Facts and Fallacies About Creating Wealth

Many commonly accepted “facts” about wealth building are, in fact, fallacies.

Take these six as examples:

1. “Risk and reward are inversely correlated. If you want to acquire great wealth, you have to be willing to take great risk.”
2. “Wealthy people are stingy for a reason. Pinching pennies is a necessary part of building wealth.”
3. “The most important factor in building wealth is ROI — the rate of return you get on your investments. When investing in stocks and bonds, therefore, look for high ROIs.”
4. “A well-balanced investment portfolio is comprised primarily (80% to 90%) of stocks and bonds, with the rest (10% to 20%) in cash or cash equivalents.”
5. “The surest way to acquire enough money to retire is to buy the most expensive house you can afford and gradually pay off the mortgage.”
6. “Asset allocation is the single most important factor in building wealth.”

Those are the fallacies. Here are the facts:

Fact No. 1:

The intelligent wealth builder takes advantage of safe bets and avoids risky ones. He does this as an employee, a business owner, and an investor. He understands that smart financial decisions are cautious decisions. When he must take a risk, he does so with some sort of loss limit in place. He never loses more than he is comfortable losing.

Fact No. 2:

Spending money prudently is an economic virtue, but being stingy — i.e., paying less than market value for goods or services simply because you can — is a flaw. The rich man who undertips does so not because he has learned the value of money, but because he is simply a cheapskate. It’s as simple as that.

Fact No. 3:

The most important factor in wealth building is not ROI but the accumulation of net investible assets, the amount of money you’re able to devote to investing after you’ve paid for all your regular expenses — your car, home, debts, and loans. Plus, individual investors, chasing yield, typically get ROIs that are less than half those of market averages. This is why the intelligent wealth builder devotes the lion’s share of his wealth-building time to increasing his income and setting realistic goals for his stock and bond portfolios. By “reasonable,” I mean market averages plus or minus 10%.

Fact No. 4:

The typical portfolio of stocks, bonds, and cash — however allocated — is an inadequate approach to building and safeguarding wealth. The intelligent wealth builder will also include other assets, such as income-producing real estate, tangible assets, alternative fixed-income investments, and direct investments in cash-generating private businesses.

Fact No. 5:

Buying a more expensive home every time you get a big raise is a great way to ensure that you will never get rich. What you want to do is find the least expensive house you can “love long time” and keep it. The longer you keep it, the more net investible income you will have to invest in income-producing assets that will eventually make you rich.

Fact No. 6:

Asset allocation is indeed very important, but it is only one-third of a larger strategy that truly is most important. I’m talking about risk management. Risk management has three parts: asset allocation, position sizing, and loss limitation. The intelligent investor pays equal attention to all three.

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Four More Facts

Okay, those are six facts that dispel the common fallacies. Got a few minutes more? Here are four more facts, some of which are very basic but often ignored.

Bonus Fact No. 1:

The biggest mistake retirees make is giving up their active income.

Yes, I know that’s exactly what you hope to do. But to keep your wealth for a lifetime, you need multiple streams of passive income. Your goal should be to build each stream of income to a level where you can live on that and that alone.

Bonus Fact No. 2:

The “miracle of compound interest” applies not just to money but also to skill and to knowledge. If you want to get rich and stay rich, you need to invest as much of your spare time as possible in acquiring financially valuable skills and learning about your business.

As a general rule, buying makes you poorer, whereas selling makes you richer. If you want to develop a wealth builder’s mindset, develop the habit of asking yourself every time you buy or sell anything: Is this making me richer or poorer?

Bonus Fact No. 3:

Every type of financial asset has its own unique characteristics in terms of growth potential, income potential, and risk. Expecting more growth or less risk than “normal” from any investment is a bad idea. And that is why 90% of ordinary investors have results that are far poorer than market averages.

Bonus Fact No. 4:

There are two ways investments can build wealth. One is by generating income. The other is through appreciation — an increase in the value of the underlying asset. Asset classes are inherently structured to increase value, preserve value, or do both. Investments that provide both income and appreciation are generally superior to investments that provide only income or only appreciation. But in developing an overall strategy of wealth building, the prudent investor will incorporate all three types of investments.

