Question: Are you working at your financial potential? Let me explain. We’ve all
heard about how farmers try to manage fields so crops yield closer and closer to their genetic potential. With new varieties, placing fertilizer properly, and better seed beds, more and more farmers are getting yields that we once thought impossible with their crops.
One reason is because crops have been selected or bred for higher yields — yes, higher genetic potential. Now let’s keep the meaning but change the words to “financial” potential.
What is your financial potential and are you working at your financial potential? Financial potential likely varies from person to person, but the next guy’s financial potential really doesn’t matter. Ours does. The problem is most of us has never asked the question: What is my financial potential? And can I grow it if I decide I want to?
I don’t know the answer to the first question. But I’m absolutely sure you and I can grow our financial potential if we want to. We might have to learn some new skills and we might have to use some new tools and technology, but I’m sure we can learn, we can get the technology and we can do it.
In a separate article later this year I will list the seven steps for success in business. A consultant agreed to share them with me for the article. There’s nothing very special about any of those steps, and maybe even using just four out of the seven could really improve our financial potential. But what if we can learn to use all seven?
In the meantime, I will offer a financial system that you likely heard before: the five-legged stool. When I get my other article to you, we can use the seven steps to turbocharge our five-legged stool.
From what I’ve seen over the past 15 years, the five-legged stool has really helped a lot of Grainews readers improve their financial potential. It sure has ours. So let’s start there.
THE FIVE-LEGGED STOOL
Briefly, to create a solid financial platform, it should have these five legs:
1. Your main farm, job or other business
2. Proper insurance for your time in life
3. Knowing how to make money with stocks
4. A second skill for emergencies or every day life
5. If you have children set up an RESP and then an RRSP.
I would really prefer that learning how to make money with stocks was number one on the list, but for most readers, that’s not possible. We already have a job or a farm or another business. But many children of parents who read my newsletter StocksTalk are now learning how to make money with stocks before they have a job or business.
And many parents are helping children over 18 set up the Tax Free Savings Account (TFSA) and teaching them to sell covered calls on good stocks. It’s only May and already many readers have raised the value of their TFSA by $500 to $800 or cash which on $5,000 is a good return for less than half a year — and January and February were two of the worst back to back months in history. And some readers who picked good stocks and let them run have more than 20 per cent capital gain, but selling covered calls brings in cash.
One fellow I spoke to recently made three cents of interest in his TFSA in one month on $5,000. Does anyone need more convincing that our strategy is working? Of course some critics say selling calls will limit gains while others say this is too good to be true. In the meantime we just keep making money.
LEARN A SKILL. GET CONTROL
Likely the biggest thing with improving our financial potential is we need to understand that there is a lot of money out there to be had. We just have to go get some, learn how to keep it, learn how to put it to work and then do it. It is a teachable skill.
But you have to want to learn and you have to find someone who can and will teach you. I teach a lot of people this stuff. At some point we can become good at this skill and it won’t take much time.
A lot of people don’t want to learn a new skill too early in life, so they wait and wait and then they want to learn in a day what took the next guy months. Don’t count on becoming an expert in any new skill in an hour or a month.
If we’re going to learn a new skill, we should follow some learning techniques. The first step is to get a critical mass of knowledge so we get on the right path. Then it gets easier to learn more as we learn more. I call this the magic of compound knowledge.
When we start a new skill, we likely wonder about a lot of things. But as we learn, eventually we have one of those A-HA moments that I call a quantum leap. Suddenly a lot of things make a lot more sense. At that point we can start to think instead of wonder.
So, as you go about your business of farming, or whatever you do ask yourself: Am I working to my financial potential? If not, then maybe this summer is a good time to start thinking seriously how to improve your financial potential.
FARMLAND A GOOD ASSET
I hear that billionaires like Jimmy Rogers are buying farmland. China is locking up uranium supplies. Drilling for oil and gas has been cut in half. India is building cars for $2,500, which puts them into the price range of the large middle class in that country. The combination of less drilling and more cars is almost certain to drive up the price of oil and gas. Inflation is starting to creep in, and one statistic said inflation was up 0.3 per cent for the month, which amounts to 3.6 per cent per year. It likely has to be double that to bring back some semblance of balance between how much money countries have printed and the price of things in the future.
The price of gold is pushing $1,000 an ounce, but central banks and the IMF might want to keep the price down as a sign that inflation is not a problem.
Plus jobs are dropping like flies, which is what we should expect when circulation of money drops from seven to around two. So there’s less spending power. But all that printed money has to find a home, and it will. If or when foreign countries decide to lend less to the U. S., then interest rates may have to rise, too. But the U. S. is caught because if it raises interest rates, it will kill economic recovery. So the U. S. will either have to lie about inflation statistics or try other creative ways to hold down inflation, like raise taxes to keep people from spending too much money on stuff that could reveal the truth about inflation. But the U. S. can’t lie about one thing: Adam Hamilton on Zeal says the U. S. has expanded its monetary base by 111 per cent in the past 12 months. That pretty well has to lead to inflation.
Which does seem to add up to one thing: It could be better to own things than hold money. I read that China can’t be self-sufficient with food until around 2030. That’s a long time. Yes Russia, Brazil and Ukraine can grow a lot more food, but weather has a way of chopping supplies from time to time.
Plus, if the price that used to be a ceiling for grain becomes the floor, grain prices should rise. They will have to if farmers are to make any money. But the price of farmland seems to go up year after year even if some farmers are losing money farming.
So it would appear to me that farmland could be a good asset to own for the coming years. You may not make much money farming some years, but the value of your estate could grow just the same.
MY RECENT ACTIVITIES
Knowing what I know, we can make very good money with the right combination of stocks where we just hold some and sell covered calls on some. That way we get the gains in prices, yet we bring in cash when we want to. We bring in cash three different ways plus get capital gain.
Since early May, I have personally sold off more and more U. S. stocks and we’re holding more cash. Over time I will decide which resource stocks to buy. I have bought some Seabridge (SEA) on Toronto because it has more ounces of gold per share than any other company I can find. And we own a few thousand shares of Sans Gold, the mine at Bissett, Manitoba. Both companies have no unhappy shareholders as I write on May 23 — the stocks are at new highs.
Recently, I also bought a flow through to help us deal with taxes for 2009. Last year I bought $31,000 worth of flow throughs, some with Sans Gold which paid out 100 per cent or better after four months and Mineral Fields which paid out $1.30 per $1 invested after five months, so I just put that money back into another flow through for 2009.
Those small caps that beat up flow throughs could have another day in the sun as the price of commodities rises.
I’ve also bought shares in two shipping companies (symbols DRYS and PRGN), but if the Canadian dollar keeps rising I might sell them. We also own shares in CNR. We more than doubled our money on a whack of Wells Fargo (WFC) shares, but I sold them as the Canadian dollar started to rise. And I really like Tech Resources (TCK. B), so we’ve been loading up on them. Every 25 cents is $1,100 for us up or down so far.
I see Builder Bonds in Manitoba are paying one per cent per year. We usually make twice that per month selling covered calls on good stocks (and we keep the dividend), but one per cent per year is twice the rate of T-bills. I sure would be careful about locking in deposits for more than a year and any time now locking in interest rates on loans might be a good idea.
Andy is retired in Winnipeg. He plays with his granddaughter, gardens, fixes cars a bit, does taxes, manages his portfolio and publishes a newsletter called StocksTalk where he tells in detail what he does with his stocks. If you want to read it free for a month just go to Google and type in StocksTalk.netand follow the instructions.