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The cheap life you are trying to avoid will still get back at you in the form of debt, long hours at work, stress, and the probability that you might still be working past the age of 65. There is another method which you can live with and it is through generating passive income. Throughout the next pages, you will be learning more about passive income but the basic idea is to couple your active income with various sources of passive income. Two of the most common sources that early retirees can live with are dividend-yielding stocks and rental properties. However, every source of passive income requires an investment and nearly all kinds of investments involve risk. It is important for you to calculate your risk tolerances and consider safer options so you do not end up burning your savings. 5 Reasons You Should Consider Extreme Early Retirement You Will Have More Time Enjoying the Goodness in Life The average age when people retire is 65 or 70, and if you think about it, people spend more time working instead of living.
Your Money Works for You and Not the Other Way Around This is the main subject matter that everyone wants to talk about when it comes to extreme early retirement. It is not easy to achieve, but with a little patience and time spent on learning, you can establish ways to make your money work for you. Early retirees are known to come up with ways of generating passive income apart from their active income. As mentioned earlier, dividend-yielding stocks and rental properties are two of the primary sources of income that early retirees spend most of their investment funds into. There are even some retirees who rely entirely on their rental properties as a source of passive income. Ideally, this is the kind of life everyone might want and although you are not necessarily ‘working’ for it, there is still some work involved but not as much as a regular day job would require.
However, there is still some more work and risks involved when you are investing in rental properties such as the property’s cost and expenses, the rate of return from your investment, and the financial risks involved from owning the property. The risks we are talking about here are usually that of the damages you may incur from your tenants, the probability of missing payment schedules or rental fees, and the untimely lack of a market for your property. Another interesting source of passive income is that of dividend-yielding stocks because you obtain significant return at regular periods or intervals. The good thing about it is that you are not dragged into any kind of activity other than the opening stages of your investment. Apparently, the slightly complicated part of this type of investment is deciding on which stock to choose. If you are still new to the stock market, it is advisable to meticulously probe every company and study their financial statements.
The Essays of Warren Buffett: Lessons for Corporate America by Warren E. Buffett, Lawrence A. Cunningham
compound rate of return, corporate governance, Dissolution of the Soviet Union, diversified portfolio, dividend-yielding stocks, fixed income, index fund, invisible hand, large denomination, low cost carrier, oil shock, passive investing, price stability, Ronald Reagan, the market place, transaction costs, Yogi Berra, zero-coupon bond
The promiscuous use of portfolio insurance helped precipitate the stock market crash of October 1987, as well as the market break of October 1989. It nevertheless had a silver lining: it shattered the modern finance story being told in business and law schools and faithfully being followed by many on Wall Street. Ensuing market volatility could not be explained by modern finance theory, nor could mountainous other phenomena relating to the behavior of small capitalization stocks, high dividend-yield stocks, and stocks with low price-earnings ratios. Growing numbers of skeptics 1997] THE ESSAYS OF WARREN BUFFETT 13 emerged to say that beta does not really measure the investment risk that matters, and that capital markets are really not efficient enough to make beta meaningful anyway. In stirring up the discussion, people started noticing Buffett's record of successful investing and calling for a return to the Graham-Dodd approach to investing and business.
Albert Einstein, asset allocation, asset-backed security, Brownian motion, business process, capital asset pricing model, clean water, collateralized debt obligation, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, fixed income, implied volatility, index fund, interest rate swap, inventory management, London Interbank Offered Rate, margin call, market fundamentalism, mortgage debt, passive investing, performance metric, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, statistical model, time value of money, transaction costs, yield curve, zero-coupon bond
Common characteristics of such stocks include a high dividend yield, a low price-to-book ratio, and/or a low price-toearnings ratio. The Investopedia Guide to Wall Speak 315 Investopedia explains Value Stock A value investor believes that the stock market is often inefficient and that it is possible to find companies trading for less than what they actually may be worth. One popular way to identify value stocks is to check the “Dogs of the Dow” investing strategy: buying one of the 10 highest dividend-yielding stocks on the Dow Jones at the beginning of each year and adjusting it every year thereafter. Related Terms: • Earnings • Price-to-Book Ratio—P/B Ratio • Value Investing • Growth Stock • Style Variable Cost What Does Variable Cost Mean? A cost that changes in proportion to a change in a company’s activity or business. Investopedia explains Variable Cost A good example of a variable cost is fuel for an airline.
Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah
Asian financial crisis, asset allocation, backtesting, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Ponzi scheme, quantitative trading / quantitative ﬁnance, random walk, risk-adjusted returns, risk/return, Sharpe ratio, short selling, stochastic process, systematic trading, technology bubble, transaction costs, value at risk
The equation for the market model is: rt = a + b1Mktt + b2SMBt + b3UMDt + b4HDMZDt + et (6.1) where rt = CTA index return in excess of the 13-week T-Bill rate, Mktt = excess return on the portfolio obtained by averaging the returns of the Fama and French (1993) size and book-tomarket portfolios SMBt = the factor-mimicking portfolio for size (“Small Minus Big”) UMDt = the factor-mimicking portfolio for the momentum effect (“Up Minus Down”) HDMZDt = difference between equally weighted monthly returns of the top 30 percent quantile stocks ranked by dividend yields and of the zero-dividend yield stocks (“High Dividend Minus Low Dividend”). Factors are extracted from French’s web site (http://mba.tuck.dartmouth. edu/pages/faculty/ken.french/data_library.html). Table 6.4 summarizes the results of this regression over the entire period and the four subperiods. For all but one subperiod (Weak Bull), the adjusted R-squared coefficients are extremely low and often negative. The only statistically significant linear relationship is observed for the Weak Bull subperiod, while the model is unable to explain anything during the Strong Bull subperiod.
asset allocation, backtesting, Black-Scholes formula, Bretton Woods, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, joint-stock company, Long Term Capital Management, loss aversion, market bubble, mental accounting, new economy, oil shock, passive investing, prediction markets, price anchoring, price stability, purchasing power parity, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, Vanguard fund
., New York: McGraw-Hill, 2003. 11 146 PART 2 Valuation, Style Investing, and Global Markets FIGURE 9–2 Historical Analysis of the S&P 500 Index, 1957 to 2006 ber 1957, she would have accumulated $176,134 by the end of 2006, for an annual return of 11.13 percent. An identical investment in the 100 highest dividend yielders accumulated to over $675,000, with a return of 14.22 percent. The highest dividend yielders also had a beta below unity, indicating these stocks were more stable over market cycles, as shown in Table 9-2. The lowest-dividend-yielding stocks not only had the lowest return but also the highest beta. The annual return of the 100 highest dividend yielders in the S&P 500 Index over the past 50 years was 3.78 percentage points per year above what would have been predicted by the efficient markets model while the return of the 100 lowest dividend yielders would have had a return that was 1.68 percentage points per year lower. CHAPTER 9 Outperforming the Market TABLE 147 9–2 S&P 500 Stocks Sorted by Dividend Yield Dividend Yield Geometric Return Highest High Middle Low Lowest S&P 500 14.22% 13.11% 10.55% 9.79% 9.69% 11.13% Arithmetic Return 15.71% 14.24% 11.71% 11.35% 12.20% 12.39% Standard Deviation Beta Excess Return over CAPM 18.81% 16.22% 16.02% 18.21% 23.17% 16.52% 0.9336 0.8559 0.9085 1.0460 1.2130 1.0000 3.78% 2.86% -0.04% -1.36% -1.68% 0.00% Other Dividend Yield Strategies There are other high-dividend-yield strategies that have outperformed the market.
Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen
Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, New Journalism, oil shock, p-value, passive investing, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative ﬁnance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond
Investors can defer realizing gains and paying capital gains taxes, while harvesting capital losses that may offset other taxable income. Active strategies that involve high turnover are less tax efficient than passive strategies that delay taxation. • Changes in tax laws over time can influence absolute and relative pricing. Falling tax rates from the 1980s to the 2000s contributed to rising equity market valuations, while the dividend tax cut in 2003 boosted demand for high-dividend-yield stocks. • Mortgage interest rate deductibility influences both bond and real estate pricing. The yield spreads of mortgages and corporates vs. Treasuries partly reflect differential (state and local) tax treatment. Tax-loss selling contributes to turn-of-the-year and January effects. 28.6 NOTES  Clearly, the riskiness of individual investments is not well captured by standalone volatility, which ignores their diversification abilities and timing of losses.
God's Bankers: A History of Money and Power at the Vatican by Gerald Posner
Albert Einstein, anti-communist, Ayatollah Khomeini, bank run, banking crisis, Bretton Woods, central bank independence, centralized clearinghouse, credit crunch, dividend-yielding stocks, European colonialism, forensic accounting, Index librorum prohibitorum, medical malpractice, Murano, Venice glass, offshore financial centre, oil shock, operation paperclip, rent control, Ronald Reagan, Silicon Valley, WikiLeaks, Yom Kippur War
The IOR’s assets were not at risk, Caloia said, because under his nearly nineteen-year tenure the bank had never participated in stock options, much less derivatives (highly leveraged financial instruments). He did not disclose precise numbers, but indicated a recent press report concluding that the IOR’s unadventurous investment philosophy meant 80 percent of its assets were in low-yield AAA government bonds and the rest in a mixture of gold and dividend-yielding stocks, sounded about right.7 The Vatican Bank did not issue loans so it was not facing customers unable to make repayments.I Instead, Caloia noted the bank adhered to conservative investments that were “clear, simple and ethically based.” The IOR did not profit, he emphasized, from any dishonorable endeavor such as trading in international armaments. Caloia, who believed the crisis was largely the result of greed, also took a swipe at those international banks that were in distress, saying that their “behavior [was] improper to the point of fraud” and that it was little wonder that “today, in world finance, no one trusts anyone else.”9 Privately, and away from earshot of any reporter, Caloia said he thought that some top American clerics were “too enamored with Wall Street.”10 The philosophy of white finance was the backbone of a major policy paper Benedict issued that December about the meltdown.