You may find some of these facts instantly sensible. Others you may disagree with, be confused by, or see as unimportant. But don’t just read them and dismiss them, please. Give yourself a bit of time to think about them. For me, they are useful and important because they worked for me and for people I mentored — and they worked over and over again. Which means, of course, that they might work for you.$

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The Greatest Financial Gift You Can Give to Your Children

I wrote this essay for your children and grandchildren.

You’ve probably heard about America’s huge debt load. The U.S. government’s financial obligations now exceed $663,000 per American family. This burden will fall on the youngest Americans.

It’s unethical. It’s unfortunate. But it’s the reality.

With this giant financial obligation bearing down on them, it’s critical that now – right now – your children and grandchildren learn about money and finance. They need to know the basic principles… like how to be independent, why debt is dangerous, and how to grow money.

They don’t teach finance in schools. If you don’t teach them this knowledge, no one will. They call this financial illiteracy.

If our children are financially illiterate, they have as much chance of survival as a swordsman in a gunfight. There will be no mercy for the financially illiterate in the future. It’s likely these people will live as indentured servants to the government and its creditors.

But if our kids have a grasp of finance and its basics – and they obey its laws – they will grow up rich. They will be in a position to help other Americans, too.

Below, you’ll find the three vital financial concepts all children need to understand. Please pass them on to your children and grandchildren as soon as you can. I have three children… And these three concepts are my starting point for their financial education.

First of all, our kids must know that they are not entitled to money or wealth… or anything for that matter, even Christmas presents. They must earn money. I want my children to learn that they shouldn’t expect anything to be handed to them. I don’t want them to rely on the government for their livelihood, like many people do right now.

So many people treat money and prosperity as an entitlement. The government even calls its welfare programs “entitlements.” This word – and what it represents – gets stamped into young people’s brains. Kids act as if they are somehow entitled to toys, video games, and cars. But why should they be? Just because they have parents, it doesn’t mean they should get everything they want.

It's good to regularly remind your children of this when they are old enough to understand it. Not paying kids an allowance is a great start. An allowance would reinforce the sense of entitlement. They can make money by earning it: doing the dishes, making their beds, mowing the lawn… there are a million things. It's better to pay them for doing those things. But I’m not going to just give them money.

The second concept our children need to understand is debt. Debt is expensive. If you abuse it, it will destroy you. Like the entitlement mentality, debt is an enslaver. It robs you of your independence. I avoid debt in my personal life… and when I’m choosing investments.

The best way to illustrate the cost of debt is to calculate the total amount of interest the debt generates in dollars over the lifetime of the loan, instead of looking at the interest rate (like most people do). Once you look at it like that, you can see how expensive borrowing money really is.

For example, say you borrow $100,000 with a 30-year mortgage at 7%. Over 30 years, you’ll end up paying $140,000 in interest to the bank. In the end, you’re out $240,000 for a house that cost less than half that. Not a good deal.

The third thing our kids need to learn is the power of compound interest and the best way to harness it.

Compound interest is the most powerful force in finance. It is the force behind almost every fortune. The brilliant Richard Russell calls compound interest “The Royal Road to Riches.” And it’s mathematically guaranteed.

Let’s say, for example, you have $100 earning 10% annual interest. At the end of a year, you’ll have $110. During the second year, you’ll earn interest on $110 instead of $100. In the third year, you’ll earn interest on $121… and so on. This is the power of compound interest. The numbers get enormous over time, simply because you’re earning interest on your interest.

Because time is the most important element in compounding, it’s an incredibly powerful idea for children to understand. They have the ultimate edge in the market: the time to compound over decades.

The stock market is the best place to earn compound interest. You buy companies that have 50 years or more of rising dividend payments ahead of them. Then you let the mathematics work.

As soon as your kids are old enough to understand some arithmetic, you can sit down with the classic compounding tables and show them which stocks they have to buy. I’ll use Coca-Cola, Johnson & Johnson, and Philip Morris as examples.

Another very safe place to save and compound your money is our “Income for Life” strategy. 

After that, assuming they have the discipline to follow through, they will get rich. There’s no doubt about it.

In sum, you have the responsibility to educate your family about finance. If you don’t, no one else will, and they will suffer for it.

Encourage them to work hard and avoid the entitlement mentality. Teach them the power of compound interest and explain the dangers of debt.

