Lazy Money

I work with a guy named Joe. He's new in the industry, and having a new perspective is cool. He told a client of ours, "I hate all this lazy money."

Image Source: Behance, Tinkoff Investments

Lazy Money! I love the phrase!

I define Lazy Money as

“Seemingly small amounts of cash sitting in any type of account.”

Small accounts from old employers.

HSAs or FSAs with small balances.

A checking account that never gets used.

Piles of cash, coins, or currency that have no purpose.

‘Lazy Money‘ for many people, adds up to thousands if not tens of thousands of dollars.

The person we were meeting with, her 'lazy' 2-3% cash in accounts was close to $50,000. Her old retirement accounts were hundreds of thousands. Slowly deprecating 2-3% per year while the Federal Reserve intentionally devalues your currency.

I hate lazy money.

Understandably, the pain of dealing with 10 small accounts seems greater than the return of opening, investing, transferring, and closing those accounts.

Despite the massive inconvenience, I have two reasons to make your Lazy Money work again.

#1 Inactive accounts get turned over to the state. If you don't interact with an account (in Colorado) after a few years, the company is forced to turn the account and money over to the state. In some cases, like an uncashed check, the money goes to the state much sooner.(If you want to check yours, go to Colorado Unclaimed Property)

#2 Is the 90% Rule. If you give 90% effort, you get 90% of the results. If you give 40% effort, you get 40% of the results. BUT. If you give 100% effort, you get 1,000% of the results. Going all in, with focused intensity, gives a reward that is exponential. Declaring that you are going to commit 100% to maximizing the efficiency of your investments has a return that is greater than the cost of administering various accounts.

Lazy Money isn’t just a math problem. It’s an intention and organization problem because it creates inefficiencies that prevent you from going 'all-in' on getting your financial life in order.

Take the afternoon and fix all of your lazy accounts.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Should you go to college?

Do you want to be wealthy, climb the corporate ladder, join Academia, or climb the social ladder?

These are four distinct goals, with four distinct education paths. Before going to college, you should think carefully about which of these things is most important to you.

The first part of this blog is a brief history of universities. This is a very useful context for understanding where and why the university system came to exist, and will help you understand the paradox of higher education. People who get a four-year degree will make more on average than those who don’t, but universities do not teach you valuable job skills that command a higher salary.

Remember that correlation is not causation. Often, people with better grades and better skills and those who come from wealthier families are more likely to get a college degree, which certainly skews the data. There is no question, on average, more education means more income. But that doesn’t mean your Masters Degree in Social Work will cause you to make more money than someone who does landscaping. So, let’s get into the details and see how to earn more money.

Part I. History of Universities and How We Got Here

Until the first universities, knowledge was passed down orally, through guilds and other local organizations. The university system, as it came to develop over hundreds of years, began to focus on non-religious, non-physical skill sets. So blacksmithing, for example, passed down knowledge through apprenticeship, each generation learning practical skills from an experienced practitioner. Religious rights were passed down by clergy and through theological studies through churches. Military skills were taught through physical training and direct instruction.

As legal, scholarly, religious, and philosophical work became increasingly a part of society, the institution of the ‘University’ was founded. These were initially centered around religious study but came to be a place for teaching students a foundation of thought around the historical knowledge of the world, including philosophy and law.

Medieval Universities spread throughout Europe, eventually becoming common in major European cities by the 1400s. (This is very subjective; by 1499 there were Universities in virtually every major European country, but the country’s make-up looked very different than it does today.)

For the purpose of this blog, suffice it to say that the university systems came about as a way to transfer non-physical labor skill sets to the next generation.

Part II. How the University Works Today

As I draw conclusions from hundreds of years of history and condense them into three or four paragraphs, please understand that my training as a historian cries out in rebellion. I am summarizing a lot of information and realize these broad generalizations are not precise.

