I grew up in the 1970s-1980s when there was not a lot of abundance and wealth in most middle-class families. You were happy if you were in the middle class, but you didn’t have much in terms of wealth. Most people were getting by, but working hard to do it. In most families, both parents worked. When something was broken you fixed it, rather than buying a new one. As a child, if you wanted something, you earned money to buy it. Times were good, but people worked hard to keep it that way. There was no “easy” money
I was recently notified that I was ranked #7 on the Investopedia list of Most Influential Financial Advisors. I am very grateful to receive this honor. It was somewhat unexpected. I have spent so much time trying to help investors that I have not stopped long enough to reflect on the impact I have made in the lives of my clients and social media connections. This award supports that all my efforts to educate investors and help them navigate the uncertain financial markets has not been in vain.
It means a lot to me to be recognized with such a notable group of financial advisors. Investing has always been a passion of mine. This passion started at a young age with small ventures such as a lemonade stand and lawn mowing services. In college, it continued with investing in the stock market. When I graduated, I got my first job at Paine Webber. Almost 10 years ago I co-founded Innovative Advisory Group. Investing and providing financial advice is in my blood.
As my knowledge of investing has grown, so has my desire to help others understand the mysteries of the financial markets. I hope to impart some of that wisdom to you in this post as well as other articles on this site.
Once again, I would like to thank Investopedia for this acknowledgment of my efforts. I also want to thank my clients and social media connections. I would not be where I am today without you.
Top 10 pieces of financial wisdom that can help you invest better
Investing is challenging, but it doesn’t have to be. It requires some extensive knowledge to become a highly successful investor in the stock market, but there are many ways to invest successfully. I will discuss some different ways to figure out how you can invest successfully below, however you will need to understand these simple concepts if you want to be successful long term.
The US has gone through 40 years of declining inflation which has created tremendous wealth and prosperity. Now that trend is reversing. This new paradigm shift will change everything that you currently take for granted.
This interview is important if you want to be prepared for this paradigm shift. A lot of wealth will be made by people who understand this new paradigm and lost by people who don’t.
Which one do you want to be?
This interview is very thorough. You may not want to believe everything you hear, but you need to hear it. What you do with this information is up to you.
We will be discussing the major driver of this paradigm change and why it is happening. We will also explain why it will impact every asset class and in ways you may not be aware of.
To listen to this interview Click Here
“You can be young without money, but you cannot be old without it.” – Tennessee Williams
Imagine… you are sitting on a beach. Listening to the waves slap the sand in a rhythmic melody. It is the same soothing tune you hear each day since you left your job. As you relax in your beach chair reading a thrilling novel on this quiet stretch of sand, a horrible thought comes into your mind. Then, just as quickly as it came, you smile and go back to your reading.…
This horrible thought was that you have not saved enough for your retirement. Fortunately for you, you have prepared for retirement. You don’t need to worry about anything other than what time you are going to tee off at the golf course.
Unfortunately, this is not the case for 41% of Americans between the age 55-64 years old…
Are you looking for a new self-directed IRA custodian or administrator? Perhaps you are already using one and are not happy with their performance or service. Whatever your reason may be, this report should provide you with a better understanding of self-directed IRA custodians and help you assess which one is the best fit for your investment needs.
The process of choosing a self-directed IRA custodian can be challenging. There are a lot of things to consider, the financial industry jargon can be confusing, and it is hard to find unbiased information. In order to make things easier for you, let’s start off by defining…
If you are like most investors, you probably have not heard of prohibited transactions. Prohibited transactions specifically apply to retirement plans such as self-directed IRAs or 401ks. It is estimated that less than 80% of investors fully understand the flexibility that a self-directed IRA offers, so most IRA account holders won’t have reason to come into contact with this rule. If you do use your retirement plan to invest in alternative investments, then please keep reading.
What is a prohibited transaction?
A prohibited transaction can be described as an improper use of your IRA account assets by a disqualified person. The term prohibited transaction in this case applies to retirement plans such as a self-directed IRA, or 401(k) The IRS defines a prohibited transaction as:
“But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
–James Truslow Adams
Is the American Dream Really an Illusion?
There is a great illusion when it comes to real estate. This illusion is that owning your home is an investment.
When you own real estate and use it to generate monthly income… it is an investment.
When you buy real estate and develop it to sell for a profit… it is an investment.
When you buy real estate to live in… It not an investment. It is a personal expense.
