Cream of the Crop 1/Cream of the Crop 1.iso/WINDOWS/RETIRE_.ARJ/GETRICH.WWO

Text File | 1992-03-24 | 24KB | 569 lines

                        WEALTH MANAGEMENT SYSTEM

                         Investing made simple

                          by WILLIAM W. ODLUM

                     Suite 105, 35 Ormskirk Avenue

                       Toronto, Ontario, M6S 1A8


 This Document Copyright (c) 1992 WILLIAM W. ODLUM

 Wealth Management System  Software copyright (c) 1992 WILLIAM W. ODLUM

 All rights reserved.

 Non-registered users are granted a limited license to use the above
 mentioned software and document on a trial basis. Use, except for this
 limited purpose, requires registration.

 Use of non-registered copies by any person, business or agency is strictly
 prohibited.

 No user may modify either the document or software in any way whatsoever.


       To register and receive the latest revision send $49.95 to:

                             William W.Odlum

                       Suite 105, 35 Ormskirk Avenue

                            Toronto, Ontario

                                M6S 1A8


                             THE CHALLENGE

                         Income Earning Years.


 When you start to earn your own money depends on how far you went through
 the educational system.

 However, at between 20 to 25 years of age you started working and will
 continue to do so until age 55 to 65 years.

 As a result of changes due to technology and automation a lot of people
 will be forced out of their jobs, through no fault of their own, as early
 as 55 years of age.

 Just look around you and see the changes made in manufacturing and methods
 of doing business in the last 10 years due to the introduction of the
 personal computer.

 This pace of change is going to continue and you have to be prepared for
 it and accept the fact that it may mean you will not be able to continue
 to work until the traditional age of 65. No matter how willing you are to
 work or how much you need income from a job.

 You have between 35 to 45 years of income earning years in which to build
 a retirement income.

                           Non-Earning Years.

 With advances in medical science and better health care the average life
 span in North America is now 88 years for women and 85 years for men.

 It is often said that older people do not need as much income to live as
 when they were younger - this is not true - they are forced by financial
 circumstances to live on less.

 Their tastes, needs and desires may change but they still need the same
 amount of income as when they were working to continue the same lifestyle
 now that they have more freedom and leisure time.

 Unfortunately many, due to a poor income, find themselves imprisoned
 within four walls staring at T.V and their greatest thrill is going to the
 grocery store once a week !

 You are looking at 15 to 30 years during which you will not be earning an
 income, only spending whatever income you have acquired through savings
 and pensions.

                            The Bottom Line.

 The first half of your adult life is engaged in earning money and spending
 it, while in the second half you will not be able to earn, only spend
 money.

 Since you will wish to continue the same standard of living when no longer
 able to work, your income will have to continue at the same level.

 Most people believe they are taking care of their non working years by
 contributing to company pension plans. With Government old age pension,
 Canada pension etc., they will be able to live in style.

 Unless they are among these who work for the various levels of Government
 who have an indexed pension plan which will keep up with the increases in
 inflation, they will be in for a rude awakening when they get a fixed
 pension at 65 years of age that will not be indexed and the purchasing
 power of their fixed income decreases year by year, leaving them to drift
 deeper and deeper into poverty.

 Those who are forced out of work before age 65, when the above mentioned
 pensions start, will be out of luck as they will have no income and have
 to either take odd jobs or mindless minimum wage jobs just to live.

                               THE WAY OUT.

 Yes there is a way out of this depressing situation as outlined above.
 Read on.

 Most people do save for their retirement and put their savings into safe
 no-risk investments such as bonds, guaranteed certificates, treasury
 bills, insurance, pension plans etc., feeling that they are taking care of
 their retirement years and will have the income to do all the things that
 they did not have time for during their working life.

 Imagine their shock to find that they only have enough to live on. Why did
 this happen?. Simple, they loaned their money and received interest on it,
 which did not keep up with inflation.

 Their so-called no risk investment turned out to have carry the greatest
 risk of all - not increasing in real value.

 How different it would have been had they put their savings into owning
 something that would increase in value at a greater rate than inflation.

 One lesson I learned was:

                        BE AN OWNER, NOT A LENDER

 Take an example of two people 25 years old, who decided on different types
 of investment. Mr. Lender decides to make a safe, no risk form of
 investment and buys bonds, certificates, treasury bills etc. all of which
 give him a guaranteed rate of return, and safety of capital.

 Mr. Owner on the other hand decides to put his savings into ownership with
 no guaranteed rate of return, but knows that with inflation the value of
 his investment will grow and he will share in the profits, which will also
 continue to grow over the years.

 Mr. Lender invests $1,200.00 each year for 25 years at 10% return each
 year with the annual interest re-invested. The result:

 $1,200.00 each year at 10% compounded annually for 25 years = $129,818.10.