If you do this, you will equip your kids and grandkids to survive financially in the difficult circumstances ahead. You’ll provide them with something that nobody can place a price on: the power of independence.$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

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Are the Rich Smarter Than You?

“Well if you’re so damn smart, why aren’t you rich?”

I heard this question asked when I was young, and it ingrained in me the notion that the rich must have a little something extra going on upstairs, otherwise, we’d all be rolling in it. Right?

There is, in fact, some evidence to support this. According to a recent report from the U.S. Census Bureau, there is a strong positive correlation between income and education. Over an adult’s working life, on average…

• High school graduates should expect to earn $1.2 million.
• Those with a bachelor’s degree, $2.1 million.
• Those with a master’s degree, $2.5 million.
• Those with doctoral degrees, $3.4 million.
• Those with professional degrees, $4.4 million.

But here’s the rub. Studies show that those who earn the most aren’t necessarily the richest…

How to Determine Real Wealth

To determine real wealth, you need to look at a balance sheet – assets minus liabilities – not an income statement. According to the late Dr. Thomas J. Stanley, the bestselling author of The Millionaire Next Door and perhaps at the time the country’s foremost authority on the habits and characteristics of America’s wealthy. Many of his findings are just the opposite of what you’d expect.

For example, we generally envision millionaires as Bentley-driving, mansion-owning, Tiffany-shopping members of exclusive country clubs. And indeed, Stanley’s research reveals that the “glittering rich” – those with a net worth of $10 million or more – often meet this description.

But most millionaires – individuals with a net worth of $1 million or more – live an entirely different lifestyle. Stanley found that the vast majority:

• Live in a house that cost less than $400,000.
• Do not own a second home.
• Have never owned a boat.
• Are more likely to wear a Timex than a Rolex.
• Do not collect wine and generally pay less than $15 for a bottle.
• Are more likely to drive a Toyota than a Beemer.
• Have never paid more than $400 for a suit.
• Spend very little on prestige brands and luxury items.

This is certainly not the traditional image of millionaires. And it makes you wonder, who the heck is buying all those Mercedes convertibles, Louis Vuitton purses, and $70 bottles of Grey Goose vodka? The answer, according to Dr. Stanley, is “aspirationals.” People who act rich and want to be rich, but really aren’t rich.

Many are good people, well educated, and perhaps earning a six-figure income. But they aren’t balance-sheet rich because it’s almost impossible for most workers – even those who are well paid – to hyper-spend on consumer goods and save a lot of money. (And saving is the key prerequisite for investing.)

This notion shocks many Americans. During an Oprah appearance, Dr. Stanley was asked the following question from a member of the audience, one he’d heard hundreds of times before:

“What good does it do to have all this money if you don’t spend it?”

She was angry, indignant even. “These people couldn’t possibly be happy.”

Keeping Up With the Joneses and Smiths

Like so many others, this woman genuinely believed that the more you spend, the better life is. Understand, we’re not talking about people who live below the poverty line. (Clearly, their lives would be better if they were able to spend more.) We’re talking about middle-class consumers and up, those who often live beyond their means and then find themselves under enormous pressure, especially in a weak economy.

Some were overly optimistic about their earning prospects. Others didn’t realize that they are up against an army of the best and most creative marketers in the world, whose job it is to convince you that “you are what you buy,” that you need to outspend – to out-display – others.

The unspoken message behind the constant barrage of TV and billboard ads featuring all those impossibly good-looking men and women is that you are special, you are deserving, and you need to look and act successful now.

According to Dr. Stanley, “The pseudo-affluent are insecure about how they rank among the Joneses and the Smiths. Often their self-esteem rests on quicksand. In their minds, it is closely tied to how long they can continue to purchase the trappings of wealth. They strongly believe all economically successful people display their success through prestige products. The flip side of this has them believing that people who do not own prestige brands are not successful.”

Yet “everyday” millionaires see things differently. Most of them achieved their wealth not by hitting the lottery or gaining an inheritance, but by patiently and persistently maximizing their income, minimizing their outgoing, and religiously saving and investing the difference.

You Aren’t the Car You Drive or the Watch You Wear…

They aren’t big spenders. They just recognize that real pleasure and satisfaction doesn’t come from the car you drive or the watch you wear, but time spent on activities with family, friends, and associates.

