Memorial Day Re-Run: We’re Screwed If We Don’t Do the Math

Biden Doesn’t Want You to Put It Together [The Rude Awakening] May 29, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Memorial Day Re-Run: We’re Screwed If We Don’t Do the Math - What’s the “Rule of 72” and what does it do for you? - What number should you target for your net worth? - What’s the maximum amount you should spend on a house? [Dollar to Be Replaced With Biden “Spyware”?]( [Click here to learn more]( On March 9, President Biden quietly signed Executive Order 14067. This Order could pave the way for Democrats holding onto power in 2024. In fact, they could control America indefinitely. A former advisor to the CIA and Pentagon believes this order could allow for legal government surveillance of all US citizens; total control over your bank accounts and purchases; and the ability to silence all dissenting voices for good. To protect your freedom and your wealth, [see his dark warning now](. [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning from a gorgeous Asti! I hope you’re enjoying your well-deserved holiday. If you served in the military, this day is extra special for you. Savor it. Today’s Rude is an easy one. That’s because we ran it last month. If you missed it, you’re in for a treat. If you read it already, let your eyes flow over the math, and then go enjoy your day. The more these ideas are read, the more they’ll stick in your head. And the feedback was overwhelmingly positive. If you had a chance to employ some of this stuff, awesome. Let me know how it went. If not, keep reading and get ready for the time you’ll need it. Let’s get to it. We’re Screwed If We Don’t Do the Math Most economists agree that there’s an inverse relationship between women’s literacy and birth rates. Economists concluded that the more women read (and are educated), the less they want children. I’ve always thought that conclusion didn’t match reality. I believe the more women can do the math, the fewer children they want (for lifestyle reasons). That is, numeracy, rather than literacy, drives decision-making. There are many examples of career women who can afford – and have – more children. Sara Blakely, Victoria Beckham, and Amy Coney Barrett come to mind. But this column isn’t about demographics. It’s about innumeracy, which we’ll define as incompetence with numbers. It’s what I think society’s big problem is. But instead of whining about the causes, symptoms, and cures of innumeracy, I will give you a few rules of thumb. You can use them to see if your decision-making changes. For my part, these simple equations and rules gave me a target. Specifically, I knew how far ahead or behind I was and how far I had to go to reach my goal. I won’t bombard you today, as the fewer and the simpler, the better. So let’s start with five simple rules to see if they change how you think. The Rule of 72 The Rule of 72 is one you’ve probably heard of. And you might be wondering why I’d even include such a rule. Well, let me first state the rule, and then we’ll talk about how to use it. For most people, the Rule of 72 tells them how long it will take to double their money if it’s invested at a constant rate of return. For example, if you’re earning 10% per year on your portfolio, it’ll take 72/10 or 7.2 years to double your portfolio. If you wanted to back out the math, assume you had a $100,000 portfolio. $100,000.00 x (1 + 0.10) ^ 7.2 = $198,622 The Rule of 72 isn’t perfect. But near enough is good enough in this case. If you’ve got a superstar financial advisor earning you 20% per year, then it’ll only take 3.6 years to double your portfolio. Now, let’s use this rule to look at inflation… something Sleepy Joe doesn’t want you to do. Historically, central banks have tried to keep interest rates around 2%. That meant a currency lost half its purchasing power in 72/2 or 36 years. You’d barely notice the loss in purchasing power, as it’d take so long to rear its ugly head. You’d probably go to the grocery store and wonder why eggs are “suddenly” double what they used to cost in 1983. We’ve all done something like that, haven’t we? But with inflation hitting 10% as it recently has, a currency loses half its value in only 72/10 or 7.2 years. Realistically speaking, let’s say Chairman Pow comes out and says, “We’d love rates to go back down to 2%, but that’s just not realistic. We’re now happy with a 4% target.” In that case, the dollar would lose half its purchasing power in 72/4 or 18 years. If you think eggs are expensive now, just you wait until 2041! The Rule of 72 is not only a great way to look at returns but also at purchasing power erosion. [[UNDISCLOSED LOCATION] 1,399 miles from Washington D.C.]( [Click here to learn more]( The building’s NOT a polling site… it’s not a voting site… But much like how the Watergate Hotel completely reshaped American politics in 1972, toppling Nixon and throwing the White House into a frenzy… When the history books are written on the 2024 election, I expect this building to be the dirty secret for Biden doing everything he can to try to influence the election… again. [Click here to discover where this building is and why Biden is set to send $200 billion to it.]