Where did this idea come from that every American should own their home?
I heard that Fannie Mae came up with the “American Dream” idea as part of a marketing campaign that everyone should own their own home. Great idea on their part, but I have not been able to confirm that they were the ones to initiate this idea.
Should I Rent or Buy a Home?
Most people believe that owning a home should be considered an investment. Some go as far to become “house poor” so that they can leverage themselves into a bigger home. What they don’t know is…
Financial Markets are driven by emotions: Fear and Greed
Master your investing emotions, or they will master you
The stock and bond markets are driven by four primary motivations. These four motivations are based on only 2 emotions, fear and greed. Investing is scary if you don’t know what you are doing. It is even scarier if you fully understand the risks through your own experience. Fear is a primal and instinctual emotion. Fear has kept our species from getting eaten by sabertooth tigers and jumping off cliffs trying to fly like a bird.
However when it comes to investing, that same primal instinct clouds the judgment of an otherwise rational educated person and causes him or her to make silly mistakes. In order to be successful as an investor, that fear has to be understood and harnessed in a productive way. I find fear to be the trickier of the two emotions because most people don’t understand how it applies to their own psychology.
Fear: The two fears of investing
The emotion of fear when investing can be broken down into 2 subcategories: Fear of losing money, and fear of under-performing the market (or more commonly known as, the fear of under-performing your friends).
Individual Investors Need Help
Individual investors as a group have no idea what they are doing. This has been made clear by a recent DALBAR study spanning 30 years all the way back to 1984.1 This period covers a number of bull and bear markets, giving investors a chance to learn from their mistakes. However it is clear that they are not learning the lessons of proper investing.
The S&P 500 is one of the most widely followed indices and is considered a benchmark for the US stock market. I would consider it a suitable benchmark for this study. These numbers compiled by DALBAR show that the return of the S&P 500 over the 30 year period ending in December 2013 is 11.11%. They also show that individual investors only measured 3.69% over that same period of time. This is a remarkable 7.42% difference annually. To put this in perspective, if you invested $100,000 in 1984 in the S&P 500 and earned 11.11%, today (30 years later) you would have $2,358,275. If you started with $100,000 and invested it over the same time period at 3.69%, you would have $296,556. That is a difference of $2,061,719. It should be clear from these numbers that individual investors have a problem.
In the prior post of this series, Should You Rent or Buy a Home?, I wrote about the pros and cons of home ownership vs renting. It is important to start here when you are considering whether to rent or buy a home. The decision of where to live should not be solely made on emotional attachment or financial considerations. It should be made up of both if you are planning on living in a home for many years. You want to love where you live.
This week’s post will be focused more on the financial considerations of renting vs buying a home. More specifically, what is the true cost of owning a home. If you have never correctly run these numbers before, the data may surprise you.
This week I will give you an example of what the true costs of owning a home are. In next week’s post, What You Don’t Know About Renting vs. Buying a Home Can Cost You Money, I will compare some real life examples of costs of renting vs buying a home.
I hope I am able to forever change how you look at buying the home you want to live in.
The Big IRA and the recent Government Accountability Office report
In 2012, during the presidential election campaign between Barack Obama and Mitt Romney, the issue was raised about Mitt Romney’s over-sized IRA. At one point the IRA is reported to have had as much as $102,000,000 in it. Yes, you read that correctly.
Mitt Romney’s IRA was worth $102,000,000.
Even compared to his reported $250 million net worth, this is a sizable chunk of capital to have accrued in his IRA given his approximate 40 years of working experience. How did he do it?
The recent Government Accountability Office report
In October 2014, the U.S. Government Accountability Office (GAO) released a report, “Individual Retirement Accounts – IRS could bolster enforcement on multi-million dollar accounts, but more direction from congress is needed”. According to the GAO, they found that there were 314 taxpayer IRAs which had an account balance of over $25,000,000 and 791 taxpayers with balances between $10,000,000 and $25,000,000. That is a total of 1105 people who have been great investors, extremely lucky, or both. Either way, they have found a way to capitalize on the tax benefits of a Traditional IRA or Roth IRA by growing their capital in a tax-deferred or tax-free manner.
While it may not be easy to accumulate over $100 million in your IRA, you can still use the same strategies that Mitt Romney used to accumulate a sizable IRA account balance.
“The major fortunes in America have been made in land.”- John D. Rockefeller
After more than 75 years John D. Rockefeller is still considered the richest man in history when you adjust for inflation.
