Dallas, Texas-based Mr. Cooper Group on Tuesday announced it has completed the acquisitions of Home Point Capital and Roosevelt Management Company. With the deals, Mr. Cooper has moved closer to its $1 trillion mortgage servicing rights (MSR) portfolio target.
Mr. Cooper concluded on Monday a tender offer for Home Point’s outstanding shares after extending the deadline twice. According to Equiniti Trust Company, the depository and paying agent for the tender offer, 136,532,192 shares of Home Point were tendered and not validly withdrawn (98.5% of the total). Mr. Cooper paid $2.333 per share.
“This acquisition adds scale to our platform, bringing us closer to our $1 trillion strategic target while enhancing returns due to attractive yields and positive operating leverage,” Jay Bray, Mr. Cooper’s chairman and CEO, said in a statement.
The deal – which will result in Homepoint becoming a wholly subsidiary of Mr. Cooper – was first announced in May and was expected to close in the third quarter of 2023. Mr. Cooper is paying $324 million in cash and assuming $500 million in outstanding Home Point 5% senior notes due in February 2026.
“The transaction includes the assumption of $500 million in bonds with an attractive rate, and as a result, we do not expect the acquisition to have a material impact on the company’s liquidity, which remains at robust and near-record levels,” Chris Marshall, Mr. Cooper’s vice chairman and president, said in a statement.
Also on Tuesday Mr. Cooper announced it completed the acquisition of Roosevelt and its affiliated subsidiaries, which include a registered investment advisor and licensed mortgage servicing rights (MSR) owner. The expectation was that the deal would close in the second half of 2023. The deal was announced in February.
The private New York-based company, founded in 2008, manages third-party capital on behalf of insurance companies, pension funds, hedge funds and other investors.
“We continue to see significant volumes of MSRs trading in the marketplace with attractive yields. Our asset management strategy is designed to make these yields available to institutional investors while continuing to grow our customer base and operational scale,” Marshall said.
Mr. Cooper ended June with $882 billion in unpaid principal balance (UPB), compared to $853 billion at the end of March, according to its second-quarter 2023 earnings released last week.
The servicing portfolio grew because of Rushmore’s special servicing platform acquisition. But other deals may bring the servicing portfolio to $957 billion, including $83 billion from the acquisition of Home Point Capital and $25 billion in pending bulk acquisitions.
Have you ever wondered what a 9-figure amount looks like? It’s a sum of money too big to ignore, with a whopping total of 100 million to less than 1 billion. Discover more about this colossal figure and the wealth it represents
When we mention nine-figure sums, we’re talking about a truly astronomical level of wealth. To put it in perspective, nine figures represent anything from $100,000,000 all the way up to $999,999,999.
This figure surpasses the GDP of several small nations. For instance, Samoa reported a GDP of approximately 843.8 million USD in 2021.
Or consider that according to Investopedia, 7-figure wealth is what puts you among the top 0.1% of the wealthiest people on the planet. This means that having nine figures puts someone at an even more elite level, one whose luxury extends far beyond mere financial freedom.
Only a small fraction of individuals or companies globally can boast such immense wealth. However, it is not an unattainable goal. Let’s take a look at some of the strategies you can employ to accumulate substantial wealth while also examining the lifestyles and pursuits of those who have successfully achieved it.
How Much Is a 9-figure Salary?
Table of Contents
A nine-figure income signifies any earnings that flaunt nine digits, starting from $100,000,000 and soaring upwards. To put it into words, we’re discussing one hundred million dollars.
Quite a mind-boggling figure, isn’t it?
It’s like being handed the keys to a kingdom of unimaginable wealth. But remember, this is a sphere occupied by only a select few worldwide.
Their playgrounds? Often, you’ll find them in the tech sector, inheriting vast wealth or expanding an already thriving family business.
Now, let’s delve a bit deeper, shall we?
When we speak of nine figures, are we referring to the lower end close to one hundred million, the middle ground around 550,000,000, or the staggering high end nearing 999,999,999?
So, the next time you find yourself daydreaming about a nine-figure salary, remember this: It’s not just a number; it’s a lifestyle, a testament to extraordinary achievements, and a beacon of exceptional success.
And who knows? With the right mix of passion, dedication, and a sprinkle of luck, you might just find yourself joining this elite club.
After all, isn’t the sky the limit when it comes to chasing our dreams?
Examples of People Who Earn 9-Figure Incomes
Cristiano Ronaldo: A Sports Icon – With an astonishing income of $105,000,000, this celebrated athlete is not just a football superstar but also a nine-figure earner.
Safra A. Catz: Leading Oracle – As the CEO of Oracle, Safra A. Catz’s leadership prowess is reflected in her staggering earnings of $108,200,000.
David Zaslav: The Discovery Dynamo – Captaining Discovery as its CEO, David Zaslav, commands a whopping $129,500,000.
Nikesh Arora: The Palo Alto Networks Powerhouse – As the CEO of Palo Alto Networks, Nikesh Arora’s genius is rewarded with a hefty paycheck of $125,000,000.
Roger Federer: Tennis Titan – This globally recognized athlete proves that sports can indeed yield nine-figure incomes, as evidenced by his impressive earnings of $106,300,000.
Case Study: What Does A 9-Figure Earning Look Like?
Understanding the intricacies of nine-figure earnings can be a complex undertaking due to the lack of universally defined parameters. For the context of this case study, we will consider an annual income of at least $432K as the lower limit for this category. It is worth noting that any figure below this threshold would classify one into the realm of billionaires.
Renowned business magnates such as Warren Buffet and Mark Zuckerberg exemplify this earnings bracket, with annual incomes reported around $51M and marginally less than $50M, respectively.
Reaching the stature of a nine-figure income earner typically necessitates either a substantial inheritance or proprietorship of a prosperous company with diverse revenue channels. The case of Elon Musk serves as a prime example, with his considerable income derived from two distinct sources – Tesla and SpaceX.
Aspiring for this scale of income undoubtedly sets a high bar. However, with the appropriate strategy and relentless determination, it is not beyond reach. Be prepared to tread a path akin to those who have already achieved this feat.
What Is the Potential Monthly, Weekly, Daily, or Hourly Income in the 9-Figure Range?
How Much Is 9 Figures Monthly?
To figure out the monthly income from a massive annual salary, just divide the yearly amount by 12. Keep in mind that this will give you a range of values. But if you want to earn a nine-figure salary, the smallest monthly income would be $8,333,333.33.
$100,000,000 per year / 12 months
= $8,333,333.33 per month
This question might take a different perspective if you’re raking in 9 figures every month. That means your annual income would be at least $1,200,000,000 or even more.
How Much Is 9 Figures a Week?
If we were to divide the 9-figure annual salary by 52 weeks, we’d be looking at a minimum weekly income that could make anyone’s head spin – a cool $1,923,076.9! 💸💼.
$100,000,000 per year / 52 weeks
= $1,923,076.9 per week
While you’re at it, if you manage to rake in a solid 9-figure sum every week, your annual income will soar to a minimum of £52,000,000,00 or maybe even more.
How Much Is 9 Figures a Day?
Want to know how much you can earn daily from a nine-figure income? Just divide it by 365! If you make money every day, your minimum daily earnings would be $273,972.6. That’s your ticket to the nine-figure club!
Here’s the breakdown:
$100,000,000 per year / 365 days
= $273,972.6 per day
Now, let’s say you take weekends and U.S. holidays off. In that case, you’d need to earn around $381,679.3 per day to make $100,000,000 per year. It’s a good goal to aim for if you want that nine-figure salary without burning yourself out.
How Much Is 9 Figures an Hour?
