Five Reasons Why You Should Have a Prenup Contract

Five Reasons Why You Should Have a Prenup Contract

Only a minority of couples sign a prenuptial agreement – a prenup, for short – even though it could have a positive impact on the relationship.

It’s a shame, because there are many benefits to being clear about what should happen financially if you separate – even if you never do.

Obviously, most people get married with the intention of staying together. It can feel awkward to enter a conversation – even before you are committing – about what needs to happen in case it doesn’t work out.

But the truth is there’s no better time to talk about it than while in love and looking forward to a future together.

It can be trickier to enter that conversation later in the marriage as it might create confusion and doubt as to whether one is heading out.

What is a prenup and what does a prenup usually contain?

It’s written agreement spouses enter into about what should happen financially if they separate.

You can decide if everything should be split 50/50 or if there should be separate ownership over certain things. You might want to protect an inheritance, a business, maybe some properties that have been passed down through generations, or just some special jewelry.

Why make a marriage contract at all?

Let’s just look at five specific reasons.

1. You Must Be Able to Talk About Money From The Beginning

It may well be that it’s uncomfortable to talk about money and when love shows up and you’re eager to demonstrate how committed you are.

But even the biggest romance will have to deal with the practicalities of life, and your relationship improves when you practice dealing with it.

Now that you’re starting a conversation about the future, it’s also a good idea to talk about other expectations, such as how you expect to divide the tasks if you have children.

2. With Separate Property, You Are More Motivated To Create Your Own Future

The American comedian Ali Wong, who is known from the Netflix series Baby Cobra and Hard Knock Wife, has said that her prenup motivated her to succeed and make an effort with her career.

She is married to Justin Hakuta, the son of a businessman who became rich by creating an octopus toy called Wacky Wall Walker that can crawl down a wall.

When Ali Wong and Justin Hakuta were to marry, Justin’s parents demanded that Ali sign a marriage contract so their son’s future fortune would be protected.

It must have hurt a little, because before they got married, Ali Wong helped her future husband pay off a $ 70,000 student loan with her own money. His future fortune was secured, but she had paid off his debt “for free.”

Yet she is deeply grateful for the marriage covenant.

“I was very motivated to make my own money because I signed a document specifically outlining how much I couldn’t depend on my husband. My father always praised ‘the gift of fear,’ and that prenup scared the shit out of me. In the end, being forced to sign that prenup was one of the greatest things that ever happened to me and my career,” she writes in her memoir Intimate Tales, Untold Secrets and Advice for Living Your Best Life.

What if you’re the one with a fortune? You might be happy in the future that you protected it.

This is what happened to singer-turned-business woman Jessica Simpson. She has written about the subject in her memoirs, Open Book.

She married pop star Nick Lachey when she was 22 and he was 31. He was older, further in his career and had more money than she did.

He actually proposed signing a marriage contract, but she got offended and rejected it, saying that they were going to be together for the rest of their lives.

However, the marriage only lasted three years, and in those three years, her career took off.

When they were about to divorce, she had a fortune of about $35 million, while his fortune was about $5 million.

She gave him whatever he wanted to get out of it. She says so in her memoir, but she doesn’t go into details as to how much she gave him. 

According to the press, he got about $10 million – almost a third of her fortune.

But what’s worse: He received the right to 1.5 % of the turnover from her beauty line.

Which brings us to the next point…

3. You Can Protect Your Assets

Jessica Simpson promised 1.5 % of the turnover from her business away to a man she was married to for three years.

I’ve heard about cases like this before.

It must be a bitter experience that a person you’ve been married to for a few years is entitled to your future income from a business that should be entirely yours because it’s your idea and your work.

It’s one thing when the parties have earned roughly the same and share everything 50/50 in the end.

It’s another matter entirely when one person is entitled to the other person’s future income.

It must be extra bitter if it’s the result of an unhappy marriage.

Jessica Simpson explains in her book that she and her ex-husband argued a lot and that she felt he was opposing her success.

Now he can reap the fruits of it forever.

A relative of mine experienced something similar.

