Killing Sacred Cows Blog

After doing my "Fire Your Financial Adviser" workshop and our Producer Power Hour podcast, I wanted to address a topic that I feel is grossly misunderstood.  When I was a traditional financial adviser, I would rattle off some assumed 2000 Bureau of Labor Statistics that came out with a longitudinal report that studied where 25 yr olds in 1960 were in 2000.  It showed 29% of 65 year olds deceased, 66% totally dependent on others or still working, 4% financially independent, and 1% wealthy.  I have never seen any government source confirm these numbers, but I have seen many financial institutions and network marketing companies quote it.  In fact, in my presentation, I would have a tagline that said "People don't plan to fail, they only fail to plan."  This was what I used to convince others to take action and do business with me.  However, even if those numbers were accurate, hadn't more than 5% of Americans implemented some sort of retirement products during their life, like 401(k) and IRA's, some with financial advisers?  Weren't many of these "Prime lifers" born in 1935 strict savers because of the influence of the Great Depression?

 

The Tragic Truth

The reality is much worse.  According to the National Centre for Health Statistics, a 25-year old only has a 16% chance of death before age 65, not 29%.  Of the surviving, the 2000 Bureau of Labor Statistics says that 24.4% of 65-69 year olds were still working and 66% of them depend on Social Security to provide at least 50% of  their income (22% are totally dependent).  The median household income for those 65 and older was only $33,802 in 2002.  In addition, the 2000 U.S. Census said that this aging population had a net worth of $108,885.  However, $85,516 was home equity leaving a measly $23,369 for retirement.  If you read my blog on hidden 401(k) fees (August 8^th), you would also notice that the average balance in a 401(k) for 65 year olds is only about $60,000.  Could you live like that for one year?  Two years?  Ten years?  How about 25 more years? 

 

The Cause

There are many factors contributing to this, but let's address some of the most overlooked. First, most financial planners will quote some "average" return in the markets that someone can likely count on for the long haul.  However, the "actual" return often is different.  See diagram below.

 

This is a pretty drastic example, but it proves the point that the number an adviser or planner puts in the calculator will never match up to reality.  From 1965 to 2004, the S&P 500's (stock market) performance was an 11.74% "average" rate of return but the "actual" return was 10.4% per year.  You may think that 1.34% makes little difference; however, after 40 years, your money is less by about 38%!  This doesn't even include fees that they never factor into your rate of return.  If your fees totaled about 1.25% per year, you would see that number cut by another 36%!  This would mean that you would actually only have about 39% compared to what a financial calculator would tell you based on the average rate of return!  Therefore, in this S&P 500 example, if you were expecting $1 million when you retire, even if it performs how it is supposed to, you would only have about $390,000.  Would you be disappointed?  How would that affect the income you were hoping for?  What if you had to pay taxes on that disappointing figure as well?  How much would $390,000 really be worth in 40 years given the actual inflation rates, including health care, as well as keeping up with certain technological changes and so forth?  To see what other factors do to your money, and to watch how a positive ACTUAL rate of return of 12% could become a negative return in reality, check this out!

 

The Solution

It's simple.  Get further educated on leveraging the assets you have.  One cannot expect to get different results by believing the same things about investing as everyone else.  Misunderstood concepts, like some that were previously mentioned, are contributing to the dilemmas and drain on Social Security.  To hear more on this subject, check out this blog on FireYourFinancialAdviser.com.    

By Chris Miles

I have often heard many well-intentioned Americans tell me that they feel they are on track to their retirement goals merely because they have been saving a good amount in their 401(k)'s or similar qualified plans. Many believe this is their only option.

My purpose is to shed light on a critical factor that is one of the causes for dramatic disappointment to our 76 million Baby Boomers now entering retirement. This covert killer can leave one with LESS THAN HALF of the money when you retire than the financial calculators will show you. Worst of all, no one would never know why because the 401(k) providers are not required to disclose it. This lurking enemy is commonly referred to as "fees."