If you’re seeking a nine-figure income from hourly wages, the calculations are slightly different. Just divide your per day salary by 8 hours, and voilà! The minimum number is $47,709.90per hour. This calculation is based on working days – usually 262 days per year in the US.
How Much Is 9 Figures After Taxes?
Achieving a 9-figure income is quite an extraordinary feat, one that is typically reserved for the most successful entrepreneurs, athletes, and entertainers in our society. It’s almost impossible to reach that level through a single salary alone.
Instead, individuals in this income bracket often have multiple income streams, such as investments, business ventures, and other revenue-generating activities.
Calculating the exact tax on a 9-figure income can be a challenging endeavor. Taxes can vary greatly depending on many factors, including location, type of income, applicable deductions, and more. However, it’s safe to say that anyone earning in the 9-figure range will face a significant tax bill.
What Is the Pathway To Achieving a 9-Figures Income?
If you are in pursuit of a 9-figure income, it is essential to have an understanding of the components that fuel this elusive status. What sets apart these high-net-worth individuals from the rest is their capacity to create multiple streams of passive income and capitalize on them.
Here are some tips to help you achieve this milestone:
Acquire Valuable Skills and Experience
The first step towards achieving a 9-figure income is building a solid foundation of high income skills and experience in a high-value field. This could be anything from technology and finance to entertainment and sports. The key is to become exceptionally good at what you do, often necessitating years of dedication, learning, and practical application.
Build or Join a High-Growth Venture
Next, it’s super important to either build or get involved in a high-growth venture. This could mean starting a business with a game-changing idea or joining a rapidly expanding company in a leadership position. The aim here is to use your unique skills and experiences to create substantial value and wealth, which could potentially lead to a massive income if the venture becomes incredibly successful.
Invest Wisely and Diversify Your Income Streams
Who said you can’t have your cake and eat it too? Investing in the stock market, real estate, bonds, and other alternative investments is another way to generate a 9-figure income. It’s important to diversify your portfolio across multiple strategies so that you’re not overly exposed to any one asset class.
Let’s give you an example.
If you’re already running a successful business, consider investing in cryptocurrency or another digital asset class to increase your income streams. This could provide an additional source of passive income that can help solidify your journey to a 9-figure salary.
Equities and Derivatives Trading
The stock market is an incredibly powerful tool that can help you to achieve a 9-figure income. Through equity and derivatives trading, you can tap into the world’s most lucrative markets and make substantial returns on your investments in a short amount of time.
Learning how to navigate this complex ecosystem of risk and reward requires patience, dedication, and a lot of practice. Start by investing in the stock market or trading on a simulated platform to get comfortable with the process before taking it to the next level.
Leverage Networks and Opportunities
Networking is a critical component of achieving a 9-figure income. By cultivating meaningful relationships with influential people in your industry, you can open doors to opportunities that might otherwise remain closed. These could include partnerships, investments, or high-profile job offers that can significantly boost your income.
Jobs That Pay 9 Figures
Earning a nine-figure salary is an incredibly rare achievement reserved for the top echelons of various lucrative industries. Here are some of the highest-paying jobs and industries that can bring in nine-figure salaries.
Tech Company Bosses
Tech company bosses, particularly those at the helm of companies like Amazon, Facebook, and Tesla, are among the highest earners globally. Their compensation often comes in the form of stock options, which can value in the hundreds of millions or even billions when their companies perform well.
Examples include:
Elon Musk, CEO of Tesla ($242.4 billion)
Jeff Bezos, CEO of Amazon ($151.5 billion)
Mark Zuckerberg, CEO of Facebook ($103.4 billion)
Professional Athletes
In the world of professional sports, athletes like Cristiano Ronaldo, Lionel Messi, and LeBron James have managed to secure contracts and endorsement deals that push their annual incomes into the nine-figure realm. These athletes excel in their respective sports and have built strong personal brands, attracting lucrative sponsorship deals.
According to reports, these athletes earned more than $100 million in a single year:
Hollywood Celebrities
Hollywood is no stranger to nine-figure earners. Actors like Dwayne Johnson and Robert Downey Jr., thanks to their roles in blockbuster franchises, command massive salaries. Additionally, they earn significantly from endorsements, producing roles, and profit participation deals.
Media Stars
Media stars, especially those with a strong presence on digital platforms, can earn nine figures. For instance, YouTubers and influencers with millions of followers can generate substantial income from ad revenue, brand partnerships, and merchandise sales.
Hedge Funds & Investment Bankers
Investment bankers and hedge fund managers are some of the highest earners in the financial sector due to their expertise. Some notable examples include:
Ray Dalio, founder of Bridgewater Associates ($19.1 billion)
David Tepper, hedge fund manager ($18.5 billion)
Carl Icahn, founder of Icahn Enterprises ($10.1 billion)
Pop Superstars
The music industry has always been a lucrative field for successful artists. Pop superstars like Taylor Swift and Beyoncé have made fortunes from their music sales, concert tours, and endorsement deals. These musicians not only create hit songs but also build powerful brands that amplify their earnings.
Entertainment (actors, singers, dancers, etc.)
Performers in the entertainment industry, including actors, singers, and dancers, can achieve nine-figure incomes. Successful film actors can earn millions per movie while top-charting musicians make a significant portion of their income from touring. Broadway performers and dancers in high-demand shows can also command high salaries.
Top-notch Business Owners
Business owners, especially those who own large corporations or successful startups, can earn nine figures. This income comes from their business profits and, in some cases, from selling their businesses. Entrepreneurs like Elon Musk and Jeff Bezos have made billions from their ventures.
These careers represent the pinnacle of earning potential in their respective fields. However, it’s essential to note that reaching this income level requires exceptional talent, hard work, and often a good dose of luck.
Are 9-Figures Rich?
When we talk about money, figures, and digits start dancing in our heads. Six figures? That’s quite impressive. Seven figures? Now you’re playing with the big boys. But when we leap into the world of nine-figure incomes, we’re talking about a whole different ball game. It’s like comparing a kiddie pool to the Pacific Ocean!
A nine-figure income means someone is raking in between $100,000,000 and $999,999,999 annually. That’s right. There are more zeros in that figure than in a beginner’s Sudoku puzzle! This income bracket places individuals among the financial titans of the world. To put it plainly, if you’re earning nine figures, you’re not just rich—you’re Scrooge McDuck swimming in a vault of gold-level wealth.
But let’s be real, nine-figure incomes are as rare as a unicorn at a donkey convention. Even some of the world’s wealthiest individuals, like Bill Gates and Warren Buffet, didn’t make their billion-dollar fortunes overnight. It took years of smart decisions, a bit of luck, and probably a few sleepless nights.
And don’t forget, these ultra-wealthy folks aren’t waiting for a paycheck every month. Their wealth comes from various sources, including investments, real estate, and businesses3. They’ve got their fingers in so many pies; they could open a bakery!
What Does a 9-Figure Lifestyle Entail?
Living a 9-figure lifestyle is beyond the realm of what most people could even imagine. It involves not just extraordinary wealth but also the responsibilities and opportunities that come with it. Here’s a detailed look at what such a lifestyle might entail:
Extreme Luxury
A 9-figure lifestyle allows for some of the most opulent luxuries in the world. For instance, consider real estate: billionaires often own multiple properties around the globe. According to a report by Economics Times, the average billionaire owns 4 homes, with each worth nearly $20 million.
Traveling is another area where this wealth is evident. Private jet travel is commonplace among this group. The cost of owning a private jet can range from $3 million to over $90 million, not including the ongoing costs of maintenance, fuel, and crew salaries.
