A Árvore do Dinheiro - Jurandir Sell Macedo Jr.

Who has never wanted to be rich or at least have a source of passive income? For many Brazilians, investing is a distant reality. But the book "The Money Tree", written by the author Jurandir Macedo Sell Jr., shows that the investment world is more within our reach than we think.

There are several investment alternatives in Brazil. Although fixed income is the darling of Brazilians, variable income offers better prospects for enrichment even for the most conservative.

Using grounded analysis, illustrated examples and simple language, Jurandir Sell brings the reality of finance closer to the reader.

The title speaks for its content: to have a permanent income, it is necessary to invest as someone who plants and cultivates a tree.

In this summary, we will outline the strategies discussed in the book and their practical applications. Here's an overview of the book so you can learn how to save and invest better.

About the book "A Árvore do Dinheiro"

"A Árvore do Dinheiro: Guia Para Cultivar a sua Independência Financeira" (2013), "The Money Tree: a Guide to Grow Your Financial Independence" in free translation, had its first edition published in 2010.

In a short time, the Brazilian macroeconomic scenario underwent transformations, which led people to seek more profitable investment options. This change led the author Jurandir Macedo Sell Jr. to reissue his work that, although it has updated data and information, the fundamentals are the same.

The book shows how anyone can invest in both stock and fixed income stocks to accumulate and multiply personal wealth. It also provides investment tips, illustrates concepts with charts and graphs, and shows you how to organize personal finances for unimaginable returns.

Finally, it argues that the choices we make have a strong impact on our financial health and may be the difference between debt and profitability.

About the author Jurandir Macedo Sell Jr.

Jurandir Macedo Sell Jr. is a financial planner, Ph. D. in behavioral finance and postdoctoral fellow in Cognitive Psychology at the Free University of Brussels (Belgium).

He has been working in the financial market since the early 1980s, an experience that served as the basis for writing over 300 articles for RI Magazine and several books that cover everything from time management to investments and life balance.

Jurandir is the founder of the Institute of Financial Education (IEF) and the Brazilian Institute of Financial Planners (Planjar).

To whom is this book indicated?

"The Money Tree" is recommended for investors and people who want to start their journey in the investment world but are afraid of losing money and facing challenges in managing personal finance.

Its content is a bit denser than traditional financial education books, but the language is accessible.

Main ideas of the book "A Árvore do Dinheiro"

• For the author Jurandir Macedo Sell Jr., investing is a practice that is available to anyone;
• Personal financial planning and lifestyle readjustment precede any investment strategy;
• Consumption is an instant trigger of pleasure, but to have a good relationship with money, you must be a balanced consumer and know how to save for the future;
• When creating an investment strategy, you need to set objectives, deadlines, and an action plan;
• Financial planning involves 6 steps, which are:

1. Determine the current financial situation;
2. Set goals;
3. Create short term goals for each goal;
4. Evaluate how to achieve the goals;
5. Execute the action plan;
6. Review the strategy.

• Investors can choose from three main types of investments: investment funds and clubs, fixed income securities (purchase of debt securities) or equity investments (purchase of stocks) - each with different risks, characteristics, and returns.

So, let's go?

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Overview: Preface

The author Jurandir Macedo Sell Jr. talks about the changes in the new edition of the book, "The Money Tree", due to the volatility of the financial market and the transformations that the Stock Exchange and the Brazilian economic matrix itself went through.

With changes in the interest rate structure, it has become more difficult to have a great return on fixed income investments alone. These transformations had an impact on personal investment strategies.

If previously it was possible to obtain extremely advantageous returns with Treasury Direct securities, then it became necessary to take greater risks to maintain profitability. Enters the Stock Exchange to the picture.

However, despite all the changes, the author argues that the book's fundamental ideas remain intact. Regardless of the scenario, a good investment strategy needs to have two characteristics: constancy and diversification.

These disciplines will make the seed of the money tree - the savings - grow and bear fruit.