Hidden fees are one of the most misunderstood components of a 401(k). According to 2007 AARP survey, 83% of respondents said they did not know what fees they were charged, many of whom believed that there were no fees. The reason there is so much confusion is because the disclosure of fees are not required by law. In fact, if they are disclosed, they are often buried several pages in a document called "Statement of Additional Information." At times, it is nearly impossible to even get the information from the 401(k) providers.

According to the US Dept. of Labor, 17 different types of fees can be applied to any 401(k) plan. Many of these fees are 12b-1 fees, soft dollar fees, brokerage fees, redemption fees, shelf space fees, etc. that are sometimes combined into a single fee called a "wrap fee." The combination of these fees can be over 2% per year! This could cut someone's retirement balances by more than half of the expected balance even if they get a certain projected rate of return and make the employer match obsolete. This occurs because fees are not factored in the fund's historical performance charts that many view in the prospectus.

Some fees are so excessive that there are class action lawsuits against the 401(k) providers. One lawsuit in Washington State has a fund that charges 12.17% in fees each year!

Fees are not inherently bad but ignorance is not bliss when time is no longer on one's side. How are these fees affecting your retirement? What could happen if these fees are charged as your balance is declining? Do you realize that an annual fee as small as 1.35% can cut your end balance in half after 40 years of accumulation?

I invite you to watch this video to learn more about this critical issue.

Join the Killing Sacred Cows Group on Facebook For Updates and Discussions

The following are tips that one can do to increase cash flow and identify resources more productively to be applied towards your economic well-being and/or Soul Purpose.  Remember, that one's perspective is more important than just going through the motions. The key is discipline to be productive with the money freed up rather than spending it on consumptive or destructive items. Each of these points can be utilized to recapture lost dollars, but can also be abused in a way that could lead to financial misery.

 1. Track income and expenses and eliminate expenses that are destructive to your human life value and Soul Purpose.  This could include overdraft charges, excessively eating out, monthly charges for memberships that aren't being utilized, etc.

 2. Look to getting some food items by finding deals from local "grocery gurus."  Warning - do not just buy things because they are on sale. However, if you are going to purchase certain items anyway, then see if you can capitalize on special sales. For those in Utah, the web link for weekly specials is http://www.pinchingyourpennies.com/forums/forumdisplay.php?f=62 (Yes, I do think the name of the website is very ironic considering the conversation).

 3. Increase tax exemptions.  If you receive a tax return each year, increase exemptions to receive it on a monthly basis rather than yearly. Consult with your tax accountant to know what number is optimal.

 4. Temporarily pay minimum payments on credit cards and other loans.  If you are making extra principal payments or anything beyond the minimum payments, identify that as a resource. If you do not know what else could be more productive than paying down high interest credit cards, then please put it towards your credit card payments.  If you are paying extra on your loans, be willing to question if that is the highest utility of your dollars.

 5. Consider stopping contributions to 401(k)'s and IRA's.  This may be an obvious choice considering the volatility of the markets. Most would have been better in money market accounts over the last few years, if not the last 10 years.

 6. Sell off any unutilized assets.  This may be time to clean your clutter and get rid of things that are only taking space but providing no utility in your life. Look to sell these off or donate to increase tax exemptions.

 7. Get rid of duplicate insurances.  If you have life insurance tied to certain loans, it will likely be more cost efficient to get an individual term policy. Most life insurance offered through banks or credit unions are expensive for the coverage and benefit the banks more than the client.

 8. Consolidate, refinance, or negotiate lower interest rates on loans.  Many of us can call our credit card companies and ask if they will lower the current interest rates on credit cards or other loans. Try it!  You may be surprised.

For more details and podcasts on the subject, go to the Fire Your Financial Adviser website.

Garrett had a great opportunity to be on the KTLA Morning News. Watch the video.

| Book Review | Response #1 | Response #2 |

 This is the continuation of a series of responses to a review of Killing Sacred Cows by Helen Huntley, personal finance editor for the St. Petersburg Times. While she does her best to give a synopsis of the book without reading it entirely, at one point she says, “…the main purpose of the book seems to be to convince you to cash you’re your 401(k) -- [Garrett] doesn’t mind that you have to pay income tax and possibly a 10% penalty…”

I’ve already discussed what the main purpose of the book is, and now I want to talk about the 401(k) issue.