At some point in the late 1800s, especially in America, the University system became a place to learn the philosophical, political, religious, and historical story of humanity. These were not hard skill sets but rather a place for the upper class of society to transition from their late teenage years to adulthood. Often these ‘Ivy League’ students had a well-paying job waiting for them when they graduated. To a meaningful degree, at some point, a skill set was no longer being passed down to students, but the very romantic idea of making more well-rounded citizens.

The phenomenal insight from Niall Ferguson in the video linked below tells the tale of where we are today. A whole generation of children born between 1980 and 2000 were RIGHTLY convinced to go to college to learn skills to combat the shrinking manufacturing and working class based of American Society.

Good manufacturing jobs were becoming a thing of the past, company pensions were all but gone, and there was increasingly no place for ‘unskilled labor.’ Aside from low-skill service industry jobs like being a truck driver or a waitress, job security and income were only to be found in some sort of skill base.

Here is where reality sets in and many people on social media begin venting their frustration about their college debt and degree. A person is told to go to college to get an education, but the education system by the late 90s had transitioned from academia-focused to liberal arts-focused, largely driven by a move to political involvement from the Vietnam era. Many college professors became professors by staying in college so they couldn’t get drafted into the Vietnam War. While they were the minority and untenured during the 70s and 80s, as their more traditional colleagues retired or were forced out of the University system, these more liberal, more political-minded people came to the fore.

Not only did the traditional education system become less important, but the focus on a set of job skills became non-existent, save the job skills needed to live in an academic or non-profit environment. Ironically, the middle class went to college en masse to learn income-earning skills and largely learned from non-profit, anti-capitalist professors.

Part III. How to Stop Being Poor if you Already Went to College and Have a Low-Income

If you’re reading this and have a college degree in a field that didn’t teach you a practical skill like Psychology, Political Science, or History and work at some middle-income job and are drowning in student loan debt with no practical job skills…what should you do now?

The first thing to realize is that unless you’re pursuing Academia, your college degree has proved effectively worthless as a tool for generating income. It will get you in the door to places that state ‘college degree required’ on the job application, but increasingly, this is not required at top firms. (Check out this tweet; both Google and Palantir are good examples of companies no longer valuing college degrees).

Next, I’ll direct you to our Ladders of Wealth Creation. Here’s a handy graphic for you. There are four different ladders of wealth creation, and none of them reward a college degree except Academia, which puts you on the ‘sells time for money’ ladder. If you check out this blog, I explain how to earn more money by providing tremendous value to others in society.

The fundamental idea behind earning a decent income in the United States is that you have to find a way to provide exceptional value to generate an exceptional income. This takes time and energy but will be rewarded, especially if you start with the end goal in mind.

If you’re passionate about the subject you studied, like I am about History, you can apply your passion to one of these ladders of wealth creation. If you’ll notice, I weave history into my blogging, tweeting, and investment research and understanding. History doesn’t pay the bills, but it’s exciting and gives me an edge when understating the context of business and economies.

There’s also a concept that I’ve fallen in love with called the 90% Rule. It goes like this. If you put50% into something, you’ll get 50% of the benefits. If you put 90% into something, you’ll get 90% of the benefits. But if you put 100% into something, you’ll get 1000% of the benefits. You have to be “All-In” because there are a ton of people who are 50% in, and a ton of people who are 90% in. There is market rate demand for someone who works with 90% efficacy, and you’ll outshine most of your peers and even see some career success and monetary rewards. But if you want real returns and to alleviate the problem I am addressing in this blog, how do I get out

of a mediocre income? The answer is to give 100% in an area the market rewards, regardless of your education, but regarding your interest and skill set.

Look at this income distribution chart. To not be in the bottom 80% of income, you

need to be in the top 20% of effort. It’s not easy, but it is worth it.

Part IV. How to Think About Whether you Should go to College

One of my clients comes from a well-educated family. His wife is a medical doctor, and he has a graduate degree in an engineering field. When talking about educating his children, it’s common for highly educated people to want their children to also get advanced degrees. But he has a great phase that I repeat as often as I can to students “Education with intention.”