Philanthropy
Philanthropy is a significant aspect of a 9-figure lifestyle. Many ultra-wealthy individuals are committed to giving back to society. For example, Warren Buffett, one of the richest people in the world, pledged to give away 99% of his wealth to philanthropic causes.
The Giving Pledge is another example of this. Initiated by Bill Gates and Warren Buffet, it’s a commitment by some of the world’s wealthiest individuals and families to give away more than half of their wealth to solve societal problems.
Investments
Individuals with a 9-figure income often have vast and diverse investment portfolios. For instance, Jeff Bezos, the founder of Amazon and one of the wealthiest individuals on the planet, has investments spanning multiple industries. He owns The Washington Post, has a venture capital firm called Bezos Expeditions, and invests in space exploration with his company Blue Origin.
Personal Staff
Having a 9-figure income often means employing an extensive personal staff to handle daily affairs. For example, Oprah Winfrey, a billionaire media mogul, reportedly employs a team of over 3,000 staff, including gardeners, chefs, housekeepers, and security personnel.
This level of staffing isn’t uncommon among the ultra-wealthy. After all, managing a 9-figure lifestyle requires a lot of planning and assistance to make sure everything runs smoothly.
Political Influence
The ultra-wealthy have significant influence in politics due to their large contributions to political campaigns and the influence they can wield over policy decisions. This influence can be used for both good and bad purposes, depending on who is wielding it.
However, the effects of political influence by wealthy individuals shouldn’t be underestimated. It can have a profound impact on policy decisions and shape public opinion in powerful ways. This level of influence is not available to everyone, but those with 9-figure incomes typically use it to their advantage.
Privacy and Security
With great wealth comes the need for privacy and security. People with a 9-figure income often invest in advanced security systems, hire personal security staff, and take measures to maintain their privacy.
This isn’t just to protect their money; it’s also about protecting themselves and their families from potential threats. After all, when you’re one of the wealthiest people in the world, there are bound to be a lot of eyes on you.
High-End Experiences
Those with a 9-figure lifestyle often have access to experiences that are out of reach for most. This can range from private concerts with top musicians to exclusive dining experiences with world-renowned chefs.
This level of wealth also opens up opportunities to travel to the most luxurious places in the world. From private island getaways to luxury cruises, the experiences available to 9-figure earners are limited only by their imagination and budget.
The Bottom Line – Making 9 Figures
Taking all of this into account, it is clear that those with a 9-figure income have access to exclusive and luxurious experiences, as well as the privacy and security often associated with great wealth. This level of influence can also be extremely powerful. Therefore, it should not be underestimated or overlooked.
Overall, 9 figures is an amazing achievement and one that requires hard work and dedication. It is often an indicator of success and can open up a world of new possibilities for those who have achieved it.
Regardless of your current financial status, never forget that anything is possible with determination and perseverance! With the right attitude and mindset, you, too, could one day reach 9 figures or more. Start planning today, and remember to take every opportunity that comes your way. With a bit of luck and the right attitude, success is just around the corner.
FAQs – Making 9 Figures
How many words are nine figures?
Nine figures is a term used to refer to incomes between $100,000,000 and $999,999,999. It does not refer to the number of words.
Does anyone make nine figures?
In the United States, a remarkably small number of individuals achieve the remarkable milestone of earning nine figures or more. According to a report by Market Watch, only 205 people in America earn an astonishing sum of over $50,000,000 in wages alone annually.
To put this into perspective, a nine-figure income would be twice the amount of $100,000,000! As a result, the exclusivity of this income bracket is amplified, leading to a limited number of individuals who can boast such astronomical earnings.
What do “figures” mean in money?
Figures is a term used in accounting and finance to refer to digits of numerical values. It does not refer to physical currency or coins. For example, if you have $50,000, five figures are present (50000). This can also apply to other forms of money, such as stocks, bonds, and investments.
What is a nine-figure job?
A nine-figure job is a term used to refer to the careers of those who have achieved the tremendous milestone of earning nine figures or more annually. This could include professionals from various industries such as tech, investment banking, and sports.
These individuals are typically highly successful in their fields and command higher salaries than other professionals due to their extensive experience and knowledge.
What’s the difference between a 9-figure salary and a 9-figure income?
A 9-figure salary is an annual income of $100,000,000 or more. A 9-figure income is a measure of all sources of income that a person has, including wages, investments, and other revenue streams like royalties. This means that a person can have a nine-figure income without having an extremely high salary.
For example, someone who earns a salary of $1,000,000 but has investments of $100,000,000 would have a 9-figure income. This demonstrates why it is important to consider all sources of income when assessing the overall financial health and status of an individual or family.
What is the difference between 9 figures and 8 figures?
Eight figures refer to financial values between $10,000,000 and $99,999,999. In contrast, 9 figures are incomes of $100,000,000 or more. This is an important distinction to make when discussing the wealth of individuals because it shows how much greater the income of a nine-figure earner is compared to someone with eight figures.
For example, someone who makes $100,000,000 in a year would have twice the earnings of someone who makes $50,000,000. This is why it is important to consider figures when discussing wealth and income, as they can provide valuable insight into the financial status of an individual or family.
Is 9 figures a lot of money?
Yes, 9 figures is a lot of money. It is an astronomical amount that few individuals ever reach. As such, it demonstrates the impressive achievements of those who have managed to achieve nine-figure incomes and provides insight into their level of success and financial status.
The three videos scheduled for today were going to cover hedge funds. After watching them, however, I’ve decided they’re not necessary for basic financial literacy. Unless I’ve missed something, hedge funds are targeted primarily at institutional investors. If you want to learn more about them, you can visit the SEC or watch Michael’s videos at YouTube:
Instead of covering hedge funds, we’ll move on to Michael’s discussion of timing investments and dollar-cost averaging:
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Because the stock market has historically shown strong returns over long periods, we can take advantage of this by ignoring short-term market movement and making regularly scheduled investments, regardless the market’s condition. This technique is called “dollar-cost averaging”.
Critics of dollar-cost averaging argue that it provides a lower return than investing a lump sum now. This is true. If you have a choice, you should always invest early instead of waiting to spread the investments over time.
However, dollar-cost averaging is an excellent technique for those who cannot afford to invest a large sum at one time. If you have the choice between saving $4000 to put into your Roth IRA at the end of the year, for example, or paying $333.33 a month, do the latter. Don’t bother trying to time the market, but make regular scheduled investments.
(I’ll scan and post Michael’s chart later. I hadn’t intended to post this video today, and so I’m unprepared.)
Next week, Michael’s video series winds down as he describes how to put the concepts he’s taught us into practice.
Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee that’s less than a penny. Market makers, who are required to deliver the “best execution,” carry out the retail orders, profiting off small differences between what shares were bought and sold for.
Retail brokerages, in turn, use the rebates they collect to offer customers lower — or often zero — trading fees.
How Does Payment for Order Flow Work?
Here’s a step-by-step guide to how payment for order flow generally works:
1. A retail investor puts in a buy or sell order through their brokerage account.
2. The brokerage firm routes the order to a market maker.
3. The broker collects a small fee or rebate – the “payment” for sending the “order flow” or PFOF.
4. The market maker is required to find the “best execution,” which could mean the best price, swiftest trade, or the trade most likely to get the order done.
The rebates allow companies offering brokerage accounts to subsidize rock-bottom or zero-commission trading for customers. It also frees them to outsource the task of executing millions of customer orders.
Usually the amount in rebates a brokerage receives is tied to the size of the trades. Smaller orders are less likely to have an impact on market prices, motivating market makers to pay more for them. The type of stocks traded can also affect how much they get paid for in rebates, since volatile stocks have wider spreads and market makers profit more from them.
Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.
Why Is PFOF Controversial?