If any readers are taking from the book that Garrett is specifically recommending to them that they should liquidate their 401(k), we stress that this is not the case at all. While we do deal extensively with the dangers of qualified plans, we never once make the blanket recommendation that every individual should cash out of them.

In fact, to be true to the thesis of the book, there may be some for whom the advice we give is not a good fit at all based on the context of their individual circumstances. One aspect of the conventional financial planning industry that we take issue with is the practice of recommending products and strategies out of context.

There’s a significant difference between content and context. In this case, how we discuss the 401(k) is content; the context in which that content is discussed says that your financial decisions are unique to you and your situation. For some people, a 401(k) may be great; for others it may be useless. If people can overcome the fifteen dangers of a 401(k) that we outline on page 253 of the book, a 401(k) would be a perfectly suitable investment for them. For some, whole life insurance is a productive, valuable product; for others it would be a big mistake. For some, stock market investing is great; for others it is risky and destructive.

There Are No Risky Investments

One of the most important points of the book is that there are no inherently risky investments; just risky investors. It is individuals that determine the success or failure of any investment.

As Garrett says on page 150,

"What is risky to one person could be the safest investment in the world for another. Any time someone asks me questions such as, 'Is real estate risky?' or 'Isn't it risky to quit your job to start a business?' my answer is always, 'It depends.' These things certainly can be risky -- to some people -- but they can also be very wise and safe for others.

"I have friends who have done very well in real estate, and others who have lost big with real estate. The difference is that those who do well have more knowledge, they write better contracts, they know how to manage their properties, and they mitigate their risk by doing thorough due diligence on the people who use their properties. In addition, those who I've seen thrive with real estate happen to love working with real estate; it's in their Soul Purpose. The others have very little knowledge of real estate (most of the time they get into it only because they think it will make them a lot of money), they write poor contracts that open them up to great risk, they manage their properties poorly, and often these properties are damaged by renters the owners never checked out properly. The risk or lack thereof isn't in the real estate; it's in the people who invest in it."

So what should you do with your 401(k)? Quite simply, without knowing the context of your life, we don’t know. Garrett would never make such a direct recommendation without knowing the context of your life and he’s not trying to directly convince you to cash yours out in the book.

What You Should Invest In

Another criticism that Helen Huntley makes in her review is to say, “The only investments he endorses in the book, at least in the parts I read, are real estate and permanent life insurance.” Once again, the problem with this is that she speaks of content out of context.

Just as liquidating a 401(k) is never recommended for any particular individual, likewise real estate and permanent life insurance are never specifically endorsed. They are discussed at length, but only to provide examples and explain certain concepts. They would only be endorsed within the proper context.

The one investment that is directly recommended for every reader is an investment in oneself. As you’ll find on page 155,

“There’s one critical litmus test to perform on yourself whenever you are wondering what to invest in. The answer is always – without exception – to invest in yourself. If your human life value were developed enough and if developing it was your first priority, you would never need to ask what to invest in, because your path would be clear. The best investment you can ever make is to increase your human life value, or your ability to utilize your knowledge and abilities to create value in the world. Turn inward for personal improvement and value will flow outward to those around you.

“What this means is that you are your best investment. Not your 401(k), not your Roth IRA, not your mutual fund, not your house or your rental properties – YOU. If you want to mitigate your risk and enjoy high returns, then start doing everything you can to invest in yourself. Read books, go to school to gain new knowledge and learn new skills, attend educational seminars frequently, associate with people that you can learn from, take action and learn from your mistakes."

 | Book Review | Response #1 | Response #2 |

Join the Killing Sacred Cows Group on Facebook For Updates and Discussions

| Book Review | Response #1 |

In a recent review in the St. Petersburg Times, personal finance editor Helen Huntley writes, "[Killing Sacred Cows] makes some good points. I agree that you need to take responsibility for your own financial success and you should invest in yourself and your money-making potential. However, the main purpose of the book seems to be to convince you to cash out your 401(k) -- he doesn't mind that you have to pay income tax and possibly a 10% penalty -- and pay Gunderson to show you how to manage your money. If you 'apply' for his program and you have enough money, you just might be accepted!"