 Mr. Owner invests $1,200.00 each year for 25 years at 20% return each year
 with the annual dividends and capital growth re-invested. The result:

 $1,200.00 each year at 20% compounded annually for 25 years = $679,652.76.

 What a difference !. But it goes even further. Suppose they decide to
 retire at this point (age 50) and now want to live on their Capital.

 Mr. Lender leaves his Capital in the same loan type investments at 10% and
 at the end of each year takes out 13% of the Capital as income to live on.

 Starting Capital = $129,818.10. The result:

 Annual income over 25 years = $299,850.00. Capital balance  = $60,621.78.

 Mr. Owner leaves his Capital in the same equity type investments at 20%
 and at the end of each year takes out 13% of the Capital as income to live
 on.

 Starting Capital = $679,652.76. The result:

 Annual income over 25 years = $5,588,359.80.

 Capital balance = $3,688,769.57.

 Mr Lender from the first year has been reducing his Capital and his annual
 income. At 75 years of age and taking inflation into account, he is living
 in poverty.

 Mr. Owner on the other hand is adding to his Capital and increasing his
 income. At 75 years of age he is certainly not living in poverty.

 You cannot believe it !!. Well try it out on the Savings and Income
 Calculators and you will see for yourself the results year by year and
 test them out.

                    Establishing Your Wants or Needs.

 Let us try to figure out how much money in savings you will need to be
 able to live the good life and be dependent on no one, either children or
 governments.

 Ignoring inflation for the moment, supposing that your present annual
 working income is $30,000 this year and you want to just maintain your
 present standard of living when you decide to stop working or are no
 longer needed in the workforce.

 You will need 10 times annual income of $30,000.00 which is $300,000.00 in
 savings.

 How did I arrive at that figure and why ?

 Assume that you get a 10% return on your Capital/Savings, to have an
 annual income of $30,000.00 would require $300,000 in Capital to allow you
 to continue to use the annual income of $30,000.00 every year for the rest
 of your life without having to touch the Capital.

 However, since we do not live in a perfect world with zero inflation we
 must factor the decreasing purchasing power of the dollar into the
 equation.

 That is where the Savings Calculator comes into the picture. If we take
 the average rate of inflation to be 5% per year over the time period that
 you expect to continue to work, we can easily find out how much Capital is
 required.

 As an example: Mr. Planner is 30 years of age right now and earning
 $30,000 per year. He wants to stop working at 55 years of age but does not
 want to take a cut in his present standard of living.

 Into the Savings Calculator we enter:

 Starting Amount Invested or Lump Sum.......$30,000.00

 Annual Amount of Savings Invested...............$0.00

 Annual Interest/Growth (%).........................00%

 Term in Years......................................25

 Adjusted for Annual Inflation Rate (%)...........5.00%

 To keep pace with inflation he needs $101,590.65 each year 25 years from
 now just to maintain his present purchasing power!

          10 years earnings X $101,590.65 = $1,015,906.00

 that's right !  1 million dollars in Capital in 25 years at 10% interest,
 just to maintain his present standard of living based on an income of
 $30,000.00 this year.

 It gets even worse because if he takes out 10% per year while inflation is
 still running at 5% per year his purchasing power is declining year by
 year.

 Don't despair !.  I will now show you not alone how to keep pace with
 inflation but to beat it.
                            Savings Required.

 Having established that Mr. Planner requires a Capital amount of
 $1,015,906.00 on quitting work at 55 years of age, we will work out how
 much he must save annually for the next 25 years to achieve this Capital
 amount.

 Into to the Savings Calculator we enter:

 Starting Amount Invested or Lump Sum............$1,380.00

 Annual Amount of Savings Invested...............$1,380.00

 Annual Interest/Growth Rate (%)............. .......20.00%

 Term in Years..........................................25

 Adjusted for Annual Inflation Rate (%)...............5.00%

 He started with a savings rate of $1,380.00 the first year and increased
 his savings by 5% each year to keep pace with inflation. While increasing
 the amount in dollars he has to save each year, he really is only putting
 in the same purchasing power as the first year, as his earned income is
 increasing at the same rate of inflation.

 By getting a compounded growth/interest rate of 20% each year, at the end
 of 25 years he has a total Capital of $1,015,789.00 from a total amount
 invested of $65,863.40.

 Mr. Planner is right on target. He can take out 10% of this to spend the
 first year ($101,578.90)  which has the same purchasing power as his
 present $30,000.00 earned income.

 It is even better than that as you will see. If he continues to get a
 compounded 20% interest/growth rate on his investment he can safely spend
 15% of his Capital each year and both his annual income and Capital will
 grow at a 5% rate of inflation.