While widespread and legal, payment for order flow is controversial. Critics argue it poses a conflict of interest by incentivizing brokerages to boost their revenue rather than ensure good prices for customers. The requirement of best execution by the Securities and Exchange Commission (SEC) doesn’t necessarily mean “best price” since price, speed, and liquidity are among several factors considered when it comes to execution quality.
Defenders of PFOF say that mom-and-pop investors benefit from the practice through enhanced liquidity, the ability to get trades done. They also point to data that shows customers enjoy better prices than they would have on public stock exchanges. But perhaps the biggest gain for retail investors is the commission-free trading that is now a mainstay in today’s equity markets.
What Are Market Makers?
Market makers — also known as electronic trading firms — are regulated firms that buy and sell shares all day, collecting profits from bid-ask spreads. The market maker profits can execute trades from their own inventory or in the market. Offering quotes and bidding on both sides of the market helps keep it liquid.
Market makers that execute retail orders are also called wholesalers. The money that market makers collect from PFOF is usually fractions of a cent on each share, but these are reliable profits that can turn into hundreds of millions in revenue a year. In recent years, a number of firms have exited or sold their wholesaling businesses, leaving just a handful of electronic trading firms that handle PFOF.
In addition to profits from stock spreads, the orders from brokerage firms give market makers valuable market data on retail trading flows. When it comes to using institutional or retail investors, market makers also prefer trading with the latter because larger market players like hedge funds can trade many shares at once. This can cause big shifts in prices, hitting market makers with losses.
PFOF in the Options Market
Payment for order flow is more prevalent in options trading because of the many different types of contracts. Options give purchasers the right, but not the obligation, to buy or sell an underlying asset. Every stock option has a strike price, the price at which the investor can exercise the contract, and an expiration date — the day on which the contract expires.
💡 New to options? Check out our options guide for beginners.
Market makers play a key role in providing liquidity for the thousands of contracts with varying strike prices and expiration dates.
The options market also tends to be more lucrative for the brokerage firm and market maker. That’s because options contracts trading is more illiquid, resulting in chunkier spreads for the market maker.
Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.
Criticism of Payment for Order Flow
Payment for order flow was pioneered in the 1980s by Bernie Madoff, who later pleaded guilty to running the largest Ponzi scheme in U.S. history.
Critics argue retail investors get a poor deal from PFOF. Since market makers and brokerages are only required to provide “best execution” and not necessarily the “best possible price,” firms can make trades that are profitable for themselves but not necessarily in the best interest of individual investors.
In 2016, the U.S. Department of Justice (DOJ) subpoenaed market making firms for information related to the execution of retail stock trades. The DOJ was looking into whether the varying speeds at which different data feeds deliver market prices made it look like retail clients were getting favorable prices, while market makers knew they actually weren’t from faster data feeds. A trading firm settled with regulators in 2017.
Defenders of Payment For Order Flow
Proponents of payment for order flow argue that both sides — the retail investors and the market makers — win from the arrangement. Here are the ways retail customers can benefit from PFOF, according to its defenders:
1. No Commissions: In recent years, the price of trading has collapsed and is now zero at the biggest online brokerage firms. While competition has been a big part of that shift, PFOF has helped bring about low trading transactions for mom-and-pop investors. For context, online trading commissions were $40 or so a trade in the 1990s.
2. Liquidity: Particularly in the options market, where there can be thousands of contracts with different strike prices and expiration dates, market makers help provide trading liquidity, ensuring that retail customer orders get executed in a timely manner.
3. Price Improvement: Brokerages can provide “price improvement,” when customers get a better price than they would on a public stock exchange.
4. Transparency: SEC Rules 605 and 606 require brokers to disclose statistics on execution quality for customer orders and general overview of routing practices. Customers are also allowed to request information on which venues their orders were sent to. Starting in 2020, brokers also had to give figures on net payments received each month from market makers.
The Takeaway
Payment for order flow (PFOF) refers to the practice of retail brokerages routing customer orders to market makers, usually for a small fee. Payment for order flow is controversial, but it’s become a key part of financial markets when it comes to stock and options trading today.
Industry observers have said that for retail investors weighing the trade-off between low trading costs versus good prices, it may come down to the size of their trades. For smaller trades, the benefits of saving money on commissions may surpass any gains from price improvement. For investors trading hundreds or thousands of shares at a time, getting better prices may be a bigger priority.
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It’s 2021. A group of Redditors has inflated GameStop’s share price by 2,100% and investors have poured $280 million into BUZZ, an ETF based on social media hype.
Backed by the founder of Barstool Sports, BUZZ is currently outperforming the S&P 500.
What a time to be alive.
The market madness of early 2021 has given everyone from retail investors to the Chairman of the Fed plenty to think about. For investment firm VanEck, it highlighted a golden opportunity to resurrect a wacky idea from the mid-2010s: an ETF based not on rising price, but on hype.
The VanEck Vectors Social Sentiment ETF (BUZZ) is made up of 75 stocks chosen by their “social media sentiment,” i.e. their levels of buzz online. It’s a bit of a wild concept since investors don’t traditionally associate hashtags with a rise in share price. But if the GameStop explosion is any indication, hashtags matter now.
So how does BUZZ work? Why is it controversial? And why are ETFs in general considered a better long-term investment than individual stocks?
Let’s investigate BUZZ.
What’s Ahead:
What makes BUZZ such a unique ETF?
On paper, BUZZ looks like a pretty normal ETF. It consists of a healthy number of stocks (75) including many blue chips like Ford, Tesla, and Twitter. Plus, it has a high bar for entry: all stocks in BUZZ must have a market cap of at least $5 billion, so no volatile newcomers are welcome here.
If BUZZ’s appearance seems normal, it’s the way these stocks were chosen that’s so fascinating.
How ETFs are (typically) built
ETFs have themes that link the underlying securities together. The first ETF, built in 1993, was SPY, and was launched to reflect the overall performance of the S&P 500. An investment in SPY, therefore, is like an investment in the S&P 500 index itself.
Today, there are over 7,600 ETFs bundling commodities like gold or oil, sectors like IT and healthcare, and emerging markets like Africa and India.
While ETF themes can range from the obvious to the creative, all ETF managers follow one basic principle: to build a fund that will increase in value over time. Case in point, you can’t just make up an ETF and get it listed – you have to get it approved by the SEC and sell your underlying logic to investors.
That’s what makes BUZZ so unique and controversial: some investors think it’s based on nothing at all.
How BUZZ was built, and why it’s getting mixed reactions
The Van Eck Vectors Social Sentiment ETF (BUZZ) gets its 75 stocks from an algorithm called the Buzz NextGen AI U.S. Sentiment Leaders Index, which identifies companies getting “bullish social media sentiment.”
In short, it picks stocks based on rising popularity, not price.
Many investors aren’t too keen on BUZZ because they struggle to link social media mentions with share price. Earnings, growth potential, demand… these are factors that should indicate a rise in share price.
But Reddit mentions? Really?
Case in point, BUZZ isn’t the first hype-based ETF. The Sprott Buzz Social Media Insights ETF (BUZ) launched alongside the aforementioned AI index in 2015. But most agree that BUZ was just too ahead of its time. Due to a lack of investor interest, it closed.
Does that mean the naysayers are right? That social media mentions are a terrible predictor of a rise in share price?
Well, if BUZ had stayed open, it would’ve outperformed the S&P 500 in four of the last five calendar years.
BUZZ is not a “meme stock” ETF
Some in the media are quick to label BUZZ a “meme stock ETF” full of stocks that saw skyrocketing share prices thanks to the subreddit r/WallStreetBets. However, the two most notorious meme stocks, GameStop and AMC, are nowhere to be seen on BUZZ.