They aren’t misers, however, especially when it comes to educating their children and grandchildren – or donating to worthy causes. Although they are disciplined savers, the affluent are among the most generous Americans in charitable giving.

Just how prevalent are American millionaires? According to the Spectrum Group, there were 8.39 million U.S. households with a net worth between $1 million and $5 million at the end of 2014. Very few of them won a Grammy, played in the NBA, or started a computer company in their garage. Clearly, thrift and modesty – however unfashionable – are still alive in some parts of the country.

So while millions of consumers chase a blinkered image of success – busting their humps for stuff that ends up in landfills, yard sales, and thrift shops – disciplined savers and investors are enjoying the freedom, satisfaction, and peace of mind that comes from living beneath their means.

These folks are turned on not by consumerism but by personal achievement, industry awards, and recognition. They know that success is not about flaunting your wealth. It’s about a sense of accomplishment… and the independence that comes with it. They are able to do what they want, where they want, with whom they want.

They may not be smarter than you, but they do know something priceless: It is how we spend ourselves – not our money – that makes us rich.$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

Click here to watch the video and start your own premium traffic business today!]

7 Wealth-Building Lessons from Billionaires

There is no shortage of billionaires today. In 1985, there were fewer than 20 of them. Today, they number well over one thousand.

One of the best ways you can create and maintain wealth is by following the lead of people who’ve already done it.

About 33 percent of the very rich got their money through inheritance. The Waltons, for instance. The rest – two out of three – created their wealth through business. About half of those mega-entrepreneurs started with family money, and the other half started from scratch. These are the people – like Bill Gates, Warren Buffett, Sergey Brin, and Larry Page – who earned the wealth they have. These are the people I’d listen to if I wanted advice on how to succeed today.

I don’t know any of these billionaire entrepreneurs (BEs) personally, but I’ve done a lot of reading about them. I figured you might want to know what makes them tick and how they got where they are. Here is what I’ve discovered:

• Formal education matters – but not always. The great majority of BEs – about 90 percent – have a college degree. But it’s not necessary for success. Among the world’s super-rich today, Bill Gates, Fred DeLuca, David Geffen, and Andrei Melnichenko didn’t graduate from college. And David Murdock (Dole Foods), S. Truett Cathy (Chick-fil-A), and Richard Desmond (British publishing magnate) never finished high school.
• BEs work harder and longer than the people who work for them. Most say they work 50 to 55 hours a week. Some, like centibillionaire Canadian communication mogul Ted Rogers, work 12 hours a day. And some, like Bill Gates (when he worked at Microsoft) and eBay founder Jeff Skoll, took no vacations for years while their businesses were growing.
• BEs are constantly looking for profit opportunities. When they hear about an economic or business development, they think, “How could I profit from that?”
• BEs don’t dwell on mistakes. They view problems as learning opportunities. “I don’t remember any mistakes,” the late pharmaceutical billionaire James Sorenson told Forbes, “only the opportunity to overcome problems.”
• BEs think neither completely positively or negatively, but strategically. Instead of thinking, “That’s impossible” or “I can do anything,” they think, “Is that possible?” and “If it is, how could I do it?”
• BEs don’t believe in luck. In a Forbes poll of the 400 richest people in the world, none said they had become wealthy entirely by luck. Some said they considered luck to be a minor factor. Most, like Oprah Winfrey, consider luck an outsider’s way of describing someone who works hard and seizes opportunity. “Luck,” Winfrey says, “is preparation meeting a moment of opportunity.”
• BEs are not driven primarily by money. “Studies show that the desire for financial success is no stronger among entrepreneurs than among those not starting a company,” says entrepreneur expert Kelly Shaver. Wharton School management professor Raphael Amit agrees: “No one is saying they don’t like their wealth; but what matters more is the innovation, the intense commitment they have to an idea and the difference it can make. Money is a byproduct.”

If you want to survive and prosper in the 21st century, emulate the habits of the world’s richest people. Educate yourself about money. Make conservative investments. And seize opportunities to start and/or invest in entrepreneurial businesses.$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

Click here to watch the video and start your own premium traffic business today!]

