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Investment Pyramid

we're going old school kids, we're going to, we're going old school. So this is what you know, new school looks like. But we're gonna go old school like so new school, I would do everything on the script. But I want to go old school because back in the day when I taught a class in an actual classroom with a blackboard before this was so high tech And I would teach classes and have 10, 15, people in the room and teach it for 10 hours. I'd have a blackboard and I would teach the investment pyramid. Actually in some cases, just for two hours, the entire class would be dedicated investment pyramid because there's so much I can teach on an investment pyramid. We're not gonna do this over two hours, but I want you to draw a pyramid right now and there's gonna be 123456789, 10 10 spaces. Okay. And I'm gonna walk you all the way from the bottom of the pyramid to the top and here's what you should do. This is what you want to know about. This pyramid at the bottom is low risk. And up here, jus...

t cross it out, we'll say this is high risk. So we're going from low risk to high risk and once you guys have got your pyramids filled out, you let me know the first thing you can put your money in. Yeah. Is this good old thing called cash? Cash is like a checking account. Right? So a checking account today? Someone tell me what a checking account today is paying. Mm We what .01% can we agree that that's basically zero. The average checking account American cost a little over $3 a year in miscellaneous bull fees. Now here's what's amazing because I love explaining it this way pick a bank, pick any bank you want, give me a bank chase. You can go to chase and get 0%. I can count. But you know it's interesting. Chase also has a higher paying account. It may be called an online, I don't know Chase in particular it could be any bank, it's gonna be called online savings account or it's gonna be called a money market account or it's gonna be called a high yield account. But those accounts and I'm gonna refer to these right now as money markets these accounts which are totally safe and often even insured are paying depending on the bank Now up to two Now there are banks that are starting to make this even higher literally like right now two and a quarter, 2.35%. There's actually a massive race for this money right now. So earlier I showed you Marcus Which was Goldman Sachs online money market account, they were paying 2. Two days ago I was with somebody who runs works one largest financial service companies, they have a teaser rate right now. 2.35. Some of these accounts come with checking is this more than this. Your emergency money should not be in a checking account earning ethic. It needs to be up here. So it's earning at least 22 and a quarter. The next step up on this ladder are called CDS. Everybody familiar with CDS is what the banks are always talking about. CDS certificate to deposit. Sometimes referred to as certificates depreciation. If you put all your money in them, these are paying right now to five two I would say 3.5%. Depending on the length of time. Like if you go five years out right now you can get about 3.5%. And again all this is available online. So you could go to a bank and you could be at zero go to chase and zero go Chase be probably 2% here. I'm just using them generic because I don't know this for sure any bank here. You can also get a cd, here's what's so interesting. You can also get a bond from that bank. So bank of America or Chase or Wells Fargo. They issue bonds to raise money bonds right now. And the government issues bonds bonds. Mhm. What's known as an I. O. U. You loan your money and bonds promise to pay you these things. This pays monthly except doesn't this pays monthly does a little uh This is usually annual bonds are usually twice a year Bonds are paying right now between three 26% Now, I could show you an entire pyramid just on bonds because I could take you from short term bonds to long term bonds. I could take you from quality bonds, rated bonds to be bonds to see bonds to high yield bonds. So that's how you get these different rates of return. It's also the length of time. The longer you go out on a bond, like a 10 year bomb, the higher the rate of return will be. But again, there are banks right now that will pay 6% in a bomb and pay you 0% in cash. So if you're comfortable putting your cash in a bank And they have a bond at five 13 cd Next is preferred stocks. Uh huh. Mhm preferred stocks are paying. Mhm. The source. Now, I'm a huge fan of preferred stocks and just I have all this like when you build a diversified portfolio and of having all of it preferred stocks, you go to a bank, you loan money, the bank bank says we'll pay you back, we'll give you your money back in five years, We'll pay you twice a year. That's your dividend, preferred stocks. Typically they're paid quarterly. Mm hmm. They don't promise you your money back, it's secured after the bondholder gets paid back and it's ahead of the stockholder. So like let me go back, Let me go back to Mcdonald's. My grandmother taught me how to buy stock in. Mcdonald's, which is gonna be the first thing up here. This is stock. If Mcdonald's were to go out of business, the first person to not be paid back is the stockholder. Because what would happen is the stock we just dropped down to zero. If they went bankrupt, this won't happen to Mcdonald's, but if they went bankrupt because big companies go bankrupt all the time. The first person after the stockholder that gets paid back as the preferred shareholder after the preferred shareholder, it's the bondholder. He is following this. That's how the rate of the difference between low risk and high risk. So now stocks, this is what's called large company stocks, Anybody remember what I said? Large company stocks have averaged since 1926, 10% in the back of the book, 1926. Large company stocks have averaged 10 happens to be Mediums, what I would call medium sized companies have on average, it's just a little bit more than that. Let's call it 11% roughly. And then we have small company stocks. These have averaged 12. Now again, this is going back from 1926. Okay. And it's in the book Bonds of average five, camera with money markets, let's call this to so as I showed you earlier, like if I