“This is not a Reddit meme stock ETF” says BUZZ originator Jamie Wise, as quoted in CNBC.
While GameStop and AMC support the logic behind BUZZ, that hype can drive share price, both stocks were way too extreme to be included. Among other reasons, they weren’t mentioned in enough places for a long enough period of time.
BUZZ isn’t trying to predict memes, but rather, find companies that might see a tick in share price due to positive social media sentiment. Hedge funds have been monitoring social media for years, but BUZZ represents the first time this intel is being shared with the people.
If learning about BUZZ has piqued your interest in ETF investing, here’s a quick refresher of the basics, and why, according to the experts, ETFs are often considered a better long-term investment than individual securities.
What is an ETF?
An ETF, or Exchange Traded Fund, is like a bundle of investments that you can buy and sell on an exchange. To illustrate, you can buy shares of BUZZ right now on Webull – for example – just like you’d buy shares of TSLA or GOOGL.
An ETF can include a mix of individual stocks, commodities, bonds, and other securities. And unlike mutual funds, ETFs can be traded all day, so their share prices constantly fluctuate.
ETFs offer a convenient way to invest in a broader concept, commodity, or even an entire sector
Let’s say you want to invest in the clean energy sector. You could go buy, say, 88 individual company stocks. It’ll just take hundreds of hours of research, 88 trades, and fees, and leave you with 88 tickers to track in your portfolio.
Or, you could just invest in a single clean energy ETF. That way, the research is already done for you, you make one trade, and you only have a single ticker to track in your brokerage app of choice.
ETFs have lower expense ratios
Expense ratios are a funds management costs, which are typically taken out of the fund’s assets.
Generally speaking, ETFs are passively managed and have significantly fewer operating expenses than something actively managed like a mutual fund. This means that ETF managers can afford to charge shareholders like you fewer fees (if any).
ETFs are more diverse and stable than individual securities
Because they represent bundles of securities, ETFs are naturally more diverse and stable than individual stocks. If the market is like a big, wide ocean, ETFs are like cargo ships. Sure, they can be a little slow, but they’re resilient to crashing waves and the occasional hurricane.
If you invest in a single stock and it tanks, you’re out of luck. But if you invest in a sector ETF and just one out of 108 stocks tanks, your investment will barely be affected. In fact, you might not even notice as the share price continues to rise with sector performance.
ETFs don’t always go up, of course, but their inherent diversity makes them a superior long-term investment than most individual securities.
Summary
BUZZ’s hype-based indexing logic is certainly avant-garde, but it still follows a traditional ETF philosophy: to provide a diverse, convenient, and stable pathway to long-term growth for investors.
Whether or not this ETF will continue to perform remains to be seen, and only time will tell!
Collateralized debt obligations are complex financial products that bundle multiple bonds and loans into single securities.
These packaged securities are then sold in the market, typically to institutional investors. CDOs became more widely known to the general public due to their role in the 2008-2009 financial crisis.
Individual investors cannot easily buy CDOs. However, the 2008 financial crisis and subsequent recession revealed the interconnected nature of markets, as well as how losses on Wall Street can have ripple effects on the broader economy.
Therefore, it can be important for everyday individuals to grasp the role that complex financial instruments like collateralized debt obligations have in markets.
How Do CDOs Work?
“Collateral” in finance is a term that refers to the security that lenders may require in return for lending money. In collateralized debt obligations, the collateral are the payments from the underlying loans, bonds, and other types of debt.
CDOs are considered derivatives since their prices are derived from the performance of the underlying bonds and loans. The institutional investors who tend to hold CDOs may collect the repayments from the original borrowers in the securities.
The returns of CDOs depend on the performance of the underlying debt. CDOs are popular because they allow lenders, usually banks, to turn a relatively illiquid security — like a bond or loan — into a more liquid asset.
Tranches in CDOs
CDOs are typically sliced into so-called tranches that hold varying degrees of risk and then these slices are sold to investors.
The most senior tranche is the highest rated by credit rating firms like S&P and Moody’s. The highest credit rating possible is AAA. Holders of the most senior or highest-rated tranche generally receive the lowest yield but are the last group to absorb losses in cases of default.
The most junior tranche in CDOs is sometimes unrated. Investors of this layer earn the highest yields but are the first to absorb credit losses. The middle tranche is usually rated between BB to AA.
Recommended: How Do Derivatives Work?
What Are Synthetic CDOs?
Regular, plain-vanilla CDOs invest in bonds, mortgages, and loans. In contrast, synthetic collateralized debt obligations invest in derivatives.
So instead of bundling corporate bonds or home mortgages, synthetic CDOs bundle derivatives like credit default swaps, options contracts, or other types of contracts. Keep in mind, these derivatives are themselves tied to another asset, such as loans or bonds.
Investors of regular CDOs get returns from the payments made on corporate debt or mortgage loans. Holders of synthetic CDOs get returns from the premiums associated with the derivatives.
CDOs vs CLOs
Collateralized loan obligations are a subset of CDOs. Instead of bundling up an array of different types of debt, CLOs more specifically gather together debt from hundreds of different companies, often this debt is considered below investment grade.
CLOs are considered by some market observers to be safer than CDOs, but both are risky debt products. CLOs do however tend to be more diversified across firms and sectors, while CDOs run the risk of being concentrated in a single debt type, such as mortgage loans during the 2008 financial crisis.
According to S&P, no U.S. AAA-rated CLO has ever defaulted. Also, CDOs can have a higher percentage of lower-rated debt. According to the ratings firm Moody’s, CDOs are allowed to hold up to 17.5% of their portfolio in Caa-rated assets and below (e.g. very high credit risk). That compares to the 7.5% in CLOs.
Collateralized Debt Obligations and the 2008-09 Housing Crisis
CDOs of mortgage-backed securities became notorious during the subprime housing crisis of 2008 and 2009. A selloff in the CDO market was said to amplify broader economic weakness in the economy.
Banks had been weakening lending standards when it came to home mortgages, allowing individuals to buy home that may have been too expensive for them.
Meanwhile, Wall Street banks were packaging home loans — some risky and subprime — into CDOs in the years leading up to the financial crisis. Ratings firms labeled these mortgage-backed CDOs as safe, on the premise that homeowners were a group of creditors less likely to default.
A mortgage-backed CDO holds many individual mortgage bonds. The mortgage bonds, in turn, packaged thousands of individual mortgages. These mortgage CDOs were considered to be of limited risk because of how they were diversified across many mortgage bonds.
But homeowners started to become unable to make their monthly payments, and defaults and foreclosures started piling up, leading to a domino effect of losses spread across the financial system.
Recommended: What Is Active Investing?
CDO Comeback
Around 2020, CDOs had a resurgence, with primarily corporate loans rather than home loans being packaged into securities.
A world of ultralow yields in the bond market pushed investors to seek higher-yielding markets. The average yield stands at just 2%, while trillions of dollars in debt trades at negative rates. In contrast, CDOs can yield up to 10%.
This time around hedge funds and private-equity firms, rather than banks, became the big players in the CDO market. Hedge funds are the new buyers–accounting for 70% of volume in the market. Banks were responsible for 10% of volumes in 2019, compared with 50% in the past.
The Takeaway
Collateralized debt obligations or CDOs are financial structures that bundle together different types of debt and sell shares of these bundled securities to investors.
The return investors might see from these debt-based, derivative securities depends on the ongoing payments from the debt holders. CDOs are typically purchased by institutional investors, not retail investors, but it can be useful to know about this market sector.
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Out of 72 million Millennials in America, roughly 600,000 are already millionaires according to Coldwell Banker.