According to the New York Times as of 2007, his net worth reached $192 Billion. Compare this with Bill Gates whose fortune is only $82 Billion. This shows how enormous the fortune of John D Rockefeller actually was. Only Commodore Vanderbilt and John Astor have even come close with $143 Billion and $116 Billion.
Rockefeller at one time controlled 90% of the nation’s oil and his fortune was approximately 1.5% of the nation’s economy. That is legacy wealth. Wealth that is hard to lose of destroy.
Even though all his wealth was made from oil, he still attributes major fortunes being made in land or real estate. That is a powerful statement.
What I am going to discuss here is one of the reasons why real estate is able to create legacy wealth. Wealth that can last for many generations if it is managed properly. Interestingly enough this is also one of the least understood benefits of owning real estate.
This post is the second part of a four part series about real estate. The last post, These Top 7 Powerful Tools Can Create Legacy Wealth from Real Estate, briefly touches on the importance of inflation to your real estate assets. I plan on going into much more depth this week.
The Advantages of Investing in Real Estate
Real estate is one of my favorite asset classes. Here is why.
In the prior post of this series I touched on a few of the reasons that real estate is such a favorable asset to invest in.
- You can easily use leverage to buy it,
- there is a limited amount of real estate
- Tax benefits
- It can create cash flow
- Appreciation potential
- It is inflation Proof
- You can reduce the debt in real terms over time.
Just one of these alone would be a good enough reason to invest in this asset class, but all 7 make it especially powerful. With exception of the tax benefits and the limited supply of real estate, all of the other benefits rely on inflation to enhance the performance of real estate over time. While I will discuss these in more detail, let’s first discuss what inflation is and how it works.
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” – Marshall Field
Marshall Field was an American Entrepreneur who lived in the 1800’s. His quote was obviously made in an era before tech stocks, hedge funds and excess money printing by the Federal Reserve. However the principal of owning real estate to become wealthy still holds true.
Real Estate is arguably the best asset class if you want to build enormous wealth. While you may have heard of real estate investors such as Donald Trump, or Sam Zell, there are countless more who are relatively unknown and are just as wealthy. Many of these investors prefer to live in relative obscurity.
What I want to show you are the 7 powerful techniques that these real estate tycoons were able to use to build their enormous wealth. While most of these techniques apply to both real estate investors and homeowners, there are more benefits from owing real estate as an investor rather than a home owner.
The 7 reasons you should own real estate as an investment:
Real estate is one of the few assets where you can use enormous amounts of leverage to own the asset, and banks will happily lend it to you. Leverage is a way to amplify the returns you receive on that asset, in both directions. Leverage is both beneficial and dangerous, so make sure that leverage is working in your favor.
“Wealth is the ability to fully experience life.”
– Henry David Thoreau
“Wealth” — can be defined as assets or resources which are in excess of present or future expected expenses. A more simple explanation is that wealth is made up of assets which exceed what will be needed for this generation, and could be passed onto the next one. Even though a family’s assets may not be needed for this generation, proper stewardship is required to make sure those assets will last for future generations.
The main considerations in protecting wealth for future generations are that the assets must be sustainable over several generations, resistant to inflation, and resistant to political and economic turmoil. It is possible to invest in certain assets that can fortify your wealth against some of these external risks. However, there is a much greater risk of future generations not being good stewards of the sustainable wealth. Whether you are the first generation to create generational wealth, or whether you are researching how to sustain the wealth you have inherited, this list will give you some guidance.
The Defined Benefit Plan
What if there were a retirement plan that allowed for very large tax-deductible contributions of $100,000 to $250,000+ per year? What if that deduction could potentially double if your spouse was an employee in your business? What if this great retirement plan could be added in addition to your 401(k) Plan?
Sound too good to be true? You are in luck. This is all possible if you have a Defined Benefit plan, which is also known as a pension. If you have a defined benefit plan, you can have access to these types of large deductions. Wondering why you have never heard of this type of plan? Me too. These plans are not new. They have been around longer than 401k plans. So why have your financial advisors not told you about this?
“Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned.” – John Maynard Keynes
This is the 3rd in a series of 4 posts about investing in real estate. The last post, Inflation – The Secret To Building Wealth in Real Estate, is about how inflation is essential to building wealth via your real estate investments. While most people subconsciously understand that real estate has all of the features listed in that post, they may not be sure why real estate has those features. The key is inflation.