She married a man who lived across a continent. To be with him, she resigned from her corporate job, moved to his city. To make money, she started a consulting business.

The marriage was short and not very happy.  When they divorced, he was entitled to a portion of her income from her consulting business. Ten years later, she was still paying him.

I’m not a lawyer and don’t understand the technicalities, but he must have argued that she couldn’t have built it without him and that it was an asset that should be shared.

Obviously, if you divorce, the assets will be divided. Your stock portfolio, the properties, the jewelry, risk being split between you – unless you make sure it’s protected in your prenup.

4. You Make the Decision

If you don’t sign a prenup, there will still be a prenup, but it won’t be you who decides what it looks like. It will be up to the local legislators and the interpretation of the divorce lawyers and judges.

Would you rather close your eyes and hope for the best?

Or do you want to make an informed decision?

The least you can do is familiarize yourself with the local legislation so you know which prenup you are entering if you don’t actively choose one.

5. You Protect Yourself From Someone Else’s Debt

Now we’ve talked about assets that will be divided.

But there’s also something else you need to think about: debt.

What if your partner builds up debt?

The most glaring example could be marrying a gambling addict who has built up a gambling debt. That might become your debt too.

There are other – and less dramatic – ways to build debt. It could be a company going bankrupt. It could be a bad investment.

When I was on my first maternity leave, I went for long walks with a friend who was also on maternity leave.

When you walk around with a sleeping baby in a stroller, you talk about whatever is on your mind.

It’s like getting access to another person’s inner speech… and worries.

She was worried about the debt she was burdened with from a previous relationship.

Years before, she had been in a short and unhappy marriage. She had moved on and had found herself a man who treated her well, and they had a baby.

The ex was still on her mind though. He had made a bad real estate investment during the financial crisis, and when they split up, they parted burdened with a mutual debt.

It was becoming clear to her while she was walking with the stroller that she would only have one child.

The new parents lived in a one-bedroom apartment, and they would probably continue to do so.

It hurt her that they probably wouldn’t be able to afford a second child because of the debt she had from a previous relationship.

There was barely enough room for one child in the one-bedroom apartment. Indirectly, her ex-husband helped decide how many children she could have later on.

Is It Too Late?

If you’re already married, is it too late to get a prenup?

No, of course not. You can sign one whenever you want, and you can change it later.

What’s the next step?

I’m a big proponent of getting help from the best. The next step, of course, is obvious: you need to talk to a lawyer who specializes in prenups.

How do you persuade your partner?

Explain to your partner that there is already a prenup, but it’s the local legislators who make the decisions for you, unless you create one yourself.

I would go with honesty and explain what is important to you and what benefits you see in it for your partner. After all, a prenup is not always something that puts the other at a disadvantage. It can also create security for both parties.

What points should you bring up when discussing it?

It really depends, because prenups are different.

Some people want separate property, and others want to clarify some rights to ensure that their partner is financially secure.

The most important thing is that you enter your marriage informed and well-prepared.

I’m not an expert on prenups. I am an expert on building wealth. Learn how to create a fortune by investing in stocks in my e-book Free Yourself. You can download it here.

Dividend Stocks? Here Is Your Crash Guide

Dividend Stocks? Here Is Your Crash Guide

When listening to novices and cautious shareholders, one would think that the paved road to financial freedom (and sense of financial security) lies in a very specific place:

Namely, in dividend shares.

In this blog post, I will explain exactly what dividends are and why dividend-paying stocks are not a secure investment.

I’ll also explain which companies typically fall into this category, and you will understand why they are not always the best investment.

ABC… What Is a Dividend?

Let’s start at the beginning.

What exactly are dividend stocks?

On this blog, there’s room for both the investor with decades of experience and the ambitious newbie who is trying to figure it all out.

Let’s get the definition in place so everyone can join the conversation.

A dividend stock is really just a share in a company that pays dividends.

Maybe you’re asking, what’s a dividend?

When you are a shareholder, you become one of the owners of the company.

Dividends just mean that the owners get paid a part of the profits. It goes directly into your investment account as cash.