Like the generation they represent, Gen Y’s own one-percenters come from diverse backgrounds and share a bootstrapping attitude to building wealth and success. Their paths to riches range from the tried-and-true to the clever and lucky; some of their methods are merely admirable, while others are easily repeatable.
So who are the Millennial millionaires? How did they build their fortunes, and what can we learn from them?
Let’s investigate six Millennial millionaires, their paths to wealth, and extract one takeaway from each journey.
What’s Ahead:
Jeremy Gardner: crypto
In 2013, at age 21, Jeremy Gardner bought some bitcoins from a friend purely out of curiosity.
At the time, all he really knew about “crypto” was that it was the preferred currency of Silk Road, a darknet eBay for drugs and illegal activity. Shady traders on Silk Road liked Bitcoin because it was unregulated and difficult for authorities to trace.
The FBI shut down Silk Road in 2013 but Bitcoin lived on – and soon, Gardner began to see its true merit.
“There was this realization that I could — with just an internet connection— exchange value with anyone in the world who also has an internet connection,” he told Business Insider. “No longer did I have to rely on a centralized intermediary, a troll under the bridge, such as a bank or a government.”
Gardner converted all of his cash and holdings into Bitcoin and dedicated his life to evangelizing cryptocurrency. He won’t share his net worth publicly, but considering Bitcoin traded for as low as $50 in 2013 and now hovers around $50,000, it’s safe to say he’s beyond mere “millionaire” status.
So what does a crypto millionaire do all day?
At the time of his Business Insider interview, Gardner lived in a three-story townhome in San Francisco dubbed “The Crypto Castle.” He claims that most of the other tenants who have rotated in and out of the Castle have become millionaires as a result of cryptocurrency investing.
Despite residing in one of the most expensive cities on earth, Gardner’s biggest living expense was apparently “alcohol.” That’s because he loves taking people out to party, wax poetic about crypto, and pick up the tab.
During the day, Gardner worked “fairly full-time” at venture capital firm Blockchain Capital, which focuses on seeding crypto-based startups, for a salary of $0. He’s since moved to Miami for the lower cost of living.
Even at the time of his interview in 2017, Gardner acknowledged the possibility of a bubble popping – it may be at $60,000, $100,000, or $500,000 – so to protect his wealth, he has plenty of cash on reserve. That cash will continue to pay for his living expenses and, of course, be used to scoop up more Bitcoin after the bubble bursts.
What we can learn from Jeremy Gardner’s millions
An investment in cryptocurrency can provide generous returns, but it’s not without risk or challenges. Cryptocurrency investments are not FDIC-insured, for example, and the regulatory landscape is still unfolding.
Still, crypto can lend some high-risk, high-reward diversity to your portfolio. I’ll be covering crypto in more detail in the coming months, so stay tuned.
Shan Shan Fu: pandemic-based startup
Chinese-American immigrant Shan Shan Fu, 33, was already working hard enough when the pandemic hit in Q1 2020. Her mother and father had been an engineer and a doctor back in China, respectively, but since their degrees weren’t recognized in America they had to work in grocery stores to make ends meet. Their salaries plummeted but their work ethic stayed the same.
Inspired by her folks, Fu took on a second role in addition to her hard-enough nine-five consulting job. As soon as the pandemic hit, she saw an immediate need for high-quality, breathable face masks. So from five to one each night for seven months, she built and launched Millennials In Motion, a boutique mask and fashion vendor.
Her income from Millennials In Motion soon surpassed her consulting salary, so she left her steady gig to focus on growing her startup.
Shan Shan Fu’s financial success is doubly impressive considering everything working against her during the pandemic. She already had a full-time job, the economy was tanking, and she was an Asian woman, suffering from increased judgment and discrimination due to increasing anti-AAPI bias.
“When you immigrate from China, it’s already so difficult because you’re judged based on how you look, your accent. Your education isn’t valued as much as if [it were from the U.S.],” she told CNBC. “It’s tough to go through so much adversity and be hated on for [a pandemic] that has nothing to do with you…”
Launching Millennials In Motion wasn’t Shan Shan Fu’s first financial success. Fu briefly lived in Vancouver, where she spotted a beautiful condo for an affordable price. She called it “the Millennial dream” and sensed it would be a good investment. It was – since she bought it for $500,000 in 2015, the condo has more than doubled in value.
Technically speaking, Ms. Fu is barely a millionaire – in fact, I’d estimate that after being hammered by self-employment taxes, her net worth might have lost a digit. But I have no doubt that she’ll rebound immediately; if she can launch a successful one-woman startup during a pandemic, the sky’s the limit.
What we can learn from Shan Shan Fu’s (eventual) millions
There are four traditional paths to becoming a millionaire in this country: earning, investing, launching a successful business, and inheritance. Most rich Americans got that way by picking one, maybe two lanes at max so they can work less and stay focused. Ms. Fu is unique in that she built wealth equally between lanes one, two, and three throughout 2020. But even someone with a work ethic as incredible as Ms. Fu realized that 17-hour days aren’t worth it for any amount of money, and focusing on two lanes is just fine.
Keith Gill: high-risk stock trading
Keith Gill is the only person on this list that I can provide an almost precise net worth for, down to the penny.
That’s because Gill is the de facto leader of the infamous amateur investing subreddit r/wallstreetbets where he posts his portfolio on a semi-regular basis. Gill’s “GME YOLO” updates show how he’s turned a $53,000 investment in GameStop stock into $25+ million, peaking at $50 million in February.
Granted, Gill’s “GME YOLO” updates only reflect his GameStop holdings, not his entire net worth. Still, it’s pretty safe to say they represent the majority of his net assets now, and that he’s definitely a Millennial millionaire several times over.
Gill, 34, got his Reddit username from the investing term “deep value.” Deep value investing involves building a diverse portfolio of cheap, undervalued stocks.
Calling upon his experience as a Chartered Financial Analyst (CFA), Gill noticed that GameStop stock (GME) had become severely undervalued in 2019, so he bought up 50,000 shares plus 500 call options. He didn’t just “YOLO” his cash into the wind, either, justifying his move with trends and data in a video he posted to his YouTube channel under the pseudonym Roaring Kitty. Critically, he never said he was sharing advice – just educational material.
Gill’s early investment in GameStop, and frequent posts justifying his positions, are credited with stimulating the now-famous GameStop short squeeze of Q1 2021. The movement got so serious that Gill was called in to testify to Congress on February 18th alongside Robinhood co-founder Vladimir Tenev. His two most famous quotes arising from his testimony are “I am not a cat” and “I like the stock.” To date, no legal action has been taken against Gill, and the day after his testimony he doubled his position in GameStop to 100,000 shares.
In many ways, Keith Gill was the hero Reddit needed in 2021. By all accounts, he’s just a normal guy who wants to promote financial literacy, notably the deep value investing strategy of seeking out undervalued stocks. He lives in a normal house in Brockton, Mass with a wife and young daughter, and despite their best efforts, the hedge funds have failed to charge, muzzle, or discredit him. He’s also made a lot of normal people a lot of money during a crippling pandemic.
What we can learn from Keith Gill’s millions
While Keith Gill’s gambit certainly paid off, it’s important to remember that r/wallstreetbets is full of terrible advice, too. Tons of people lose their livelihoods chasing meme stocks and trends, so it’s better to get your lols from WSB and investing guidance from a professional wealth advisor.
A better takeaway from Gill’s millions (that’s fun to say) is that financial literacy pays off. Even though he’s the figurehead of a subreddit that celebrates badly-researched trades, Gill did do his research on GameStop and it paid off. So if you’re looking to build wealth as an amateur investor, be like Gill – not like WSB.