can get If I can just get 10 here and five here and I've got a mixture, I can get somewhere around seven. I'm gonna double my money every 10 years. Rule the next level risk. Our options options allow you, it's a derivative options allow you to take a position in a stock really without owning it. You can take a position that allows us buying stock for the future going higher. You can take positions in stocks going lower. Somebody put on, oh, have you guys ever been on Quora Core is an online website to ask questions. I gotta ask about buying options. Yesterday on Quora. I see the average person has no no business buying options. Most people have no business buying options look super sexy on CNBC, Super risky. You don't need to go higher. Truthfully than this, you could never go higher than large company stocks. You can have a little bit in small company stocks, a little bit of median company stocks, but you don't really have to go higher than this. I have no money in small companies talks, I have a little bit of medium, I got a lot in large and I got a whole bunch prefers a whole bunch of bonds. I am bit my and then I got real estate. Um, so I'm going to go through now. What I call the red zone. The red zone is where you lose all your money. The red zone is where a lot of people put all their money. One of the reasons people put their money in the red zone is that they're trying to get rich quick because they're behind. So things that tend to lose all your money and I'll just I'll call them packaged products, they're gonna be so many people are gonna hate me for saying going through this. But typically anything that's got the word limited partnership in it, it doesn't really matter what it's in the common denominator among a limited partnership is that you're investing in something that's been packaged up by somebody else. It's being sold to you. It usually promises a high return. But the key thing is, and how you'll know if it's one of these things is not liquid, You can't turn around and sell it instantly. Every single thing here. I went through from here to here can be sold and you can have your cash back in three days. That's how long it takes to settle. Trade, trade. So you can buy a large company mutual fund and you can be out of it and have a cash back in three days. You can buy a medium sized stocks or mutual funds out. You can be all of this. Everything here is liquid. Even bonds, you can buy a 10 year bond, you can still sell the 10 year bond, you're gonna maybe solid a discount, you can buy cd, but you can get out of the cd, you'll have a penalty fee, but all that's liquid. You always want liquidity as soon as you buy things are not liquid. The problem is there are other people that want to sell it and they can't sell it either. And that's why the value becomes often worthless. Great example of packaged crap right now is what's called a non traded read billions and billions and billions of dollars from the package up in these non traded real estate partnerships, inevitably they end up being your laughing in the back of the room, inevitably these things end up being worthless. I know I worked, I first of all, I run, I'm a co founder of a firm with $7 billion dollars under management. The box group today has 1.1 billion. I spent my entire years in this business. First nine years going through statements, working with real people when their statements come in and they've got something that's worth nothing. But there's a name by it. Every time it's a limited partnership, it could be a limited partnership in oil. It can be a limited partnership in, in real estate, can be a limited partnership in solar or wind. It's a limited partnership. You don't belong in my opinion and limited partnerships, um, you don't belong in privately held companies where someone's trying to build a business. It's super sexy in this world of investing in startups. But if you're an average person like today, this is what's so scary that we've, we've changed the regulatory rules and today you can literally be on facebook and you're gonna, there are facebook ads that will tell you that you can be in the next unicorn. You too could invest the next uber early. We're taking investors today with just $1,000. But it's limited time only if you see a facebook ad for a limited time only investment, you're not seeing this money someday. Okay, don't be investing in limited time investments on facebook. Don't be investing in anything off of facebook ad. Love your facebook, but don't don't buy things off of weather adds. All right. Um Mhm. How many of you have heard of Bitcoin? Oh, okay. So it's not that I'm against Bitcoin, but I'm gonna I'm gonna lump Bitcoin into this category. Um How many of you have bought or sold anything with bill clinton, yep. Nobody. I have yet to be in a room. I've been, let's just say I've been in front of 10, people in the last 18 months, mostly retirees because I get asked about Bitcoin and every time I'm in an event and then how many of you have bought anything or something with Bitcoin? One hand has gone up so far in two years. Why would you invest in something that no one uses? How many of you have invested in dollar bills? How many of you have dollar bills you use dollar bills every day. But why don't you invest in dollar bills? Because nobody invests in currencies. But in theory Bitcoin's a new type of currency and now everybody wants to invest in this mythical thing that sits inside a cloud somewhere. I said two years ago I thought 90% of ceos initial coin offerings would be worthless. $700 billion dollars has evaporated so far from cryptocurrencies. I don't know if Bitcoin's somebody gonna go higher again. I don't care. I don't care about the other 25 cryptocurrencies that are out there right now. There was a Cryptocurrency called ripple. Everybody was buying it. Nobody's buying it now. So these are the ways you lose your money now. The reason people are here, let's not kid ourselves. People are here because they want to get rich quick. Nobody is like and what happens when people want to get rich quick Cause as soon as it crashes and goes down to nothing, they say a minute for the long haul. They're not in it for the long haul. You can be in this stuff for the long haul. You can't be, you can be in this every long haul to, it's just never gonna come back if it goes wrong on you