 Let's try it on the Income Calculator:

 Current Value of your Investments on Retirement.....$1,015,789.00

 Annual Interest/Growth Rate (%).............................20.00%

 Annual Income Withdrawn as a (%) of Current Value...........15.00%

 Term in Years..................................................30

 Mr. Planner has withdrawn as income $152,368.36 at the end of the first
 year and his withdrawal of income is increasing by 5% a year while his
 Capital is also growing by 5%  so he is staying within the average
 inflation rate of 5%.

 After 30 years of living well, at 85 years of age, he will have withdrawn
 as income a total of $10,123,178.00 and still have Capital of
 $4,390,182.00.

 Unbelievable but true, the facts do not lie. Check them out for yourself.

 Check out the growth rates of the amount of income withdrawn or current
 value by dividing any one year by the next year figures.

 At this point you are probably saying you cannot afford to save $1,380.00
 each year to take care of your financial future. You cannot afford to
 ignore the facts.

 You are going to live a long time and it depends on whether you are
 willing to defer some present spending in order to live well all of your
 life instead of living the last half of your adult life in genteel
 poverty.

 As you can see when Mr. Planner quit work at 55 years of age, he had 50%
 more to spend each year than the amount we established as the equivalent
 of his income from his job.

 This is because instead of getting 10% growth/interest rate on his Capital
 as we worked out earlier he was able to get a return of 20% and is able to
 take out as annual income 15% of Capital.

 Your wants or needs may be more or less than Mr. Planner. I urge you to
 establish them right now using the above entries as a guide.

 Use the Savings Growth Comparison calculator to compare the effect of
 various combinations of savings amount, interest/growth rates, time and
 inflation.rates.

 You may have a longer earning period and a shorter retirement period, try
 all combinations to establish a reasonable savings plan to finance your
 non-earning years.

 You may already have savings or an inheritance to start off with a lump
 sum the first year.

                              How to Save.

 Most people have great difficulty in starting a savings program and
 sticking with it. Some because they do not see the necessity for doing so
 as they feel the future will somehow take care of itself without having to
 give it any thought or effort.

 Others because they are on a treadmill and are influenced by countless ads
 telling them that they deserve whatever product the advertiser is pushing,
 demand instant gratification and must have it all now.

 For instance, changing furniture and appliances or broadloom every 3 or 4
 years, not because of wear or tear but because the new ones have a
 different shape, colour, style or more buttons etc. But the functional
 level remains the same.

 Transportation is one area alone that will produce the savings to provide
 a splendid retirement income. Today it costs $20,000 - $25,000 for a car
 with all the bells and whistles, capable of travelling at 180 km/hr, from
 start to 100 km/hr in zilch seconds with 4 wheel drive to take you across
 swamps and mountains.

 What a Joke!. The top speed limit is 100 km per hour and most of us spend
 all of our time in dense rush hour traffic and rarely get beyond 50 km/hr.
 A more modest car at $10,000 - $12,000 will do the same job of providing
 good, comfortable transportation.

 Since a car is a rusting, depreciating possession, it has to be replaced
 every 5 years. So the savings are at least $2,000 each year without
 counting the savings in financing charges etc.

 Check out monthly savings, which could  be available by buying a less
 expensive car, on the Payment on a Loan Calculator.

 I can hear the objections. My car is a statement of my status, lets the
 world know how important I am and where I am going.

 Bunk ! This particular ego trip is going to cost you a life of luxury in
 later years.

 Another way to save is by renting equipment for leisure time activities
 rather than buying immediately.

 People get really enthusiastic about a new sport. Take skiing for
 instance. They go and buy all the clothing, boots, equipment etc., only to
 find after 2 - 3 sessions on the icy slopes that it is not for them, and
 all the equipment goes into the basement.

 Then on to the next fad, wind surfing, golf, tennis, snow-machines, boats
 etc.

 When one is contemplating such purchases, they should ask themselves if it
 does something better or easier or gives more long term pleasure than what
 they already have. In this way, they find they do not need to make the
 expenditure and can put this money into savings.

 One of the best and easiest ways of saving is to pay yourself first. Most
 people sit down at the end of the month and write cheques to cover the
 monthly bills, the mortgage or rent, car payments, credit cards etc. and
 when they are finished, look at the little remaining, figure it is not
 worth saving and spend it.

 This is wrong. The first cheque you write should be to yourself, by that I
 mean into your savings plan. Then you pay the other bills, if your money
 does not stretch to pay all of them, let them wait until next month and
 try to reduce some expenses in the meantime.

 So get in the habit of writing that first cheque to yourself, after all
 you worked hard for it, then you can have fun spending the rest of your
 month's income knowing you have taken care of number one.

 Another way is through forced savings. Such as mortgage payments or a
 monthly payment plan for shares in a mutual fund, or a bond at your bank
 or trust company.  You must meet these payments every month and in doing
 so are building up equity.


