How it Started

Sometime in 2011 I had a life changing realization. It is not really a new idea to anyone who is paying attention but I have always been a little slow to understand how the world operates. When you are young you go to school so you can go to more school and hopefully, eventually find gainful employment that doesn’t make you miserable. Like many others I followed these steps to a comfortable life, not rich but pretty much able to do whatever I wanted whenever I wanted without being very concerned about having enough money to pay my bills. I had recently completed a financially rewarding work assignment and only had debt through a small mortgage on the condo I was living in. This new life of extra cash on hand was exciting but I had little idea on how to invest it. I began to educate myself mainly through reading, mostly online but did buy a couple books. I found the books informative but somewhat outdated and not really applicable to me. Rich Dad, Poor Dad by Robert Kiyosaki is a fun read; I understood his advice at its core is to make yourself a business and take advantage of the tax breaks for being a small business. He talks about how he never bought a car, his business did, so the cost of the car was a non-taxed business expense, lowering his tax bill. This is a poor summary of his voluminous writings but pretty much the advice I took from the book. I read another that I cannot remember the title or author which can be summarized as “buy municipal bonds.” I understood why this was advised and have looked to implement this advice over the years with little success. Interest payments on municipal bonds are often tax free income, depending on the bond issuer. The challenge with this approach is that the process of identifying and actually purchasing individual bonds is confusing at every turn. I have yet to find a way to buy the bond at face value and receive the listed coupon rate. Everyone is a broker and all the bonds seem to trade at buy points where it would take at least three years to start making a profit, tax free or otherwise. Most other books were basically the same story of don’t spend more than you make and invest what you don’t spend. I wholly endorse that concept but was looking for more specific steps like how to identify a stock and why I should buy or sell it? Individual stocks or mutual funds or exchange traded funds (ETF)? What about real estate? Why is there a 401k, a Roth IRA, and Roth401k? How can they all be IRAs? How much work does this need to be?

After I took a portion of my small windfall and paid down my mortgage to remove the PMI premium, I began to interview a few financial advisers. Scheduling appointments was easy enough but getting anyone to understand my state of mind and goals was a bit more challenging. Most seemed to offer their niche product with little explanation as to why other things weren’t as valuable. I don’t really remember most of their offerings at this point but I do remember feeling like I was just someone they could use to make my money their money, the main point of most finance operations. Knowing just enough to feel like I could make smart decisions (I did wisely turn down the life insurance offer that was sold as an investment, even though that was a straight recommendation from my Mom when I told her what I was pitched. Thanks Mom!) I ended up in the office of an Edward Jones advisor a bit battered by the financial advice I had received thus far. The advisor was personable and made me feel heard. Turns out that is exactly what they are trained to do, it should have been obvious. I asked very specific questions and he answered them patiently and thoroughly. Even explaining exactly how he gets paid, not everyone was so forthright about that detail. I do recall thinking while I was sitting there that this late 40s, maybe early 50s gentleman might not be that much of a financial wizard if he still needed to work for EdJones at this stage of life but I set those thoughts aside, at least until after I agreed to give him most of my non-retirement savings. As I drove away from the meeting, I mean literally pulling out of the parking lot, I had this sinking realization that I just paid someone five cents on every dollar to go buy a mutual fund for me. That is I gave him $25k and received $23.75k worth of publicly available mutual fund shares. How naïve was I? While those funds have done well, in the 10 years following I would have made $18k more if I had taken my money and bought an SP-500 ETF instead.

All this leads back to my 2011 revelation. I do not remember the specific day but I definitely remember where I was sitting, the spreadsheet, and the stock that triggered it. As I had now become a more active reader of all kinds of financial advice I saw an article about Pitney Bowes Inc. (PBI) and the current 14% dividend yield. I opened a spreadsheet and calculated I could generate income equivalent to my current salary with as little as $500k invested in PBI. I got excited and bought 14 shares of PBI on the spot. Nowhere near the $500k, but a start. Armed with this new (to me) idea of making income off my savings I began to envision the path to passive income and the removal of the work/job requirement to sustain myself.

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