This week I will be discussing the other side of the coin, and what happens when there isn’t inflation to make your real estate the wealth building tool that it has been for over 50 years.
This week I will be discussing deflation and how it would affect your real estate investments. Many notable economists have made deflation the economic boogieman. They have claimed that it is the worst possible outcome in an economy. When you hear someone talking about deflation, it is highly likely that Japan will also be mentioned in the same sentence.
Deflation is rare in the global economies of today. This is primarily because central banks around the world have engaged in a campaign to create a consistent inflationary environment for their own economies. This has worked for a few decades without hyper-inflation or persistent deflation in developed economies. Except for Japan.
Japan is one notable example of deflation which has taken hold in an economy and created a deflationary spiral. This is the essence of what economists fear. While this may sound scary, it isn’t, or doesn’t have to be. This week I will be discussing how deflation affects real estate, and why you should understand this if you want to protect your wealth.
The career risk of trying to be different on Wall Street
The financial service industry has a notorious problem which very few people outside the industry are aware of. This problem is generally referred to as career risk. Now, most of you reading this might think, “Who cares if some overpaid fund manager gets fired for not performing well enough?” While having your fund manager keep his job might not be high on your holiday wish list, you should realize that it is an enormous problem at Wall street firms and that it is causing many funds to underperform their potential.
“Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but it gets much more firmly seared in when they are your own.” – Mohnish Pabrai
This is the third post in a series of 3 about the financial advisor profession, financial advisor designations, and titles of financial advisors. The past two: Who is your financial advisor? and Top 8 titles used by financial advisors, discuss the different titles by which a financial advisor might be called. This post will detail 7 different financial advisor designations which require additional training and certification to use them. According to the Wall Street Journal, there are over 208 financial advisor designations^1. However many of them are relatively unknown to the majority of the financial advisor community and the investing public. Also a number of them are for specializations which many not apply for most of the advisor’s day-to-day activities.
I have chosen 7 designations: Certified Financial Planner, Chartered Financial Analyst, Chartered Financial Consultant, Certified Fund Specialist, Certified Investment Management Analyst, Chartered Market Technician, and Certified Public Accountant for this post. A number of these designation are common and well-known designations, but generally are not used by the financial advisory profession. Get to know these designations. If you meet someone with one of these designation, don’t be afraid to ask what they mean.
Half a truth is often a great lie. – Benjamin Franklin
Do you want to be a great investor… Or do you just want to be average?
I assume you want to be above average or you wouldn’t be reading this. Everyone wants to be a good investor, but not everyone wants to do what it takes to be good. Getting a stock tip from your friend or reading an article online and letting it sway you to invest in some company you know nothing about is not the best path to investing greatness.
Can you imagine Warren Buffett reading the Sunday morning newspaper, finding a compelling article written about some new trendy stock and saying, “this article seems credible, lets put 500 million of my money into it and see how it does…” hard to imagine right?
Does your doctor read about a new procedure in the New York Times and try it out without researching it, practicing, testing etc? If he does, then you need a new doctor.
Doctors go to school for years to become highly-competent doctors. They study under other experts before they even operate on a live person. They do a lot of work before they take your life in their hands. Yet we as investors decide that we are going to compete against the best and brightest in the world and spend 1-3 hours a week reading about investing.
When you are investing, you are competing against Warren Buffett, Seth Klarman, Stanley Druckenmiller, George Soros and more. Yet many investors think they can just open the Wall Street Journal and pick stocks like the best investors in the world.
Silly notion right?
“ “Risk-free return” is the standard tag attached to the government’s solemn obligations. An investor I know, repulsed by prevailing government yields, has a timelier description – “return-free risk”.” – Jim Grant
How absurd are negative interest rates?
Two weeks ago in Denmark, news spread about the first person to get a business loan and get paid by the bank to do so. Eva Christiansen, and entrepreneur, earns about 1$ a month from a business loan she took out to grow her business. Let that sink in for a few minutes. She took out a loan, and instead of paying interest to the bank, gets paid interest each month just for taking the bank’s money. What a great deal. Where do I sign up for one of these loans? If you are interested in what type of business she is running, that makes the story even better.
If you are asking the question of why would the bank pay this woman money each month to take their money, you wouldn’t be alone. I’m fairly certain that it has nothing to do with the type of business she runs, but it is mind-boggling to understand why a bank would pay someone to borrow money. Unless of course you understood what was happening in Europe with interest rates.