Amandla Stenberg: entertainment
Remember Rue from The Hunger Games movies? Yeah, she’s crushing it now.
Born in 1998 to an African-American mother and Danish father, Amandla Stenberg got her name from the Zulu word for “strength.” Living up to her namesake, she followed her global debut in The Hunger Games by starring in Everything, Everything as Maddy, a young woman homebound by a debilitating medical condition.
Although her portrayal of Maddy won her universal acclaim and further propelled her to stardom (and millionaire status), Steinberg has garnered more well-deserved attention for her outspoken philosophies and political views.
Steinberg identifies as non-binary, preferring the pronouns “she/her” or “them/they,” and has used her newfound stardom to spread pro-acceptance and feminist messaging. In 2015 she published a five-minute YouTube video titled Don’t Cash Crop My Cornrows, directly confronting the disconnect between cultural appropriation and cultural acceptance of black Americans.
On a smaller but similarly profound note, Steinberg announced in 2017 that she’d stopped using a smartphone in favor of a “dumb phone.”
“I’m legitimately concerned about my generation and how phones are going to affect us psychologically.” she told Bust in an interview. “I think [social media] is a very important tool. But at the same time, I think it can create some serious effects on our mental health.”
Amandla Steinberg, who straddles the line between Millennial and Gen Z, evokes the best possible definition of “woke.” She carries a torch of acceptance and critical thinking for both generations, using her wealth and stardom to propel society forward in the right direction.
What we can learn from Amandla Steinberg’s millions
As a “Millennial millionaire,” Steinberg exemplifies how wealth, power, and influence can absolutely be forces for good. She may not give us a clear path to riches, since acting isn’t exactly a reliable cash cow – but she sure as hell shows us how to use it.
Whitney Wolfe Herd: dating apps
Are billionaires still millionaires? Asking for a friend.
Whitney Wolfe Herd was a millionaire, at least, before the Bumble IPO in February 2021. Then, in the ring of a bell, 31-year-old Wolfe became a bonafide billionaire and the youngest woman to take a company public ever.
Unlike Kylie Jenner, nobody dispute’s Whitney Wolfe Herd’s wealth or authenticity. Wolfe launched her first business in college when she began selling bamboo tote bags to benefit victims of the BP oil spill. Two years later, she joined an incubator where she became the third employee of a new Millennial-focused dating app. The app was all about immediate sparks, so she came up with the name Tinder.
Despite Tinder’s explosive growth, Wolfe Herd resigned just two years later and sued her former partners for sexual harassment. The whole nasty episode inspired her to move to Austin and launch a female-friendly dating app called Moxie. The name was taken, unfortunately, so her second choice was Bumble.
Between 2015 and 2019, Wolfe Herd swept awards and collected accolades for her unstoppable momentum in the male-dominated tech industry. In September 2019, she even testified before the Texas House Criminal Jurisprudence Committee on the topic of explicit images sent within dating apps, further championing efforts to protect women from sexual harassment online: all before her 29th birthday.
When Bumble finally launched a successful IPO, Wolfe Herd’s hefty stake in the company reached an estimated value of $1.5 billion. But despite her 10-figure wealth and barrier-shattering success, Whitney Wolfe Herd’s path to riches is actually pretty old school.
What we can learn from Whitney Wolfe Herd’s (many) millions
If you work in a startup environment, ask for stock options. 10 years of startup salaries probably represent less than 0.05% of Herd’s net worth; the rest is entirely stock.
I myself have a few friends who were the 9th or 17th or 31st employees of no-name companies that have since become big-name companies. Even those that didn’t become Pinterest or Bumble were often bought out, resulting in massive capital gains for early employees and seed round investors. So just a few years of hard work in the right startup can make you a millionaire: as long as you get that stock!
Todd and Angela Baldwin: just save and invest
Todd Baldwin, 28, started out shoveling manure for $3 an hour. Today, his annual income exceeds $600,000. His wife Angela makes six figures also, which the couple can afford to put entirely into savings.
Todd and Angela began their relationship with a combined household income well under $100k. They couldn’t afford to live alone in Seattle, so they bought a $500k home with a small $19,000 down payment and rented out the other rooms to make their mortgage payments.
But by keeping their costs low and crushing it at work, the Baldwins were able to earn more, save more, and buy more. Within a year they invested in a second property. Now they have six.
Three factors enabled the Baldwins to keep purchasing property and build their real estate portfolio:
Their increased earnings at work.
Rent payments from tenants.
Their dedication to frugality and simple living.
Interestingly, Todd credits number three as their primary factor for success. For example, in college he couldn’t afford to take his soon-to-be-wife out for fancy meals, so he took a side gig as a mystery shopper. Now, instead of paying $60 for a nice meal, he’s paid $60 to take his wife out and report his experience. She doesn’t mind and enjoys their “free dates.”
Todd and Angela now live in a much nicer $900,000 duplex, but they still rent out their spare bedrooms, even their converted garage to cover 100% of their mortgage. The couple shares a 2009 Ford Focus, and Todd wears a $12 wedding band made of rubber.
Personally, I admire the Baldwins’ dedication to frugality – but if you find their lean lifestyle to be a bit… restricting, know this: as a result of cost-cutting, they’re able to save 80% of his income and 100% of hers. Even if they bought a pair of matching Mercedes and gave their roommates the boot, they’d likely still save more than half of both of their salaries.
The couple’s ultimate goal is to own 6,000 apartments by the time Todd turns 60, which would bring in $9 million a month in rent. If they pull it off, they’d be fast on their way to becoming a billionaire power couple: too recognizable to keep power shopping.
What we can learn from Todd and Angela Baldwin’s millions
The Baldwins aren’t startup heroes, lottery winners, or crypto zillionaires. Their path to riches didn’t even involve luck or months of 17-hour days. All they did was save and invest, save and invest.
The single most common path to becoming a millionaire in America is to invest 20% of your income for 30 years. The Baldwins were just a bit more aggressive (to say the least), investing 80% of their income for five years and counting. But the core principle still stands – you don’t need a six-figure salary, a massive inheritance, or an early stake in Bumble to get rich; just patience and the most fundamental investing knowledge.
Summary
The Millennial millionaires range from sage opportunists to Hollywood activists; glass ceiling-smashers to frugal investors. Their pathways to wealth are as diverse as the generation they represent, but each of the one-percenters on this list shares one thing in common: a plan.
When it comes to building wealth, luck plays a surprisingly tiny role, if it even factors in at all. Nobody on this list waited for luck; instead, they did their research, executed upon an opportunity, and worked hard for that second comma in their bank statement.
Independent mortgage bankers and subsidiaries of banks, thrifts, and hedge funds saw an average profit of $1,358 on each loan they originated in the second quarter, according to a report released by the Mortgage Bankers Association.
That’s up from first quarter profits of $1,088 per loan, helped on by higher loan volume and reduced production costs.
“The refinance boom continued in the second quarter of 2009,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis, in a release. The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits.”
“At the same time, purchases picked up as homebuyers with good credit took advantage of low interest rates.
Walsh noted that there was both an uptick in average borrower FICO and pull-through rate, the latter climbing to about 73 percent in the second quarter from roughly 67 percent in the first quarter.
“These factors contributed to the further drop in production operating expenses per loan,” she said.
The average production volume per firm was $280.9 million in the second quarter, up from $213.9 million a quarter earlier and $125.6 million in the fourth quarter of 2008.
And 96 percent of the firms in the study posted a pre-tax profit, up from 85 percent a quarter earlier and 53 percent in the fourth quarter.
Wholesale lenders saw the biggest improvement, with profit per loan rising to $1,213 from $803 per loan in the first quarter.