Why are Dividend Stocks Many Beginners’ Favorites?

When you start investing, you may well have a feeling that there’s a bit of an abracadabra with stocks.

Maybe shares feel a bit like play money, something that is not real (don’t worry, it’s real). 

It may seem safe and perhaps a little fascinating that real money magically appears in your investment account. It’s real cash in your pocket that can be used out there to buy ice cream and t-shirts.

It gives you the feeling that it works when you are still unsure whether those stocks are real.

And as the saying goes: A bird in hand is worth two in the bush.

But when you think about it, why is that?

What is that bird doing in that hand at all? Is it sick? Can it not fly?

That brings us to the next point…

Why You Need to Be Careful With Dividend Stocks

There are two reasons why you shouldn’t fill your portfolio up with dividend stocks.

The first reason is that dividend stocks are an extremely conservative choice, which means that your portfolio will probably stagnate.

Companies that still have a world to conquer typically don’t pay dividends because they invest to exploit their future potential. They can spend money on product development, research, expansion, hiring new talent, acquisitions of other companies, and much more.

Companies that pay a lot in dividends are often mature companies that have reached a point where they’re present in all the markets and in all the product groups that make sense to their business. You can’t expect the share price to skyrocket.

Let’s make it real with some companies that everyone knows.

Coca-Cola is known as a dividend stock. The conglomerate is in all geographic markets and sells many kinds of sodas and snacks.

It’s not realistic that they will double their revenue, but it’s realistic that they will continue to have stable growth slightly above inflation.

Amazon and Google, on the other hand, even though they are already huge, are still conquering the world. They don’t pay dividends. They are aggressively investing in new business opportunities.

Apple is a company in between. They are still growing, but they also have a gigantic cash flow and huge profits. They reinvest and make acquisitions, but they also pay a small quarterly dividend.

Compounding Is Clipped

The second reason you should be careful about going all-in on dividend stocks is taxes.

When you receive dividends, you pay taxes, and that destroys the effect of compounding.

There are other ways a company can distribute a profit and reward shareholders.

They can choose to buy shares back (also called share buybacks).

The stock price will go up because the value of the company must be distributed over fewer ownership shares – and the shareholders won’t have to pay tax on the rising stock price as long as they don’t sell it.

Warren Buffett’s company, Berkshire Hathaway, never pays dividends but regularly buys back shares for this exact reason.

When you pay taxes, it chips away at the benefit of compound interest (that’s when the money grows exponentially because your return is reinvested).

Dividend stocks aren’t optimal if you’re at the beginning of your investment journey, where the money should grow over a decade or more.

Dividend stocks make more sense if you’re going to take advantage of your financial freedom and are ready to eat off your investments.

Hopefully, the investments you make at the beginning of your journey as an investor will later pay dividends as the company matures – and then you can just sit back and enjoy it.

Where Can You Find Dividend Stocks?

Are you still keen on the idea and want to find a dividend-paying stock?

There are lots of lists of dividend-paying companies on the big internet.

You can google “dividend kings” or “dividend aristocrats”, and you’ll see the giant, international dividend-paying stocks.

Since mature companies are often international, you’ll find many great deals.

You can find one of these lists here.

Whatever you choose – dividends or not – you must make sure you choose healthy, good companies at reasonable prices.

It’s not worth it to get a return of 2 % a year in dividends if the stock price drops 50%.

You have to follow a checklist and make sure you are investing in a good company at a reasonable price – dividends or not.

You can learn more about that in my investment book Free Yourself here.

The Five Most Typical Beginner Mistakes

The Five Most Typical Beginner Mistakes

How do you invest in stocks? What do you invest in specifically?

Many newbies have probably asked a friend or googled these questions.

But there are other questions that are at least as important to ask: What should you NOT do when investing? What should you avoid investing in?

For me personally, investing in stocks has changed my life. I’ve invested myself into financial freedom. It has made it possible for me to move to Portugal with my two young boys.

From where we live, we can walk down to the beach. There is a trail that winds through the dunes and an area with protected wildlife (as you can see in the picture).