How to Talk About Money in Your Marriage

A female client once told me that she got her money the old fashioned way: by divorce.

It’s a funny line that reflects the traditional thinking of the man as the breadwinner in a marriage and the source of family wealth. But the truth is that times have changed.

Today, many women have more financial assets than their male partners. More young women attend college than young men. And although the glass ceiling still exists, more women are building successful businesses and excelling in high-level careers than ever before.

Plus, traditional inheritance traditions have changed. Today, parents tend to leave their daughters and their sons an equal amount of the family wealth.

But money and the changing dynamics of family wealth aren’t easy topics to talk about in relationships. People are more reluctant to talk about money than almost anything else… including their sex lives. It’s a tricky and revealing topic of discussion.

A Failure to Communicate

Think about how much you can learn about someone by asking them about the importance of money in their life and what purpose it serves. The answers to those questions cut to the core of a person’s values.

And having those discussions is essential if you want to have a successful marriage.

A couple of years ago I met Marilyn and Jeff. They’re a middle-aged couple with money as the root of their marital problems. Marilyn lived off a trust fund from her parents. She resented Jeff because she had more money than he earned at his job. She didn’t like paying for the majority of their living expenses. Jeff felt emasculated because he wasn’t earning enough to keep up with their lifestyle.

Marilyn and Jeff didn’t talk about their needs, values or how they felt. They grew distant as their problems festered. Their inability to communicate about the most relevant issue in their relationship damaged their mutual respect and their intimacy. It also deeply damaged their relationship.

Money may be the hardest topic for couples to discuss even though it’s one of the most important.

Ceding Control

In my experience, some women still want to feel taken care of financially. Our society still holds that a man is financially responsible for his wife and children. But often these cultural expectations are out of synch with the achievements and positions of women — especially in the homes of the wealthy.

Women can also become dependent on their wealth for their sense of identity and their social position. Their self-esteem is grounded in their affluence rather than in their accomplishments. So they hold tightly to their money. They fear that if they lose it, their value as a person will be gone as well.

Some women still believe they can’t support themselves, especially if they have inherited their wealth. So the fear of losing their money and becoming a “bag lady” results in stinginess. They are less generous in philanthropy and more tight-fisted in divorce. I once had a client who was worth more than $100 million and was married to a man with almost no assets. At the divorce, she begrudgingly left him with only a used car and a studio apartment.

But women who cede control by turning their money over to their husbands to manage aren’t helping themselves either. Women need to learn how to handle their own money and make important decisions about expenditures, investments and estate plans.

Bearing the Burden

In our culture, it’s accepted that men bear the burden of bringing home the bacon. But when a man marries a woman with greater financial wealth and higher social class, the union is often looked down upon by the woman’s family and society.

Husbands often feel powerless, embarrassed, judged and controlled when their wives have more money than they do. We know intellectually that people should not be defined by their money. But our culture often gives us the opposite message.

This can be hard for men to accept. They begin to question if they’re inadequate. They wonder if they’re not ambitious enough. It plays havoc with their self-esteem, even when they have successful careers.

I once had a wealthy friend whose daughter married a man of lesser means. My friend was sensitive to the potential self-esteem issues of his son-in-law. He felt his daughter had all the power in their marriage. Often the spouse with the most money exerts the power and makes the major decisions. My friend did not want to see that dynamic ruin his daughter’s marriage.

In an act of enormous generosity, my friend signed over a considerable asset to his son-in-law. But this newfound wealth led the son-in-law into a life of cocaine addiction and an eventual divorce. The son-in-law waltzed into the sunset, taking his father-in-law’s money with him.

Five Steps to Make It Work

Acknowledging and discussing financial inequality and the changing dynamics of family wealth are the key to overcoming these issues. Most affluent families don’t talk about money at all. So this may seem like a tall order. But it’s the path to happy and healthy marriages and families.

A couple I know — let’s call them Carrie and Bill — made it work. Carrie started a business with her first husband and her family money. When they divorced, she kept the business and soon met Bill, a retired social worker. Both Carrie and Bill recognized the potential problems if they ignored the glaring differences in their financial resources.

They began their marriage with constant communication. They shared their thoughts on money and what it meant to each of them. They had frank discussions about the balance of power between them and how they would handle decision- making. They spoke honestly about their working relationship and their titles within the company.

