1 What, Exactly, Do You and Aaron Do?

We own things.  I worked hard to try and saved more than 90% of my after-tax income throughout most of my life, with almost everything going into retirement accounts and private businesses.  Using this money, I bought assets that generate cash and grow in value, such as stocks or startups (e.g., I launched several companies, one of which quickly became the largest of its kind in the United States, providing me a stream of earnings to invest in even more stocks, bonds, and real estate.)  That’s it.  The businesses generate money, and I invest it in either more businesses or other assets that grow in value and throw off excess cash.  Wash.  Rinse.  Repeat.

When possible, I hold as much of these assets through accounts such as a SEP-IRA or other qualified investment vehicle so there are no tax consequences until I retire.  That’s not always possible, such as shares of the operating businesses I own, but it is ideal.

#2 What Are Your Ultimate Plans?

Within 5 years, I hope to consolidate everything I own into a single hedge fund or holding company and issue equity to outside investors.  I’m also considering launching a value based mutual fund for regular investors who want to buy shares of global stocks and bonds using the same method I use to choose investments for my firm.

#3 What’s the #1 Thing You’d Tell Someone Who Wants to Be Financially Independent?

Avoid credit card debt or any other form of non-tax-deductible debt.  If you are going to use debt, only do so to buy assets that both generate cash and appreciate in value, just keep it reasonable because leverage is like jet fuel – it’s powerful and great when things go right, but if you make a mess, you could burn your whole financial house down in seconds.

I wrote about this in The Importance of Frugality in Building Wealth.  I just never spent money if I didn’t have it.  When I first started, my tax returns never showed huge income as I was building the foundation throughout high school and college but I saved probably 90% of what I made (in fact, my very first online business made only $500 per month!).  It starts to add up over time, especially when you are earning dividends and interest instead of paying interest on debt.

#4 What Stock Should I Buy?

Don’t ask me this because I’m not going to tell you what I’m buying, selling, or trading.  I will, however, tell you how I find companies, what I look for, and the philosophy I used to achieve what I did because men before me were generous and shared their knowledge with me.  At some point, when I launch a mutual fund, hedge fund, or take the holding company public, if you want to own what I own, you can just buy shares of whatever vehicle I choose to utilize.