All Forum Posts by: Scott Trench

 Jon,

Here I use 401(k) somewhat interchangeably with "tax deferred retirement plan".  Why not invest in one of these plans, and then go for that fund with the 20% return, or real estate, etc?  I get to become an accredited investor sooner, which gives me access to the fund, and as a bonus, my money grows tax free.  Sounds like a pretty good plan to give you the most opportunity the soonest!

-Scott

Ben,

That's a big goal you have there of $100,000 per month.  Best of luck!  There's definitely opportunity out there.  

One thing that you may consider is that in Colorado, it is tougher to find the kind of properties that you might need to find to generate huge levels of cash on cash return.  You may want to look elsewhere (like Milwaukee or the rural south), or take advantage of the Colorado market by flipping and forcing appreciation!

-Scott

Guys - this is a great discussion! I'm learning a ton from everyone. I guess that for me I keep coming back to this concept:

My goal is to maximize my total net worth and the assets I control as rapidly as possible. I believe that the 401(k) and tax deferred retirement accounts enable me to control more assets more rapidly at a younger age in life. I guess its sometimes tough to desscribe why that's so important - I simply feel that having accumulated wealth rapidly, even in a 401(k) that I can't spend for personal leisures, I will have access to opportunities that are not available to those of lesser net worth.

Again, my financial goal is simply to increase the net worth of Scott Trench as rapidly as possible, to control as much money as possible, and to reap the benefits that high net worth brings.  To that end, the tax deffered savings and immediate tax break today make the 401(k) an unbeatable way to protect my hard earned dollars, even without an employer match.

@Walt Payne 

I am 100% in agreement with your post. One point you make is that most investors can easily have a solo 401(k), and that this money can be transferred from an employer 401(k). This is huge. It means that you can save big on taxes during a working career, and still employ funds when you decide to go out as a full time REI!

It's the fastest way, in my opinion, to build a sizable portfolio to begin an REI career!

@Richard C. 

Thanks for the comments! With regards to the Roth IRA, I personally think that the math works out better for most Americans with the 401(k) contributions first. It's the difference between a dollar towards net worth now, vs a dollar later. The 401(k) immediately reduces your tax bill.

That said, a Roth is also a great way to invest, I've just personally prioritized the 401(k)  because my goal is to rapidly accumulate as much net worth as possible today.

A recent article that I wrote on the BP blog received some criticism because I suggest that a 401(k) is one of the best ways to increase your net worth.

This strategy was criticized by a couple of readers and I thought I'd move the debate over here.  So here's my argument:

A 401(k) allows you to invest and grow your net worth tax free.  It reduces tax liability now, enabling you to have a huge portfolio to invest that will achieve outstanding returns for the lifetime of the account.  In my opinion, this is absolutely critical and its a real shame that someone would forgo the opportunity to take advantage of this tool.

The main counterpoint to this thought process is that the funds are not available until 59.5, and that they are taxed when they are withdrawn.  

What do you think?  Would you rather build up a ton of net worth through the 401(k) or have less assets to manage, but make them usable sooner?

I vote for the 401(k) and increasing my total assets under my name as much and as rapidly as possible.

As a follow up - I would definitely do this through Real Estate, and based on your description, I assumed that $40,000 per year in incremental investments is very reasonable for someone with your corporate experience (likely earning a high salary).

@Mark S. 

I think that $20,000 in passive income over 20 years is a phenomenal goal.  Most people never get there, even though I think it is extremely doable.  

 BUT, I think that you are thinking about the path to getting there in the wrong way.  You are ignoring the power of compound interest.  In your post you state that you would like to generate an incremental $1,000 per month every year over the next 20 years.  In my opinion, this is a herculean feat.  Assuming that you average a very solid 10% return, you'd have to invest $120,000 in the first year to get $1,000 per month.

Let's look at it this way instead.  If you manage to invest $40,000 in Real Estate in the first year and achieve a 10% return on that $40,000, you've now got $4,000 or $333.33 per month.  That's not even close to the $1,000 per month that you stated in the original post, but continuing along this path will get you to your goal of $20,000 per month in 20 years, here's how:

After year 1 you have invested $40,000.  The 10% return on that $40,000 nets you $4,000 in cash, or $333 per month, which you reinvest.

Next year, you add another $40,000 to your investment for a total net worth to start the year of $84,000.  This $84,000 returns $8,400, or $700 per month.  You again reinvest.

This process, repeated over 20 years, will get you to just over $240,000 per year in passive cashflow, your stated goal, but doesn't require you to achieve the near impossible feat of generating $1,000 per month in your first year.  If you are a superstar on that kind of level, you should aim for $20,000 per month in just 11-12 years!  

Hope this helps - please do not be discouraged by the gargantuan struggle of attempting to generate that kind of cashflow in just one year!

You had me at "We will be serving drinks" @Joshua Dorkin @Brandon Turner 

Stephen,

True credit repair is done only one way - consistently paying off debts over a long time period.  While you might get a small bump by employing some of the techniques above, I think that changing your mindset to a long term approach to wealth creation and strong credit is a great way to build your score.

I formerly had a poor credit score, and one of my friends told me that credit score can be thought of sort of like your reputation.  I was angry with him at the time, but thinking this way really helped me prioritize building my score - banks and other lenders like to lend to someone with a great reputation or score, just like I might be more willing to lend my car to a friend who has never been in an accident or pulled over.  While you can get around this, having a great financial reputation or credit score just makes life easier and creates more opportunity.

So to answer your question, I think that no, you might not need a credit repair company.  It might be best to just understand what circumstances led to your current situation, and create a plan to prevent them from recurring in the future.  With a fundamentally sound and strategic plan, you might find that you can achieve a surprising improvement in your score in just a year or two.

-Scott

Hi Jeff,

I think that in answer to your question, it's all about math and growth for me.  If we accept that as human beings, we never want our personal influence and power to diminish, then we will never want to stop growing.  Investing in riskless treasury securities is a stoppage in personal growth.  That's an unacceptable position to voluntarily place ones self in, in my opinion.

On the math side of things, we can expect the stock market to appreciate at a rate of around 6.5% per year in aggregate over the long haul.  If you can claim 2-3 % per year in dividends from your investment, over the long term you are likely to have the same or greater spending power that you get from riskless treasury securities.  In this case, a very basic change of mindset that is willing to accept some short term loss results in exponentially greater wealth over the long term.

I guess it all comes down to a very basic question - why settle for less?

-Scott