We swim, play tennis, sail, and ride horses… a lifestyle that I previously could only daydream about from my apartment in downtown Copenhagen.

Today, I live my dream.

This dream has been possible because I have managed to make a good return on my investment over many years.

It wouldn’t have been possible if I had thrown my money into a few bad investments.

Through my blog and my investing courses, I’m in touch with many private investors. I speak with a lot of people who have jeopardized their savings, and I have recognized some patterns.

In this blog post, I will look at the typical investment mistakes private investors commit.

Mistake 1: They Only Invest in Companies From Their Own Country

There is some geographical blindness when it comes to stock investing.

The typical Danish equity investor can almost only spot Danish companies.

The German investor almost only spots German companies.

If you are from the States, it might be alright only to invest in American companies, but if you live in a country with a smaller size economy, you should consider a greater geographical spread.

Mistake 2: They Invest in Very Risky Companies

Quite a few investors put a big portion of their money into very high-risk companies such as biotech, IT companies, or startups – or even cryptos.

What’s the problem with that?

Most biotech companies don’t have a product on the market yet.

They don’t have an income and they run with a deficit.

What you’re investing in is a hope that they can develop a future medicine. That’s an extremely risky form of investment.

If you take start-ups, the problem is similar. They might have a product on the market, but they probably still run with a deficit.

You can invest in risky business if you really want to, but it should only add up to 5-10% of your total portfolio.

The bulk of your money should be invested in companies with a stable (and growing) revenue and stable (and growing) profits.

Mistake 3: They Have No Reliable Strategy

A lot of people follow investment advice from random TV show or a podcast without being critical or even researching the company.

There are several pitfalls with this way of investing:

  • You risk investing in a company that is a flop. It might go bankrupt.
  • You risk investing in an excellent company, but at the wrong time when the stock is too expensive.
  • Or you risk getting wildly nervous when the stock has natural fluctuations – and selling at the wrong time – because you haven’t researched it yourself.

Mistake 4: They Leave the Investment Decisions to The Bank

Some of the most bitter private investors I talk to are those who have let the bank make the decisions for them.

After a decade or two, it dawns on them that the money isn’t growing, and the only people who are getting rich are the money managers.

They realize – with experience and lost opportunities – what is going on.

Why doesn’t their money grow and benefit from the power of compounding?

Because the bank will almost certainly invest your money in a mixture of their own stock funds and bonds.

What’s the problem with bonds?

This is how bond works: You lend your money to governments or to companies, and you get paid for that. The problem is that in a low interest rate market, that payment is very low.

The second problem with letting the bank invest is the cost.

Maybe you think it’s cheap. Let’s say they charge you 2% to invest your money for you. That doesn’t sound expensive, right? But it is. Because it’s 2% of the entire amount invested. If they manage to make a return of 3% per year and take 2%… well, they are getting fatter than you are.

Mistake 5: They Neglect Investing in Themselves

A lot of private investors buy stocks without really knowing what they are doing.

We send our children to swimming lessons so that they can learn to swim.

We give our children driving lessons so that they can learn to drive safely.

But nowhere do we learn about managing and investing our money. It’s not something we learn about in school, and it’s not something you need a driver’s license for.

To be fair, you won’t drown or kill someone if you throw yourself into it without knowledge or guidance, but you risk smashing your financial future and freedom if you don’t follow some basic traffic rules.

As Warren Buffett says: “the best investment you can make is an investment in yourself.”

Don’t be afraid of enrolling in investment courses. It might be the best investment of your life.

You Are Your Most Important Asset

My life in Portugal wouldn’t have been possible if I had made bad investment decisions.

It wouldn’t have been possible if I had let the bank invest my money for me.

It wouldn’t have been possible if I had bought in greed or sold in panic.

It has only been possible because I have received a stable and good return over years – and that is something I have learned to create.

It’s not luck. It’s based on knowledge.

You can get the first bit of knowledge by reading my book Free Yourself. You can download it here.