We appreciate this perspective because it brings out three valuable things to discuss and clarify: 1) The primary focus and main purpose of the book, 2) Garrett's position on what you should do with your 401(k), and 3) The purpose of Garrett's "program" in question (the Financial FastTrack process that qualified participants of the 401(k) Hoax Challenge experience) and the reason behind the application process.

This post will deal only with the first point, and the second two will be discussed in subsequent posts. And none of these posts are meant to single out Helen Huntley; we simply raise these points because they are common points, indicative of typical perceptions about the book and its message.

 

The Main Purpose of Killing Sacred Cows

While Mrs. Huntley graciously agrees with the book's focus on personal responsibility and investing in oneself, her perception of its main purpose is reversed; what she mentions as "good" points (personal responsibility/investing in oneself) are the main points, and what she states as the "main" point (detailing the risks with 401(k)s) was a good point taken out of context. It's an understandable mistake, especially when one hasn't read the entire book, as Helen admits in her review.

As stated in the Introduction (pg. xvi),

"The purpose of this book is to train your mind and help you to cultivate the ability to be able to see through the myths that limit wealth creation. If this is accomplished, you may well experience a productivity breakthrough on an unprecedented scale...

"My purpose isn't so much to identify and answer every myth for every reader as it is to just get readers thinking about the rhetoric, propaganda, and traditional 'logic' that we're fed through the financial media."

Wanting to give her the benefit of the doubt, Mrs. Huntley's remarks made me wonder if perhaps we don't emphasize enough personal responsibility, stewardship, investing in oneself, and Soul Purpose, and if we over-emphasize the problems with 401(k)s.

Not wanting to go on gut feelings and knee-jerk reactions -- as those who are entrenched in financial myths often do -- I took a scientific approach, did a lengthy and in-depth search of the book, and extracted the following data on the major concepts that we focus on. The appearances of the words that I highlight below were only counted if they were in the proper context. (In other words, I could have counted much more, but I wanted to be as objective and fair as possible.)

In the context that I speak of, the word "responsibility" appears 77 times in the book, with 22 uses of the variation "responsible." "Stewardship" is used 30 times; "steward" 20 times. We speak of "Soul Purpose" on 124 occasions throughout the book. And most importantly, 61 times we use variations of the word "invest" in the context of teaching that the best investment one can make is an investment in themselves through education. The total uses of each of these words and phrases in their proper context -- which together represent our primary focus -- comes to 334.

Constrast that to just 78 mentions of "401(k)s."

(I eliminated all occurences of these words and phrases that were not relevant to the actual content of the book, such as references in the table of contents or the index.)

Clearly, something went wrong with this reviewer's analysis, yet it provides an excellent opportunity to illustrate the power that financial myths can have over us -- when subject to the myths we see only what we want to see. We see the things that coincide with our current beliefs, and casually reject anything that challenges our beliefs. Since 401(k)s are so popular, anything that challenges them will stick out much more than the things with which we agree, or think we already know.

As we learn in the Introduction of Killing Sacred Cows (page x),

"It's human nature to relate things that we are unfamiliar with back to the things that we are already familiar with, or with the things that we think we know. But what if the things we think we know are false, or at least misguided? How can we make sense of new things when our frame of reference is distorted or not founded in truth? One of the most critical steps we can take toward financial freedom is to accept the possibility that what we though to be true may be completely false, and that there are infinite truths we have yet to learn."

The main purpose of Killing Sacred Cows is not to convince any individual reader to cash out their 401(k). In fact, such a direct exhortation is not even a purpose of the book. We completely agree with Helen Huntley that to make such a blanket recommendation -- without knowing the context of the lives of individual readers -- would be highly irresponsible and inappropriate.

If any of our readers have taken this to be the core message of the book, we stress that it was not our intention. Targeting the 401(k) was a way to highlight the importance of self-reliance, responsibility, and stewardship -- not to make a specific financial recommendation to readers.