He would love to see his kids become medical doctors or petroleum engineers, but getting a medical degree isn’t much use if your heart is pulling you towards being a mechanic or a school teacher. Education is useful, but only with intention.

In fact, perhaps we should draw a big fat line down the middle of education. On one side, you can put culturally enriching fields that make your life better; Martial Arts, Music, History, Astronomy. And on the other side, put income enriching fields that will generate a benefit to society and earn you a paycheck. Things like communications, sales, business, accounting, and anything that someone would hire you to do.

Look at this chart below. Contained within, is a useful philosophy of what you need to know about how to refine how you want to spend your career.

The ideal career exists uniquely for you, where your skills, interests, and opportunity meet. We can use 18-year-old Zak as an example.

I was 100% preoccupied and in love with all things BMX.

My skills were in the top 1% of the population but only in the top 80% of BMXers.

There was only financial opportunity for the top 1% of BMXers. On average, the top 1% earned $30,000 - $50,000 per year, most of which came from winning prizes.

This means BMX was not a viable long-term career. I wasn’t good enough, and even if I was, I’d make virtually no income.

Many people go to college and get sucked into Liberal Arts. Think about a history or psychology degree. It’s very interesting, you may be quite skilled at it, but the opportunity in those fields is limited.

Now, let’s think about plumbing. Interest in plumbing tends to be very low, skills are almost always naturally low, but somewhat easy to learn, and opportunity is off the charts. For many people, they’re better off becoming a plumber than getting a degree in History.

But most people aren’t passionate about plumbing, and you uniquely get a chance to build the exact life that you want. Most people don’t know, or aren’t brave enough to choose a career that is exactly what they want. You have that chance. Spend an afternoon or two really hashing out some different ideas on the org chart.

If you find yourself going down a career path that is no longer fitting these three buckets, change as-is prudent.

A quick Google search shows the following: An entry-level Psychology degree pays an average of40-50k per year, while an entry-level plumber median income is around $61,000. In addition, the plumber didn’t have to spend four years in college and go into debt. On the other hand, the plumber is spending days in relatively gross situations.

Think about the difference between education you pay for vs education you are paid to get.

Lastly, being truly unique to you is what makes a career truly valuable. Naval Ravikant has my favorite quote on this.

“I’m always ‘working.’ It looks like work to others, but it feels like play to me. And that’s how I know no one can compete with me on it. Because I’m just playing, for sixteen hours a day. If others want to compete with me, they’re going to work, and they’re going to lose because they’re not going to do it for sixteen hours a day, seven days a week.”

― Naval Ravikant

At one point in my career, I started a BMX clothing company. It was awesome because I sponsored my friends, spent all day at the skatepark, and published photos and videos of the stuff I was doing anyway. The same is true of my career today. I love researching new companies, analyzing markets, and investing money. I’d be doing this for free if I didn’t own Denver Wealth Management, so it’s cool that I get paid to do something I enjoy thinking about.

My humble suggestion to you is, find something in your life that intersects these three spheres. Where do your skills, interests, and opportunities, intersect? If you love something and there’s a feasible way to earn an income doing it, you will likely be able to earn a living wage doing it.

Lastly, I’ll end with Steve Job’s famous lecture, ‘Don’t be a Career.’ I firmly believe that the notion that your work is different and separate from the rest of your life, is emblematic of an identifying with a 9-5 warehouse worker mentality. If your career is something you would quit immediately if you won the lottery, you’ve found yourself on the wrong path.

A Civil War Amputation

Denver Wealth Management has a three-pillar investment philosophy.

#1 Buy Long Term Compounding Investments

#2 Our investments need to change as the world does.

#3 Seek to minimize our clients expenses.