Warren Buffett’s Top Stock Picks

Warren Buffett’s Top Stock Picks

Buffett is all about buying stocks that are cheap and keeping them for the long haul. This investment strategy has made him one of the world’s richest men.  

What does his stock portfolio look like right now?

The good news is that you can easily look that up on various websites (I’ll tell you how below).

The bad news is that not all the stock picks are his.

He has two apprentices – Ted and Todd – working for him, and they both have double digit billion portfolios to manage themselves. Sounds like a lot of money, right? But that’s peanuts in Buffett’s world. He has close to 150 billion waiting in cash right now, ready to be invested in what he calls “an elephant size” acquisition.

Warren Buffett’s company Berkshire Hathaway has stocks in 49 different publicly traded companies (plus 63 wholly owned subsidiaries).

It’s safe to assume that the top seven are his own investments.

Here they are:  

1. Apple 

Warren Buffett has been being Apple shares since 2016. The stock price has tripled since then.

He owns almost a billion shares that, at the time of writing, are traded at 117 USD per share.

That means his slice of Apple is worth more than 100 billion dollars.

That’s really a lot of money, and it makes Apple one of his biggest investments.

Apple makes up almost 50 percent of the value of all the stocks and shares that Berkshire Hathaway owns in publicly traded companies. 

2. Bank of America

Bank of America is a very interesting company on the list.

While Buffett seems to be selling most other banks and financial services since the COVID-19 dip in March, he is very actively buying up shares in Bank of America. 

His actions seem to be telling us that Bank of America is his bet for the future.

He has more than a billion shares, and they account for more than 9 percent of Berkshire’s portfolio of publicly traded companies. 

3. Coca-Cola  

Coca-Cola is one of Warren Buffett’s most notorious investments, and it goes a long time back.

He first invested in the soft drinks company in 1988 when the share price was depressed due to the flopped innovation called “New Coke”. At the time, Coca-Cola felt threatened by Pepsi’s sweet version of a coke, and they remade their own soft drink into a more sugary version too, but customers disliked it.

They had to go back to the original Coke after a while. 

Warren Buffett’s investment in Coca-Cola was a massive bet at the time. He bought 24 million shares worth 1.8 billion dollars – and he wasn’t as big as he is now. Berkshire’s book value at the time (1989) was 4.9 billion.

Would you bet around 20 percent of your wealth on one single company? It says a lot about how bold an investor he really is.

Today, Coca-Cola makes up almost 9 percent of Berkshire’s portfolio of publicly traded stocks.

4. American Express 

Warren Buffett first invested in American Express after the so-called Salad-oil scandal in 1964 that made all financial stocks fall rapidly. 

American Express fell with the market, and after a drop of around 50 percent, Warren Buffett stepped in and bought shares.

He has invested in American Express many times after that.

Today, American Express represents 7 percent of Berkshire Hathaway’s portfolio of publicly traded stocks. 

5. Kraft-Heinz   

Warrren Buffett has very publicly said that he is happy with Heinz but paid too much for the Kraft part of the consumer product giant – and that he would have sold it if he could. 

Obviously, he couldn’t. It’s still on the list and makes up for around 4 percent of the stock portfolio.

6. Moody’s    

Moody was originally a spin-off of another investment he had (Dun & Bradstreet – he has since sold that). 

After the financial crisis, he sold some of the shares, maybe because Moody’s was criticized for being too generous with their ratings and indirectly having contributed to creating the housing bubble that preceded the financial crisis.

Today, Moody’s totals 3 percent of Berkshire’s portfolio of publicly traded companies. 

7. U.S. Bancorp    

Warren Buffett has invested in U.S. Bancorp for many years, but after the COVID-19 dip in March, he has sold off slices of it together with many other banks. He has, for example, completely exited Goldman Sachs – as well as all the airline companies he had stocks in. 

Today, U.S. Bancorp amounts to 2 percent of Berkshire’s portfolio of publicly traded companies. 

All the Others

Berkshire Hathaway owns shares in 49 publicly traded companies, but many of the other positions are investments that Ted and Todd have made.