While we do, quite strongly and in no uncertain terms, detail the inherent dangers of 401(k)s, qualified plans, and the accumulation theory of wealth creation, we never once recommend to any reader that they should liquidate their qualified plan. (This will be discussed in the next blog post.)

The main purpose and primary focus of Killing Sacred Cows is to teach that individuals must take personal responsibility for their prosperity, be wise stewards over their assets and resources, invest in themselves, and live their Soul Purpose. It is to teach people that they are their most important investment -- not products, techniques, or strategies. It is to teach that what happens within a person determines what happens in their external world. It is to detail universal, timeless principles of wealth creation. It is to teach that these things are far more important than -- and determine the success of -- financial products, techniques, and strategies.

This is contrary to much of the traditional financial services industry which teaches people that the right financial products are what matter. Such advisors often recommend products without knowing the full context of their client's lives. We're taught that just throwing money into mutual funds and qualified plans and letting them sit for 30 years -- without knowing what they're doing, where the money is going, who is managing it, how to control it, and how it's creating value in the marketplace -- is all that's needed to make people's retirement dreams come true.

Garrett's point is that people need to take a step back from that flawed approach, invest in themselves, consider every angle, know what they're doing before they invest, and invest based on a macroeconomic plan that takes every aspect of their financial situation into consideration. People must stop believing that financial products -- such as 401(k)s -- have intrinsic value and that people hold the only intrinsic value.

| Book Review | Response #1 |

Join the Killing Sacred Cows Group on Facebook For Updates and Discussions

Helen Huntley, the personal finance editor for the St. Petersburg Times in Florida, recently gave a great review of Killing Sacred Cows that gives us an excellent opportunity to clarify the message of the book.

While she admits only reading parts of the book—and the review must therefore be understood in that context—she does make some good points that we’d like to respond to in the next series of blog posts.

The following is her review of the parts of the book that she read. Following this post, we will provide our responses.

Want some bad advice? Read this book

By Helen Huntley

"I don't ordinarily do book reviews, but I often read portions of the books that publishers send me. Sadly, quite a few of them are little more than thinly-veiled sales pitches for the author's business.

"One of the worst of these promotional books just came across my desk, "Killing Sacred Cows: Overcoming the Financial Myths that are Destroying your Prosperity" by Garrett B. Gunderson. It makes some good points. I agree that you need to take responsibility for your own financial success and you should invest in yourself and your money-making potential. However, the main purpose of the book seems to be to convince you to cash out your 401(k) -- he doesn't mind that you have to pay income tax and possibly a 10% penalty -- and pay Gunderson to show you how to manage your money. If you 'apply' for his program and you have enough money, you just might be accepted!

"The only investments he endorses in the book, at least in the parts I read, are real estate and permanent life insurance. He recommends buying as much insurance as possible. (Hmmm...I wonder who benefits if you buy more than you really need?) No tips here about ways to save on premiums. Instead, he trashes term insurance because it gets expensive if you keep it until you're in your 70s. Of course there is the small problem that term insurance is the only affordable way for most young families to get the amount of insurance they need. Any of them that try to follow his advice and buy permanent life insurance are highly likely to end up seriously underinsured. And I won't even bring up what happened to all those smart people who had bad timing investing in Florida real estate. Instead of losing part of your investment to the stock market downturn, you could have lost it all to the real estate market."

Join the Killing Sacred Cows Group on Facebook For Updates and Discussions

Click Here to See the Building Walkthrough Garrett Mentions in the Video

Questions: (Score 1 - 10) (Watch the video as I walk you through the exercise)

1. How often do you worry about money?
2. Do you feel like your finances are perfectly organized?
3. Are you being paid for living your soul purpose?
4. Do you have enough money coming in from your portfolio income to cover your expenses?
5. What percentage of your income comes from you working in your Soul Purpose?
6. If you were to lose the ability to generate income today, would you have enough funds available to keep your same lifestyle?
7. What percentage of your income is supporting or investing in your Soul Purpose?

“Over the years, an investor’s financial objectives and tolerance for risk may change. An investor with a longer time horizon may be willing to take more risk for potentially greater reward than one with a shorter time horizon…Generally, the riskier the investment, the greater its possible reward.”

