You will notice that in this second stage there are no stocks, options, futures, metals, rare coins, or derivatives in the portfolio. And there is a good reason for that. When you have less than $100,000 to invest and less than a long time to get rich, you should focus on only two things:

1. Continuing to increase your income by continuing to perfect a financially valued skill such as selling, marketing, product development, or profit management

2. Investing the surplus in high-return equity ventures If you focus on this for a few years, chances are that you’ll end up with a surfeit of cash—that is, more cash than you need for your side business and real estate ventures. This extra cash should be kept safe. Extra safe. Remember, this is the beginning of your retirement nest egg. So place this surplus cash in bonds, and reinvest the interest in bonds, too. Make it a primary objective to have this safety reserve grow substantially every year. Once your bond savings become significant, you’ll start to appreciate what a valuable, comforting investment bonds can be.

I made a point of explaining what a beginning wealth builder shouldn’t do.

1. First, when figuring your investable net worth, you really shouldn’t count the equity in your present home unless you plan to sell it and buy a less expensive home during retirement. And even if you do that, you can count only the difference between what your house is currently worth, the mortgage, and what it will cost you to buy another house that you’ll be happy with. Using the example of our dissatisfied conference attendee, he admitted that there was little or no hope of finding a nice retirement home in a community he liked for less than the equity he had in his present house.

2. Next, you shouldn’t be investing in stocks and options if your investable net worth is less than $25,000. In our example, the gentleman was playing the stock market with his entire savings: $18,000. Think about the risk this guy was taking!

Muni funds can also play with the value of your shares to your disadvantage. Muni issues are rarely traded. Muni managers can use any reasonable value for fund assets. Though credit quality may have deteriorated, managers often refrain from writing down asset values for fear of losing shareholders. However, at some point asset values must be marked to market to avoid outright fraud and jail time for the fund managers. If you buy fund shares at a high valuation of assets and later have to redeem when assets are written down to realistic levels, you will justifiably feel betrayed.

Fund managers can also turn tax-free munis into taxable bonds. Capital gains from selling appreciated muni bonds are taxable. Individual savers typically hold munis until maturity so there are no capital gains. Muni fund managers trade bonds. This creates capital gains, often short-term capital gains, which are taxed at the highest rate. Muni funds are outside the comfort zone of most savers.

The complexity of purchase may lead you to rely on a salesperson. Government bonds are purchased from brokers, banks, and directly from the federal government. Buying from brokers and banks can bring up issues of trust. Whereas you may have a great degree of confidence that government bonds are secure and the tax consequences predictable, you may not trust that the product you are being sold benefits you as much as it benefits the salesperson. Buying treasuries directly from the federal government might also create fear. You may believe that with a salesperson holding your hand, you would find a better product at a better price.

Government notes and bonds are often sold in bundles as managed mutual funds, unmanaged index funds and trusts, or as closed-end mutual funds. Here the issues get more complex. Built-in resentment and regret are inevitable. Fees and commissions must be paid to mutual fund managers, brokers, and closed-end fund managers. These funds rarely do better than notes and bonds bought by an individual and held to maturity. It is easy to regret the fees paid for poorly performed services. Yet some savers feel the need to use professionals to pick bonds for them. They would have free-floating fear and worry if they were to construct a portfolio of bonds on their own. You must ask yourself how you are likely to react.