The result? They became successful business partners and intimate marital partners. Twenty-five years later they sold their company for $80 million and continue to respect and enjoy each other today.

Bill and Carrie’s behavior is the same as other wealthy couples I’ve encountered who have forged successful marriages by acknowledging financial differences and communicating about money instead of choosing the destructive path of denial.

From those experiences I have come up with five steps you can take to talk about money in a healthy and productive way in your marriage.

1. Share your feelings and experiences. Set aside time to talk about your thoughts about and experiences with money. Listen to each other!

2. Uncover family values about money. Discuss and examine your inherited values about money, power and success in an open way. Be aware of how power is used in your relationship.

3. Discuss how you can make decisions in an even-handed, inclusive and respectful way.

4. Explore how money can add meaning to your lives. Share what matters most to you and use your wealth to pursue your passions.

5. Maintain a sense of humor. Laughing and enjoying each other are the best ways to maintain a healthy relationship.$

The Best AND Worst Investing Advice

Would you like to earn an 18% yield on one of the world’s safest investments?

It’s something anyone can do.

You simply need to learn one of the great investment secrets in the world.

Here it is…

When it comes to investing, boring is big money.

Boring causes “investment magic” to happen.

Boring can provide you with financial freedom.

For example, let’s study one of the greatest investment stories of all time: Procter & Gamble (P&G)…

Most every house in America has at least one P&G product somewhere in a medicine cabinet, pantry, or storage closet. P&G is one of the world’s top consumer-products businesses. Every year, it sells billions of dollars’ worth of everyday products like Gillette razors, Pampers diapers, Charmin toilet paper, Crest toothpaste, Bounty paper towels, and Tide laundry detergent.

Razors… diapers… toilet paper… toothpaste… paper towels… laundry detergent.

You could hardly think up a more boring product lineup. It’s nothing that will interest the average investor.

But great investors see something unusual in it. They see something that others do not. They are able to see a wealth-producing “golden thread” running through P&G’s products.

Not many people can see this golden thread. That’s why most individual investors have zero interest in owning such a boring business.

But it’s a source of tremendous power. It’s one of the great secrets of successful long-term investing.

And it’s why seasoned, sophisticated investors have HUGE interest in owning them. For many elite investors, it’s ALL they want to own.

They know when it comes to investing, boring is big money.

You see, in 2014, Procter & Gamble shareholders received a cash dividend of $2.52 for every share owned.

Procter & Gamble’s dividend in 2014 was 7% more than the dividend paid in 2013. The dividend paid in 2013 was more than the dividend paid in 2012… which was larger than the dividend paid in 2011… which was larger than the dividend paid in 2010.

The dividend increases were no surprise to longtime owners of Procter & Gamble. It was simply business as usual. P&G has increased its dividend paid to shareholders every year for more than 50 years. To P&G investors, larger cash payments are a fact of life.

Because P&G has increased its dividend every year for more than 50 years, a kind of investment magic has happened. P&G is rewarding longtime shareholders with incredible amounts of cash.

An investor who bought P&G in 1994 at around $14.25 (split-adjusted) began earning a 2.3% dividend yield on his investment. Since P&G’s annual dividend has increased every year and shares have split a couple times along the way, that same investor is now earning an astounding 18% on his original investment.

Remember, P&G’s dividend yield rises every year. It’s one of the safest, most reliable income streams on the planet. Earning an 18% yield on P&G is incredible when you consider that many investors take huge risks in the pursuit of 5% dividends. They buy businesses with dangerous debt levels. They buy dangerous commodity investments that can plunge with the price of a commodity like crude oil.

But not longtime P&G owners. They’re earning huge dividend yields that rise every year, paid by one of the world’s strongest, safest companies. That’s investment magic.

If you’re new to investing, you’re probably groaning right now. You’re likely drawn to stocks with huge growth potential. You’re drawn to the hot companies featured on magazine covers and financial television. You’re always looking for the opportunity to double your money in months. You spend your time trying to find “the next Facebook” or the “next Apple.”

P&G isn’t going to increase its revenues 50% with some great new invention… so you probably have no interest in it.