Ted Weschler and Todd Combs have a completely different investing style from Warren Buffett. They invest in things that he has always avoided, like pharmaceuticals, IPOs and fintech. 

Berkshire Hathaway also has 63 fully owned subsidiaries, such as the insurance company Geico, the sports label Brooks, the battery producer Duracell, and the chocolate factory See’s Candies.

How to Look Up Buffett’s Stock Portfolio

The original source is the Securities and Exchange Commission’s website SEC.Org. You’ll get the most reliable data from their site.

The problem with SEC’s site is that it’s not very user-friendly. It will only give you a status update of what Berkshire has stocks in – not what they sold or bought in the last quarter. That means you have to compare data quarter by quarter to figure out what is going on. Also remember, you can only search by company – not the investor’s name. 

There are other websites that make SEC’s data more accessible. They are GuruFocus.com, Dataroma.com, and WhaleWisdom. On these websites, they’ll show you the development and let you search by the investor’s name. 

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here

Buffett’s Five Rules for Investing

Buffett’s Five Rules for Investing

Buffett became a billionaire by investing in stocks, and his method is simple. It’s about buying stocks that are cheap. 

Yes, thanks, that sounds easy… But stocks in which kinds of companies? What are the criteria for selecting them? What are the rules?

Here are the investing principles boiled down to five simple rules. 

Rule number 1: The Company Must Be Stable

Both revenue and profit should be steadily rising. 

This sounds obvious – but a lot of private investors already err here.

They buy stocks in the latest fad, maybe an IPO or a biotech company, without checking whether the company makes a profit. Or they might buy shares in something that they really like or even fall head-over-heels in love with, like Tesla (“what a nice car, and it’s good for the environment!”) without realizing that it’s running on a deficit (Yes, Tesla is losing money). 

If there’s no profit, there’s no stability. It’s hard to predict the future, and that makes it hard to assess the value of the company.

Rule Number 2: The Company Must Sell Something You Understand

Buffett says you must invest within your field of competence. This means you need to understand whatever service or product the firm sells. 

Lets use the biotech example again. Very few investors really understand what a biotech company is trying to develop. It’s too complicated even for the specialists; if you’re a scientist, you have no real knowledge of the trials within the company.

This means you have no idea what a future product would look like or whether it might be better than a competitors, because it doesn’t even exist yet.

Rule Number 3: The Company Must Have a Future 

You should be very sure that the company will be bigger in 10 years. How can you be sure of that? 

You can be fairly certain that the company will grow if it’s protected by competitive advantages like economies of scale, switching costs, toll bridge, patents or secrets. If you want to know more about competitive advantages, you can read  my free e-book here.

Is that the case in a biotech company? Can you be sure that they will be bigger in 10 years? If they haven’t developed any products yet, you have no idea whether they’ll even exist in 10 years.

Rule Number 4: The CEO Must Be Trustworthy and Competent

How do you know if the management is trustworthy and competent?

When it comes to trust, you have to use your social skills – just like you would use them when meeting people in real life. Watch videos, read interviews and, if you can, meet them in person. Trust your gut feeling.

When it comes to competence, look at the numbers. By numbers I don’t mean the stock price. I mean the company’s annual and quarterly reports and its track record. If the manager is new to the job, go back to his previous job and look at the numbers. What numbers, you might ask:

Apart from growing revenues and profits, here are some specific things you should notice:

  • Are they buying back shares when the stock is cheap or expensive?
  • What’s the level of compensation? Is it at a fair level?
  • How high is long-term debt? Can they pay it back within a few years with free cash flow?

Rule Number 5: The Company Must Be on Sale  

You must buy shares when the company is on sale. Even the most wonderful company can be a lousy investment if you buy the shares too expensive. 

Buffett says that it’s like buying 1 dollar for 50 cents and that only some people get it. If someone doesn’t get it right away, you’ll never be able to explain it to them. 

Do you get the concept that because the stock market is not efficient, you can buy stocks for less than they are worth?

It’s really worth exploring, because knowing how to spot cheap stocks can make you super rich.

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You cane get it for free here