-Taken from a marketing piece of a leading financial institution

How can you increase your investment returns? Is it by increasing your risk, as so many financial professionals and institutions teach?

To say that to increase your returns you must increase your risk is like saying that if you want to increase your chance of winning you must increase your chance of losing. It makes no logical sense.

Peter Drucker, widely known as the "father of modern management," shares a story in his book Innovation and Entrepreneurship that drives the point home. He writes:

"A year or two ago I attended a university symposium on entrepreneurship at which a number of psychologists spoke. Although their papers disagreed on everything else, they all talked of an 'entrepreneurial personality,' which was characterized by a 'propensity for risk-taking.'

"A well-known and successful innovator and entrepreneur...was then asked to comment. He said: 'I find myself baffled by your papers. I think I know as many successful innovators and entrepreneurs as anyone, beginning with myself. I have never come across an ‘entrepreneurial personality.’ The successful ones I know all have, however, one thing—and only one thing—in common: they are not ‘risk-takers.’ They try to define the risks they have to take and to minimize them as much as possible. Otherwise none of us could have succeeded.'"

Drucker continues, "This jibes with my own experience. I, too, know a good many successful innovators and entrepreneurs. Not one of them has a 'propensity for risk-taking.'

"Of course innovation is risky. But so is stepping into the car to drive to the supermarket for a loaf of bread. All economic activity is by definition 'high-risk.' And defending yesterday—that is, not innovating—is far more risky than making tomorrow. The innovators I know are successful to the extent to which they define risks and confine them…Successful innovators are conservative. They have to be. They are not 'risk-focused'; they are 'opportunity-focused.'” [emphases added]

Never accept the propaganda that you must be willing to stomach high risks in order to achieve high returns. The truth is exactly opposite—the better you can mitigate your risks, the higher will be your investment returns. There is, in fact, a direct relationship between risk and reward, but that relationship is what financial institutions practice themselves, not what they want the public to believe.

In the past few years, hundreds of people have invested home equity, only to lose it all and get into serious financial trouble. With this in mind, here are five reasons why you should not invest your home equity. Avoiding these five pitfalls will prepare you to safely maximize the productivity of all your financial resources, including home equity.

Reason #1: Personal Consumption

If you’re going to use any of your home equity to purchase items of personal consumption, do not touch it. This is the single most prevalent and damaging pitfall with this strategy. Consumption is anything you spend money on that does not directly return money to you, such as clothes, food, vacations, jewelry, cars, boats, etc.

Consumption must be sustained by production, which means creating value for others in such a way that value is returned to you. When your consumption exceeds your production, the only logical outcome is insolvency and eventual bankruptcy.

The Solution: The wealthy never use their assets to consume—they only consume the profits generated by their assets. Only access home equity to produce and invest in things that will generate returns. Your home equity is your golden goose. Don’t kill it by consuming it—use it wisely to enjoy the golden eggs it can produce.

Reason #2: Lack of Knowledge & Chasing High Returns

With home appreciation rising in double-digits, banks giving loans liberally, and people having access to investments promising high returns, the exuberance of many so-called investors in the past few years has only been exceeded by their lack of knowledge.

People were putting money into investments that they knew very little about, they had no idea where the money went, they had no idea how to control the investment, and were doing so simply because they were receiving high returns. That is until it all came crashing down.

The Solution: If you don’t know where your money is going, what it’s doing, how it’s creating value, what your exit strategy will be, what the tax consequences are, and how you can recover if it’s lost, don’t do it. Also, if your primary reason for wanting to invest in something is to make money, don’t do it. Only invest in things that reflect your knowledge, abilities, expertise, and passions.

Reason #3: Unsafe Investments

Not only have many people been ignorant about the investments in which they have invested their home equity, but also many of the investments themselves have made very little economic sense. The investments didn’t have clear value propositions (they weren’t creating real value in the marketplace), they weren’t collateralized (or backed by hard assets such as real estate), they were speculative, they were based on artificial demand, and they had poor or no exit strategies.