This is the amateur mindset. It’s the gambler’s mindset. And if you have it, don’t worry. You’re not alone. You’re only human. Starting out, it’s perfectly normal to think this way. But as I’m confident you’ll eventually learn, it’s a reliable way to lose all your money in the stock market.

You can buy all kinds of businesses in the stock market. You can buy bank stocks… gold-mining stocks… retail stocks… biotechnology stocks… semiconductor stocks… and software stocks.

When it comes to choosing which investments to make, people naturally gravitate to companies with exciting stories. They gravitate to companies “poised on a breakthrough” or “set for 50% annual growth.” After all, the potential upside with these firms is huge.

But what people fail to realize is that buying these kinds of stocks is playing a low-probability game. For every mega-hit social-media website like Facebook, 1,000 other Internet businesses failed. For every Starbucks, 1,000 other restaurant franchises flopped. Sure, the one company you buy might beat the odds, but it’s unlikely. The odds greatly favor you losing money.

On the subject of odds…

What do think the chances are that people will continue to buy trusted brands like Tide detergent, Pampers diapers, and Crest toothpaste? What are the chances P&G increases its dividend next year just like it has done for more than 50 consecutive years?

Very high. Nearly guaranteed.

Those are the kinds of odds great investors look for. You can find them in boring businesses like P&G. You can find them in dominant companies that sell candy, like Hershey. You can find them in dominant companies that sell soda, like Coke. You can find them in self-storage businesses (people will always need places to store their stuff).

None of these businesses are particularly exciting. They just enjoy the most consistent and reliable cash flows in the world. Great investors looking to make long-term capital commitments are drawn to them because of it.

Although this idea immediately makes sense to most folks, few people actually apply it to their investing when they’re getting started. Most folks can only come around to this idea after suffering painful losses in “exciting” investments. Your parents can tell you not to touch a hot stove, but you probably won’t learn not to touch a hot stove unless you actually touch it yourself.

Something to keep in mind: An investment’s excitement level is usually an inverse of its likelihood of success.

Nowadays, I’m much more likely to be interested in a candy or beer company that pays reliable dividends than I am in a small biotech company. I’m more interested in the boring, reliable, tax-free income paid by municipal bonds than I am in a small semiconductor stock.

I’m more interested in steady income streams deposited into my accounts than the excitement of gambling on the “next Facebook.”

I don’t know what the next popular website will be. I don’t know who is going to make the next popular tech gadget. But I am confident that no technology will render having a beer after work obsolete. That’s the kind of confidence we want in our long-term investments.

Like most any great money lesson, we see this at work by studying investment legend Warren Buffett.

Over the course of his 40-plus-year investment career, Buffett has, for the most part, shunned high-tech investments. He has consistently focused on boring consumer franchises. He has made large investments in Procter & Gamble, candy maker See’s Candies, beverage maker Coca-Cola, gum maker Wrigley, and retail giant Wal-Mart.

Buffett buys these types of businesses because new technologies are much less likely to disrupt their industries. They are likely to retain their competitive advantages. A decade ago, Coke was the dominant soda company. It will probably be the dominant soda company 10 years from now. It’s much harder to say those things about Internet sites or high-tech businesses.

Also, remember the wisdom of George Soros, who has made billions of dollars in the market. Soros says, “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

I’m not saying you can’t make money in exciting stocks like biotech, high tech, and gold mines. You’re just unlikely to pull it off. If you want that kind of “spice” in your investment life, consider investing like a wealthy friend of mine. My friend is a conservative investor. He keeps the bulk of his portfolio in safe investments. But over the years, he has boosted his overall returns by placing tiny amounts of money in small, speculative, “exciting” investments. Several have been huge winners.

The key is to keep the bulk of your portfolio (at least 90%) in safe, boring investments that throw off dividends and interest. Invest tiny amounts of money in more speculative, “exciting” stocks.

But if you’re interested in long-term investment success, train yourself to be interested in things like diapers, mouthwash, self-storage, chocolate, beer, soda, municipal sewer services, and food. These everyday things enjoy constant demand… and the businesses that provide them enjoy consistent sales and profits.

None of this is exciting. It just works. And boring means big money.

If you’d like to improve your investment returns, I encourage you to think about the ideas in this essay.

Good investing!$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

Click here to watch the video and start your own premium traffic business today!]