Overview: Financial behavior

In the first chapter of the book "The Money Tree", Jurandir Macedo Sell Jr. discusses people's financial behavior and what can really make them happy. Common sense says that wealth, status, and spending power are essential to happiness, which leads people to make unhealthy financial choices.

The author defends a difference between wishing and wanting, also reporting that there are four systems that operate in the human brain:

1. The reptilian complex is responsible for survival and it triggers subconscious reactions;
2. The limbic system, which controls the emotions;
3. The neocortical system, responsible for reasoning;
4. The moral brain, which accounts for our moral choices and judgments.

While wishing is an irrational action, originating in the limbic system, wanting is rational and part of the neocortical system. It's the latter that we must rely on when making decisions that involve finance.

According to studies indicated by the author, the relationship between material wealth and happiness is strong up to a certain annual income limit per person. But the perception of wealth depends on three factors that vary from person to person:

1. "What are my goals?";
2. "How much equity do I want to accumulate?";
3. "When can I consider myself a rich person?".

Without satisfactorily answering these questions, a person will never feel happy and satisfied, even if they have gained considerable wealth. The key is to know the time required to accumulate equity that allows the investor to have a passive income, that is, they don't have to work to earn it.

In the end, the author Jurandir Macedo Sell Jr. suggests, based on research, that happiness depends on three factors: pleasure, engagement, and meaning. Only the first is related to money.

Associating this triad with Maslow's Pyramid of Needs, he states that money can guarantee basic demands such as material security.

However, money has less and less influence as an individual progresses through the pyramid stages. That is, there is a limit to the relationship between richness, consumption power and happiness.

All of this grounding is needed to understand the book's next points and to formulate sound enrichment strategies.

Overview: Financial planning

In the second chapter of the book "The Money Tree", the author Jurandir Macedo Sell Jr. discusses financial planning and its stages. Quoting well-known fables, he emphasizes the need for each person to find a midpoint between worrying about their future and enjoying the "now".

He divides financial planning into six steps:

1. Determination of the current financial situation

It consists of putting all monthly income and expenses on paper. By subtracting liabilities - which may be debts, loans or financing - from assets - cash or account, as well as investments - you arrive at net worth. If the value is negative, you are in the red.

2. Goal Setting

This is the time to describe your dreams, where and how you want to be in the upcoming years. For many, the ambition is to have a lifetime income; others prefer to go on long trips or purchase a property of their own. What is yours?

3. Creating short term marks for each goal

Here you need to divide the goal into steps and include it in your monthly budget. In most cases, planning requires increased earnings and/or reduced expenses. For couples, it's important to align goals so that efforts are directed in one direction.

4. Best assessment to achieve goals

Jurandir Macedo Sell Jr. recommends a simple calculation to know how much to save according to each age group. 1% of income at 25, 20% at 35, 35% at 45 and 50% of income at 50.

The concept of wealth, for the author, is based on having as livelihood the income generated by the patrimony throughout life. So even someone who earns little can become rich.

5. Action Plan Practice

This is the time to execute aligned strategies. The author recommends that you should start saving money immediately so that financial independence comes as soon as possible.

6. Strategy Review

Financial planning is a dynamic process and as such requires periodic reviews. Stop and analyze if you are saving the amount you have committed to or if there were situations in your life that prevented saving and realign your strategy.

Overview: Financial theory

To mount a solid investment strategy, according to the book "The Money Tree", it's necessary to know the fundamentals of finance and understand the basic concepts of financial economics. It's not possible to move from budget planning to investment without having a firm theoretical base.

In the beginning, four types of investments are listed:

1. Purchase of quotas or shares of listed companies;
2. Purchase of public or private debt securities (debentures);
3. Property or property titles;
4. Rights and future contracts, also known as derivatives.

You can access any of these investments either directly - in your own name, but through a stocker broker - or through an investment fund or club.

Bridging the theoretical currents, the author Jurandir Macedo Sell Jr. mentions one of the main fears of first-time investors, which is the historical volatility of stock exchanges.

In context, he cites cases such as the 1929 crash and the Internet bubble in the early 2000s. These events served as theories for understanding the composition of a debt security and how asset prices formed beyond that of its speculative value.