Retail loan officers originated an average of 11 mortgages per month in the second quarter, up from 10.4 loans per month during the first quarter.
On Monday, a trio of researchers from the San Francisco Fed released an economic letter pondering what was different about the latest housing boom.
The reason they’re asking this question is because home prices are now nearly back to their pre-recession peak. Uh oh?
In some states, they’re actually higher, but I suppose nationally they’re still below.
Obviously this has some folks worried we could be in for another housing crisis seeing that the peak prices seemed ridiculous back in 2006, less than 10 years ago.
The good news, in their eyes, is that this time things are different. Famous last words? Probably, but let them tell you why.
During the prior housing boom, both the home price-to-rent ratio and household leverage (as measured by mortgage DTI) increased together in what they refer to as “a self-reinforcing feedback loop.”
Basically, home prices kept climbing and credit kept loosening to keep up. So you had home prices that were out of reach that could only be purchased with increasingly flexible financing terms.
So we saw zero down mortgages, stated income mortgages, option arms, which allowed borrowers to make a negative amortization payment, and other exotic loan features.
Of course it all came crashing down, but we were able to bounce back over the past decade thanks to reduced housing inventory, super low mortgage rates, better underwriting, and so on.
This Time It’s Different
The researchers claim it’s a lot different this time around because there’s a “less-pronounced increase in housing valuation” coupled with a decline in household leverage.
In other words, home prices haven’t risen as much relative to rents, which are skyrocketing, and those who do buy homes are putting more money down and taking on healthier monthly payments.
While there are zero down options kicking around, most new homeowners put down more money when buying these days.
Interestingly, even though there are low-down payment options, such as FHA loans, which require just 3.5% down, or the new Fannie/Freddie 3% down option, the market might actually demand higher.
You see, it’s hard to get your offer accepted these days, so coming to the negotiating table with your 3% or 3.5% down payment might not get much notice.
Instead, the sellers might favor the buyer willing to put down 10% or 20%.
Additionally, even though there are low-down payments programs available, borrowers actually need to qualify these days.
You can’t just say you make $10,000 a month working the drive through window anymore. Yes, that probably happened a lot in 2006.
But even the researchers are quick to point out in their own paper that, “the phrase “this time is different” should be met with a healthy degree of skepticism.”
It seems they know themselves that it’s foolish to think like this, though they go on to talk about how things appear a lot better than prior to the earlier crash.
For instance, the home price-to-rent ratio reached an all-time high in early 2006, but currently sits about 25% below the bubble peak. You can partially thank surging rents for that.
Front-end DTI ratios (housing payments relative to income) also hit an all-time high in late 2007, meaning homeowners were highly leveraged at a time when home prices were topping out.
We all know what happened next.
Where Do We Go From Here?
Now things get interesting. While it’s great that this latest boom has kept home prices in check relative to rents, and household mortgage debt isn’t completely out of control, it doesn’t mean we’re good to go.
I’m sure there was a time during the prior boom (and other booms for that matter) when everything looked peachy.
Then a few short years later, we’re all asking ourselves how this could have happened again.
As the researchers aptly point out, “policymakers and regulators must remain vigilant to prevent a replay of the mid-2000s experience.”
But will they? We recently introduced 3% down payments and Fannie and Freddie are pushing lenders to offer the product more to cash strapped borrowers.
There’s also chatter about another FHA premium cut to spur lending as if anyone is holding back for that reason at the moment.
Home prices are also creeping higher and higher to a point where we’re at the very least facing an “affordability crisis.”
In fact, some parts of the country won’t be affordable for a full 30 years to some prospective home buyers.
And how exactly will we unload all these pricey homes in the next several years, especially if mortgage rates go up, as they’re projected to?
Perhaps raising acceptable LTVs again will be the answer. Or maybe non-QM lending will finally get legs with some new form of fancy stated income underwriting.
I don’t know, but it sure feels like we’re headed down the very same path we just got off a few years ago.
But maybe this just isn’t your father’s (or mother’s) housing market any longer. Gone are the days of 20% down payments, a mortgage that is held by your local bank, and slow but steady appreciation.
Today, it’s rampant speculation, hedge funds, booms and busts followed by more booms and busts, perhaps because real estate has become such an investment obsession as opposed to a place to lay your head.
Want to invest in a hot start-up company, join a market-beating private investment fund or back a potential blockbuster movie that could be your ticket to the Forbes Billionaire List? Chances are you can’t unless you’re already quite rich or significant investment expertise. But a recently passed House bill aims to change that by allowing individuals to take a test that could allow them to purchase such private securities.
A financial advisor can help you invest and integrate those holdings into a diversified portfolio. Speak with a financial advisor today.
About the Proposed Legislation
Right now, anyone who wants to purchase an unregistered security, such as shares in a hedge fund or private equity fund, needs to show that they’re what the Securities and Exchange Commission (SEC) considers an “accredited investor.” To qualify, you need a net worth of more than $1 million (not including your home), more than $200,000 a year in income ($300,000 if you’re married) or significant experience as an investment professional. Otherwise, your money is off-limits for private placements and other unregistered offerings.
The Equal Opportunity for All Investors Act of 2023 (H.R. 2797) would instruct the SEC to create an accredited investor certification exam that would allow investors to demonstrate they have the knowledge and understanding required to participate in the private market. The exam would be administered by the Financial Industry Regulatory Authority (FINRA).
“It is my firm belief that the accredited investor definition should not be tied exclusively to wealth,” one of the bill’s sponsors, Rep. Mike Flood, R-Neb., said in a statement. “Instead, we should unlock opportunities for knowledgeable investors that may not come from means.”
These Other Bills Could Impact Accredited Investors
The House recently passed two additional bills that would expand the definition of an accredited investor. Here’s a breakdown of each:
The Accredited Investor Definition Review Act (H.R. 1579) gives the SEC discretion to establish the necessary certifications, designations or credentials investors need to be accredited, and would require the commission to review those definitions every five years.
The Fair Investment Opportunities for Professional Experts Act (H.R. 835) would grant accredited investor status to individuals with certain licenses, or educational or professional backgrounds. “My legislation is about leveling the playing field,” said Rep. Bill Huizenga, R-Mich., sponsor of the investor definition review act. “Whether it’s in Kalamazoo or Portage, Benton Harbor or St. Joe, or Battle Creek or Springfield, investors should be able to support small business startups in their local community across southwest Michigan and around the nation.”
Besides meeting the requirement for net worth, income or professional investing experience, individuals also can qualify as an accredited investor under existing law if they are directors, executive officers or general partners of the company selling the securities or the company that’s the subject of the offering. Clients of a family office that qualifies as an accredited investor may also be considered accredited. And in the case of a private investment fund, someone the SEC defines as a “knowledgeable employee” of the fund may qualify as an accredited investor.
Bottom Line
The SEC restricts the sale of unregistered or private securities because those offerings typically don’t meet the commission’s standards for financial and regulatory disclosures. Instead, participation has been limited to financially sophisticated and wealthy investors with a reduced need for the protection provided by disclosure filings. New legislation that’s been approved in the House of Representatives would establish an exam that investors would need to pass before attaining “accredited” status. Meanwhile, other bills that are working their way through Congress would expand the definition of an accredited investor.
Investing Tips
While investing in unregulated securities can be complicated and risky, figuring out an investment strategy that relies on typical stocks, bonds, mutual funds and ETFs can be confusing, too. A financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Diversification is a key investment strategy to understand. Concentrating too much wealth in a few assets can leave your portfolio vulnerable and exposed to heightened volatility. SmartAsset’s asset allocation calculator can help you identify a mix of stocks, bonds and cash that’s suited to the level of risk that you’re willing to assume.