Our second pillar is getting tested this year, as the world is changing rapidly. How much do your investments need to change as the world does? The Trump Administration has moved faster and with greater consequence then any president in history. This chart shows executive orders by president in the first days in office.

As I’m sure you’ve heard, these aren’t executive orders simply renaming mountains or other ceremonial duties. Many of these executive orders have huge immediate impact, affecting billions of dollars of government spending, tariffs affecting billions of dollars of commerce, and orders affecting the employment of millions.

We are fond of saying ‘the market hates uncertainty’ and the first 40 days of the Trump Presidency have ushered in dramatic uncertainty in markets. While millions of Americans voted for these changes, it is evident that there will be massive pain associated with dramatically changing the economy in such a short time frame.

A brief thought experiment:

Imagine you are an investment analyst working for a national investment firm, and you follow the auto industry. You are responsible for valuing and providing a buy, sell, or hold recommendation for your firms clients for an auto manufacturer named John’s Autos.

On January 20th, you have a lot of confidence in your model. For example, a car’s wiring harness (the network of wires that connect electronic components) is manufactured at an Aptiva factory in Warren, Ohio, shipped to Juarez for assembly, and then shipped back to the car manufacturer. Either in Detroit or Canada.

On January 19th, the tariff for this process was zero. Then, on February 1st, President Trump orders a 25% tariff on Mexico and Canada. On February 1st , Trump also announces a 10% tariff on imports from China. John’s Autos uses about $1100 in Chinese components in their car, and now the price has gone up for those inputs as well. You update your spreadsheet, the cost of the harness went up, this increases the cost of the car, which does two important things.  

Number one, these three tariffs increase the cost of goods sold to John’s Autos, reducing the profit margin on the car. Number two, fewer people are likely to buy the car given the increased price. Therefore, my stock price recommendation goes from $10 to $9.50. Some number of investors sell the stock, and the price goes down in the market.

Then on February 3rd, Trump announces a one-month pause on tariffs to Canada and Mexico. My stock valuation goes back to $10. I, as the analyst, assume the same will happen to the China Tariff.

Nope! February 4th, the 10% tariff on Chinese goods takes effect. Valuation is decreased to $9.75. My confidence in predicting the stock price is going down, so I drop the valuation to $9.50 anyway.

On March 4th, the 25% tariffs go to Canada and Mexico, and a trade war breaks out. As an analyst, I’m frustrated and update my spreadsheet to $9.

On March 4th, the US announces a NEW 10% tariff on China, increasing my cost of components by another 20%. I update my spreadsheet to $8.80.

March 5th. Trump announces another one-month delay on Canadian and Mexican tariffs! I update my spreadsheet to $8 and order a Canadian Whiskey to drown the pain.

Now imagine thousands of investors trying to keep up with this and trying to invest simultaneously. The market hates uncertainty, and the uncertainty is increasing daily.

I’ve been writing little market blogs like this for over ten years, and I know that many of our clients are democrat leaning and many others are republican leaning. Out of my own self-interest, I’m not trying to upset either demographic. However, it does seem to us as the investors trying to make you money to retire well and help create multi-generational wealth that the US does need a spending appendectomy. The out-of-control deficits will eventually cause permanent damage to our country, and there will never be a good time to cut spending.

Regardless of my opinion, the spending cuts are here, and it looks more like a civil-war amputation than an orderly white glove procedure under anesthesia. With great uncertainty comes great opportunity, and our investment committees are closely monitoring the situation (as best we can given the volume of information!) to preserve your capital and earn you money.

If you are concerned, you’re not alone, and please reach out to your advisor for a one-on-one call or meeting to discuss your portfolio.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

 Investing includes risks, including fluctuating prices and loss of principal.​

This is a hypothetical example and is not representative of any specific investment. Your results may vary.

https://www.npr.org/2019/06/05/730042347/ohio-to-juarez-and-back-again-why-tariffs-on-mexico-alarm-the-auto-industry