                       TO BE A LENDER OR AN OWNER.

                       Let's look at lending first.

 People looking for safety of capital and a known rate of return put the
 money, that they have worked hard for and saved, into institutions such as
 banks, insurance, trust companies etc., who offer saving accounts, bonds,
 treasury bills, guaranteed investment certificates etc.

 They know that they will be able to redeem them at full value and will
 receive anywhere from 6% to 10% per year interest. The interest rate will
 vary from time to time due to money market conditions.

 They have taken no risk with their capital and feel safe and secure.

 What happens to this capital they have loaned?  It  does not sit idle. The
 institutions now lend it out at a higher rate of return which varies from
 12% to 16%, to businesses that are expanding or bringing new products to
 market.

 These business are not going to borrow this money unless they are going to
 make a profit by doing so and are looking for a return of 20% to 25%.

 Indirectly their savings have gone to finance business or commerce which
 they considered as too risky an investment.

                      Now let's look at ownership.

 I see financial institutions taking in hard won savings and lending it out
 at a far higher rate than they are paying for this money. Sure they have
 operating expenses, but they are still making a great profit margin.

 I want to participate in those much larger returns and buy ownership in
 those institutions and end up with a far greater return from growth and
 dividends than lending that same money to them. If it's safe enough to
 lend them my money, it's surely safe to own a part of them.

 Then I look further and see the business that borrowed at high rates and
 in turn made a profit in doing so and I want to own part of them.

 I am not being greedy, I just want to get the best yield I can from my
 savings. If the institutions feel it is safe to lend to these businesses,
 then it must be safe for me to own part of them and participate in their
 even greater growth and dividends.

 I believe ownership is the only way to put one's savings to work and
 achieve the maximum results.

 Yes, some businesses do fail through poor management, not keeping up with
 the latest innovations in their industry, or their product is replaced by
 a better one.

 So how is one to choose the growth companies and avoid the ones that are
 stagnating.?

 I will now show you how.


                         WHERE AND HOW TO INVEST.

 Since this is an unregistered copy,  I am not going to give you the second
 part of this document until you register.

 I can tell you that the simple Investment strategies I will share with
 you have worked for me. They enabled me to accumulate enough money in 25
 years to retire and live in comfort. My wife and I enjoy travelling and
 have visited over 26 countries.

 Not to brag but to give you the facts. I came to Canada at 24 years of
 age with a grade 12 education and no skills. I realized that I would never
 earn more than an average salary.and wanting to enjoy all that life had to
 offer I started to invest a small amount each year.

 It took me a while to devise a winning strategy and from then on I spent
 approximately 2 hours a month on my investments.

 Soon my annual income/growth from investments was greater than my salary.

 I retired at 50 years of age, which was 9 years ago and have enjoyed
 myself since and have not missed the stress, pressure and nonsense of the
 work world! Ho Ho Ho !.

 So many investors I have spoken to seem doomed to repeat all the mistakes
 of the  beginning investor by trying to reinvent the wheel, as they will
 not pay for sound advice upon which they can continue to build.

 They use free advice from friends, acquaintances and newspaper columnists
 with no proven track record. In doing so they end up wasting their money
 on commissions and lost growth by investing in the wrong areas at the
 wrong time.

 Take Real Estate as an example. When the boom in prices started there was
 a great deal of money to be made but then everyone got on the bandwagon
 and instead of a home providing shelter it became a profit centre with
 annual gains greater than the homeowners take-home pay.

 When the cost of owning a home required 50% to 60% of the home buyers
 annual salary it was obvious that people could not and would not pay these
 prices and they crashed back to the traditional level of the cost of
 shelter which is 25% to 30% of salary.

 I have lived and invested through all the fads. Gold from $200.00 to
 $800.00 an ounce and back, Silver from $5.00 to $50.00 and back. Oil
 $18.00 a barrel to $56.00 and back, Nickle, Cotton, Strip Plaza's, Office
 buildings, Land, Retailing, Manufacturing and Junk Bonds the list goes on
 and on.

 However while enormous sums of money were lost by gullible investors, it
 did not disappear. Some shrewd investors ended up with all of it.

 As you probably know the Dow Jones Industrial Average increased in the
 year 1991 by over 20%. Since this is an average, some stocks did not show
 any gain while others did far better than 20%. Did you participate in
 these gains?.

 The programs in this package are all the tools you will ever need for
 successful investing. Don't get carried away with programs that give fancy
 charts and graphs, they only show the past and are an unreliable indicator
 of the future.

 The key to successful investing is a strategy that consistantly works in
 the real world of commerce in spite of boom or recession.

 Enough said. The choice is yours, do you want to retire early and live in
 luxury.