The top three are:

1. Graphical analysis

Early theories for determining the future price of assets based on their history gave rise to the current of graphical analysis or technical analysis. This is the type of valuation most commonly used by investors who actively manage, constantly buying and selling stocks according to the trend.

2. Fundamentalist analysis

The counterpoint to technical analysis is fundamentalist analysis. It focuses on understanding macroeconomic issues - such as inflation, GDP preview, or interest rate movements - to predict bond and asset prices. However, this analysis also requires active management of the investment portfolio.

3. Modern finance

According to the author Jurandir Macedo Sell Jr., this current basically says that it isn't possible to predict the future price of assets and that the best way for investors to hedge against losses and risks is by forming a diversified portfolio of assets.

It is the best option for those who don't study the market in depth and seek returns within the average.

The author also proposes two rules to determine the portion of income that the investor should devote to the purchase of assets if they follow the current of modern finance:

1. The first is "70 minus your age", best suited for conservatives. For example, if you are 30, you should devote 40% of your savings to equity investments;
2. The second is "100 minus your age", ideal for bold. In that case, at age 30, 70% of your savings would go to buying assets.

The remaining savings can be allocated to fixed income and real estate securities.

By following these rules and controlling your impulses, you can build a diversified, low-risk portfolio. Jurandir mentions in his book, "The Money Tree", that no US investor who has slowly and continuously invested in the stock market for 20 years has lost money.

Overview: Fixed Income Investments

In this chapter of the book "The Money Tree", the author Jurandir Macedo Sell Jr. dispels all doubts about what is fixed income, how to acquire public or private securities and the particularities of this type of investment.

In fixed income, the investor acquires a portion of the debt of a company or of the state itself - by buying Treasury Direct securities - and is paid with interest on the amount invested.

Much of the fixed income investments can have the expected profit at the time of application. Others vary according to a fixed rate plus an indicator, such as inflation. Thus, money has real appreciation guaranteed at a low risk. However, earnings are lower than equities.

The author lists four types of fixed income investments:

1. Savings account

It is one of the most popular ways to invest money in Brazil. It has existed since the Empire and protected the heritage of Brazilians during periods of hyperinflation. Until 2012, its income was 0.5% per month; from then on, it changed according to the basic interest rate.

Despite being safe, liquid, less bureaucratic and predictable, savings have the lowest yield among other investments.

2. Treasury Direct

It is a program of sale of public securities of the state. Any individual can acquire entire titles or even parts of these titles. The payment varies according to the security and the time it is held by the investor - full payment can only be obtained if the redemption is made on the due date.

The repurchase of the security is guaranteed by the government at market rates. In addition, treasury investments have good liquidity, advantageous returns, and low management fees.

Jurandir Macedo Sell Jr. explains in his book "The Money Tree" that, to acquire the title, the requirements are Social Security Number and checking account. However, it's necessary to hire a custodian agent - or broker - to enable the purchase and sale transactions with SEC.

3. CD

Bank Deposit Certificates (CDBs – in Portuguese) are debt securities of banks. In practice, the bank "buys" money from investors at a fixed or floating rate and uses that money for liquidity in lending operations.

Like Treasury Direct, CDs securities pay full remuneration on the due date but may be traded earlier. Both types charge income tax on income, with rates ranging from 15% to 22.5%.

4. Debentures

These are loan securities for private companies. These securities are issued privately or publicly. Their remuneration and maturity are set prior to purchase. The collateral is the own assets of the company that issued the debt.

The profitability is promising, but the operation carries a greater risk. If the company breaks down, the security may lose its value even if the company is liquidated. One way for investors to protect themselves is by acquiring debentures from listed companies.

Overview: Investments in variable income

The author Jurandir Macedo Sell Jr. explains that the Stock Exchange is like public squares where ancient traders traded loans and products. Its current format was born in Belgium and all trading was done in person.

Today, everything is operated electronically. Investors can place buy and sell orders through an online platform known as Home Broker, made available by brokers.

