Fire and Knowledge

The first essential step toward helping the poor is to not become one of them.

—Christopher Howard

More Americans now declare bankruptcy each year than graduate from college.

—Richard Evans, The 5 Lessons a Millionaire Taught Me (2006), p. 6

Jesus told us to be like the Good Samaritan, yet how many of you here today could afford to pay for a stranger’s hospital treatment and housing for a week? The Samaritan was able to help because he had the financial means to do so. Without it he could only have offered minor assistance.

—Kerry Heinz, as quoted in Richard Evans, The 5 Lessons a Millionaire Taught Me (2006), p. 3

If you’re nervous about investing in stocks directly, or you don’t know where to start in mutual funds, here is a nice overview of the “only 7 investments you need.”

I wish someone would have convinced me of this at 15. Or 20.

Even investing $50 per month, and never increasing the amount can give you a seven-figure portfolio. You just have to start early. A fifteen-year-old who invests $50 per month until age sixty-five, or a total of $30,000, will have an investment portfolio of more than $1.3 million (assuming an average annual return of 11 percent). While that may not be much help to you given your age, I’m sure you know a teenager who would benefit from this knowledge.

—Charles Carlson, Eight Steps to Seven Figures (Currency; 2000), p. 169.

Here are my five top stock picks for 2008:

1) Apple (APPL). Obvious. With record profits and a high mindshare among the young, things are going to explode over the next few years. It’s already gained 35% since I bought it two months ago. I think that’s just the beginning.

2) Amazon (AMZN). Amazon is in a very good place. They’re a household name for ordering online. They have an e-reader that will continue to become more popular, and distributing digital books will reduce overhead and inventory and increase profits. What really got my attention, though, is their developer services. They have their simple storage solution (S3), scaling database service (SimpleDB), virtualization solution (EC2), and payment services (FPS and DevPay). Long term Amazon is a huge winner.

3) Intel (INTC). The best chip maker in the industry. Now they’re moving into storage, too, which will provide new revenue. I don’t expect this to be as lucrative as Apple or Amazon, but it’s a good growth stock. And they pay dividends.

4) Pulte Homes (PHM). The housing market has been bad, and Pulte has tanked along with it. It’s a great time to buy in. (I’m less certain here than with Apple because it’s not my area of speciality, but investment gurus are saying the same thing.)

5) Regions Financial (RF). Since buying AmSouth, they’re everywhere down here in Florida. Their stock has tanked due to the housing slump, and like with PHM, it’s a great time to purchase.

(If you’re just getting into buying stocks, contact me and I can send you a Scottrade referral that will give you (and me!) three free trades.)

Update 5/19: I would now recommend Bank of America (BAC) over Pulte (PHM).

As Carlson implies here, a 401(k) or other employer IRA is one of the best methods of investment because of the tax breaks and ease of investment. Most employers also match up to a certain percentage, which is an immediate 100% gain. If you’re not funding a retirement account, get started today!

If you are not taking full advantage of your employer’s 401(k), you are making a very big mistake. You have no business investing in any other investment until you contribute the maximum allowed by law to your plan.

–Charles Carlson, Eight Steps to Seven Figures (Currency; 2000), p. 60.

Update: I actually don’t agree with his last sentence. If you need the money before you retire, then no-load index funds or quality stocks are great investments even if you’re not maxing out your IRA. This is especially true for those of us with 401(k) plans, where one can contribute up to $15,500 a year. It’s not realistic for most of us to max that out!

But even then a Roth IRA is often the best investment account, as your contribution can be withdrawn at any time, while the earnings grow tax-free. If you need the earnings before retirement, then I recommend a standard investment account from a discount broker like Scottrade (the one I use) or Etrade.

When we traded homemaking for careers, we were implicitly promised economic independence and worldly influence. But a devil of a bargain it has turned out to be in terms of daily life. We gave up the aroma of warm bread rising, the measured pace of nurturing routines, we received in exchange the minivan and the Lunchable. (Or worse, convenience-mart hot dogs and latchkey kids.) I consider it the great hoodwink of my generation.

—Barbara Kingsolver, Animal, Vegetable, Miracle: A Year of Food Life (HarperCollins: 2007), pp. 126-127.