The Solution: Here are just a few things to consider with any investment: Is there a real demand for this investment? Is there a clear value proposition? Is it legal? Is it ethical and moral? Is it collateralized? How well can you control the terms? Do you have the opportunity to contribute to its success in meaningful ways, or are you contributing money alone? What are the tax consequences? Can you create a foolproof exit strategy? Is the investment self-sustaining, or does it require ongoing capital contributions from outside sources? How soon will it create cash flow? Do you know the people involved? Do they have an established track record of trustworthiness and success?

If you can’t answer any of these questions satisfactorily, then either stay away from the investment or provide viable solutions for any troublesome aspects.

Reason #4: Investments Removed From Soul Purpose

Soul Purpose, as taught by Steve D'Annunzio, is the combination of your inborn abilities, talents, and passions and that provide a natural direction for your most fulfilling life. It is your greatest purpose for being on the Earth—the mission you were born for.

Every thought and action leads you either closer to living your Soul Purpose, or further away from it. Few people invest in things that align with their Soul Purpose because they get sidetracked chasing high returns. Investing out of alignment with Soul Purpose inevitably leads to mediocrity at best, and failure at worst.

The Solution: What are you great at doing ? What things are you naturally drawn to? What are your dreams? What is your vision of your best self? What things increase your energy ? These are the only things you should be investing money into. For example, if you have a passion for real estate, invest in real estate. If your passion is philanthropy, start a non-profit or contribute to an existing one. If you love cooking and entrepreneurship, maybe starting a restaurant makes sense.

Creating portfolio income is hard work, and the only way you’ll endure challenges is if what you’re doing is an expression of your Soul Purpose. The best investment is an investment in yourself and your Soul Purpose through education. Education will help you develop your Soul Purpose and bring it to the marketplace practically and meaningfully.

Reason #5: Learning the Wrong Lessons

If your investment fails, what’s the lesson you’re going to learn? For most, the answer doesn’t go further than, “I knew I shouldn’t have done that!” This type of thinking is disempowering and leads people to avoid future action. They learn to stay away from investing, rather than learning how to manage it better.

The Solution: No matter how well you mitigate risk, in a dynamic world things will inevitably go differently than you anticipate. Commit now to learning the right lessons when things go wrong. Learn what things you can change about yourself and your approach to increase your safety, returns, and success. Unfortunate events present amazing opportunities to become more confident with your investments, rather than cynical and distrustful.

Conclusion

Investing your home equity can be one of the riskiest strategies if you do so for personal consumption, to put money into things you know little about in order to chase high returns, to invest in inherently risky investments, to invest in anything removed from your Soul Purpose, or if you will learn the wrong lessons when unexpected events occur.

However, it can also be a powerful strategy that will help you unlock your financial potential. To do so requires that you never borrow money to consume, you always have a good understanding of your investments and never invest to make money primarily, your investments make good economic sense and your risk is mitigated well, you only invest in things that align with your Soul Purpose, and you commit to learning the right lessons when you encounter setbacks and difficulties.

Would you rather have Tiger Woods’ golf clubs, or his swing? Do you rely upon principles, or strategies?

A golf club, however expensive and perfectly crafted, is worthless in the hands of a person who doesn't know how to use it. Likewise, those who rely upon strategy alone—without a basis in principle—will eventually fail when the conditions upon which the strategy is based change.

For example, investing in real estate is a strategy. A principle that governs real estate investing is that people have intrinsic value, while material things have none. So many real estate "investors" think that their houses are the assets, and that their tenants are liabilities. An understanding of that basic principle can help them to realign how they approach their real estate investing--they will seek to improve properties to create value for people, not because they value the properties over people. And by doing so, their cash flow will likely increase. (After all, people write checks--not properties.)

Consumers only look for tools and strategies in their search for financial freedom, without understanding or caring about underlying principles. Producers find and understand principles and align their thoughts, speech, and actions with them, and all else flows naturally.

If you want to become a better golfer, good clubs may play a part in your improvement, but improving your own skills through consistent practice should be your initial focus. Strategies follow principles in the same manner. Focus on learning and living the principles of prosperity before being overly-concerned with financial strategies.