They are the main points of contact between the people who want to invest and the companies that issue their shares in the market. The author gives tips on how to choose a good broker such as:

• Choose a broker accredited by Dow Jones, Nasdaq or NYSE;
• Be aware of the costs charged, such as account maintenance fee and brokerage fee;
• Give preference to brokers linked to your bank to avoid money transfer fees.

Then he details the stock buying process. It's necessary to transfer the money to a personal account at the broker and only then can the stock purchase begin.

He explains that shares are pieces of the company and that therefore investors become partners in companies when they buy their shares. The actions are divided into:

• Ordinary (ON): give their holders voting power at deliberative meetings of the company;
• Preferred (PN): does not give voting rights, but guarantees preference in the distribution of profits and dividends or redemption, in the event of liquidation of the company.

Stocks may appreciate or depreciate over time. If a company has good indicators and the macroeconomic scenario is advantageous, the tendency is for the stock value to rise, ensuring goodwill for the investor in the sale.

The shares also guarantee profit sharing of some companies, which distribute from 25% of net income in a given period to shareholders.

The sale of the shares guarantees the repayment of the money invested plus the appreciation of the period and all profit sharing during the time the investor was positioned in the stock.

Unlike fixed-income securities, stock prices fluctuate continuously and are influenced by many factors, which scares more conservative investors. However, by following the principles of modern finance, significant gains can be made.

For this, Jurandir Macedo gives some tips:

• Invest regularly, preferably every month;
• Reinvest profits and dividends;
• Opt for shares of companies indexed on Ibovespa or IbrX;
• Give preference to companies with the same investor profile;
• Diversify, form a portfolio with shares of 8 to 14 different companies;
• Buy only stocks of transparent companies.

Then he suggests investment strategies:

1. Invest a lump sum equivalent to $ 100 and withdraw 10 years later on a withdrawal;
2. Invest the equivalent of $ 100 each month for 10 years and withdraw everything at once;
3. Invest the equivalent of $ 100 monthly for 10 years and withdraw the amount invested in shares for 5 years;
4. Invest the equivalent of $ 100 monthly for 14 years and withdraw over 7 years;
5. Invest the equivalent of $ 100 per month for 16 years and withdraw over the next 8 years.

The idea is to buy slowly over a long period of time and live only with the profits and dividends generated by the shares, ensuring a comfortable retirement.

The author concludes this chapter of the book "The Money Tree" by showing that, despite crises and cyclical movements of appreciation and devaluation, the Stock Exchange is a smart way to invest your money. One-off falls are offset by long periods of growth.

What do other authors say about it?

Benjamin Graham, in "The Intelligent Investor", known as the stock market bible, says there are two types of smart investors: the entrepreneur and the defensive.

The defensive investor seeks to establish a fully automatic stock scheme that requires no effort from them. The enterprising investor bases their strategy on research and continuous monitoring of stocks, bonds, and mutual funds.

To the author of the book "The Dumb Things Smart People Do With Their Money", Jill Schlesinger, people should not invest their money in what they don't know. You must have good planning and a thorough knowledge of where to invest. Also, it is important that the investment makes sense for your life purpose in some way.

Ultimately, according to Tony Robbins, in his book "Unshakeable", many people make money but do not feel better. Some of the richest people in the world live in constant fear of losing everything. They feel dissatisfied when they wake up in the morning. Is this richness? To feel really rich, you need to take care of your emotions.

Okay, but how can I apply this to my life?

• Organize income and expenses to ensure a favorable balance sheet and have a financial margin every month for investments;
• Learn how to balance the drive to consume and the need to save and invest for the future;
• Read and gain investment knowledge and learn the basics of financial theory;
• Consider risk and return on each investment when building your portfolio of assets and securities;
• Never deposit all your resources into one investment or asset. Always diversify to reduce risk, compensate for losses and profit within the market average;
• Avoid speculative investments if you don't have time to delve into finance;
• To optimize variable income gains, invest in stocks whose companies have profit and dividend distribution policies;
• Use consolidated strategies to distribute your investments in an asset portfolio;
• Invest every month and stay focused on the long term.

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