( [Click Here To Learn More]( Net Worth Indicator This is a great targeting mechanism and one I’ve regrettably only just found. It’s from The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be. If you hit this number, you’re an AAW or average accumulator of wealth. According to the authors, to be considered a PAW, or prodigious accumulator of wealth, you “should” have at least twice this number. What I like about this indicator is that it’s simple to calculate. And it gives you a target. Full disclosure, I’m a UAW, which is an under-accumulator of wealth. But I won’t use this number to feel bad. What I choose to do is to think bigger and get better results. If you’re unhappy with what this number tells you, I suggest you do the same. Julian H. wrote in with this great question about the formula: I'm familiar with The Millionaire Next Door book and always wondered what's the logic behind the formula age x income / 10. Do you have any knowledge about that? In the book, there are no specifications about that, and I can't find anything valuable on the Internet. Thanks in advance. Best. Julian H. Julian, as far as I can see, this formula is produced with linear regression. That is, the authors took net worth, age, and income, and produced a line of best fit. The 50-30-20 Rule Tweaked This is a great way to allocate your monthly paycheck. And it’s super simple: - 50% of your income goes to paying your “needs.” These include rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities. - 30% of your income goes to paying down your debt. Once that’s done, this becomes discretionary entertainment expenses.* - 20% of your income goes to future investment. *In the original formulation, 30% go to your “wants.” That’s fine, but I think paying down your debt to zero takes priority. I couldn’t believe how fast my debt disappeared. It took about six to twelve months. But it was gone and gone for good. I’ve run a monthly credit card balance maybe once or twice in the last twenty years. And it’s thanks to this little system. 3x Rule for Buying a House Another one I love, and that would keep many rich people out of trouble, let alone those of lesser means. Never spend more than three times your gross annual income on a house. I’m in the process of buying a home right now, and I’m well within this rule. My down payment is ready and won’t empty my account, and my monthly payments are easily manageable. Far too many people only calculate what their monthly payments would be at the current rate of their mortgage. But if you’ve got an adjustable-rate mortgage, that could easily end in tears. There’s no need to overpay for a McMansion. The Normal Distribution (Bell Curve) Finally, we get to simple probabilities. [SJN] Again, this is just a rule of thumb. Nothing in finance is “normal.” But this can help you distinguish investing realism from fantasy. Let’s do an example. Let’s say Stock ABC has earned, on average, 5% per year. But that return is accomplished with a standard deviation around that 5% average of 2%. If we assume normal returns – a dangerous thing in finance, but we do it all the time – then ABC has a 68% chance of returning between 3% and 7%. It has a 95.6% chance of returning between 1% and 9%. And it has a 99.7% chance of returning between -1% and 11%. Here’s the thing, though: it certainly can crash far below a -1% return. And it may moonshot 45% on the FDA approving its new drug. But the probability of either of those scenarios happening is very low. Knowing this distribution is essential for setting your expectations as an investor and gauging what the market thinks of your potential investment. If you can adjust your thinking to being more probabilistic, you’ll be shocked at how different the world looks. Wrap Up The absolute last thing I wanted to do was to patronize you. But I also don’t want to assume you know things you may not know. So I hope, at the very worst, this was just a refresher of things you may have put on the back burner. But if there is a lot of new material here, I can’t encourage you enough to deploy this new knowledge as early and as often as you can. If this is the sort of thing you’d like to see more of, please let me know here. And if you found this the least bit unhelpful, do let me know that as well. I’ll see you tomorrow when it’s back to regularly scheduled programming! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( In Case You Missed It… Profit From the "Dividend Catch-Up" Trade [Sean Ring] SEAN RING Happy Friday from gorgeous Asti! I’ve been meaning to write about dividend stocks for the longest time. But there’s been too much going on in the macro space for me to do it justice. So I was delighted when my friend and colleague Zach Scheidt volunteered one of his articles about dividend-paying stocks. As you know, Zach is Jim Rickards’ “Banker” and an expert in stock investing. There’s simply no better tutelage you can receive. On this Friday before the long weekend, take in this short, easy-reading Rude that Zach has graciously offered us from his Rich Retirement Letter. I’ll be back on Monday with another light Rude since it’s a holiday. Enjoy your day and your long weekend. You deserve it! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( [Over 62 And Collect Social Security? Take Action Immediately!]( [Click here to learn more]( For far too long Biden and the Dems have been LYING to you… But this time they’ve gone too far! [This despicable “SCAM”]( – perpetrated by the highest levels of government… Is a danger to you and every American citizen. That’s why today… [>>This Is Your Chance to Get Your Revenge!<<]( This is your BEST chance to stick it Biden and the Dems… And possibly making a fortune in the process. [Click here to learn the truth NOW](. [Click Here To Learn More]( Profit From the "Dividend Catch-Up" Trade [Zach Scheidt] ZACH SCHEIDT Technically speaking, the stock market is up so far this year. But it doesn't feel that way to most investors. That's because while the large-cap market indices are pushing higher, most American stocks have been treading water. How can this be? They say the devil is in the details, and this is certainly true if you look closely at stock market returns this year. Almost all of the market's gains have come from a handful of the largest companies on Wall Street. I'm talking about names you'll certainly recognize like Apple, Microsoft, Alphabet, and Meta. These mega-tech companies have a huge influence on market indices like the S&P 500 or Nasdaq 100. But smaller companies barely move the needle for large-cap indices. Bottom line, many areas of the market have been left behind over the last few months. The good news is that as these stocks play catch-up to the rest of the market, you have an opportunity to lock in some huge profits! The “Dividend Stock Catch-Up" Trade Take a look at the chart below. It shows the broad S&P 500’s performance this year (purple line) and the performance of a basket of dividend stocks (orange line). [SJN] Unfortunately, dividend stocks are trailing the broad market by more than 16 percentage points so far in 2023. And we're not even halfway through the year! But while this is certainly disappointing, the chart also has a silver lining… You see, dividend stocks have been lagging the broad market. But that doesn't mean there is anything wrong with the companies that pay dividends. In fact, many of these companies are healthier than they were at the beginning of the year, thanks to growing profits and higher cash balances. So even though stock prices have been pulling back, the actual value from investing in these companies is increasing. So you're getting more for your money in the long run. I don't expect this underperformance to last long. Historically, dividend stocks have posted much stronger total returns than stocks of companies that don't pay dividends — especially when you factor in the higher risk for the more speculative non-dividend-paying stocks. So as we head into the summer, I'm expecting these dividend stocks to rebound and turn in a better performance than the rest of the market. Building a Dividend Stock Shopping List The orange line in the chart above shows the total return of the iShares Select Dividend ETF (DVY). This is a fund that invests in many of the best American dividend-paying companies. Over the weekend, I pulled a list of the top stocks included in this fund and started researching which stocks make the most sense for you. First, here's a screenshot of the top holdings in DVY along with some yield statistics for each stock: [SJN] Here are a few standouts that caught my attention: - Chevron Corp. (CVX) pays a 3.9% yield. The stock pulled back alongside weak crude oil prices this year. But oil is finding support and CVX has plenty of cash and profits to continue growing its dividend over time. - Philip Morris International (PM) pays a 5.5% yield. The company is diversifying away from its traditional cigarette business and is a natural beneficiary of the falling U.S. dollar. - Newmont Mining (NEM) pays a 3.7% yield. The gold miner will book larger profits thanks to higher gold prices, leaving plenty of room for larger dividends in the future. Many other stocks on this list also look very attractive, especially in today's market where dividend stocks have been left behind even though the companies still pay lucrative dividends. I'm excited about this list of reliable dividend stocks. And I'm looking forward to a very profitable period as these stocks play catch-up to the rest of the market — giving you both income and investment gains for the rest of the year. Here's to growing and protecting your wealth! [Zach Scheidt] Zach Scheidt Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. 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