Ever heard the joke about what you call someone who graduates last from medical school? The answer is "doctor". It means that no matter how good or bad someone was in medical school, they are still a fully fledged doctor.
It's an interesting fact that groups tend to click together, and groups of experts are no exception. They also tend to eschew anyone giving anything remotely close to advice in their area of expertise. Of course there is a reason that these people are experts: they went to certain classes, studied key material, and passed some sort of test to earn their certification, degree, or designation.
Do you think this is enough qualification to totally hand over all your decision making to one of these people? It's not. Amidst certified financial planners, lawyers, real estate advisors, and others are good, honest people as well as snake oil salesmen. Sadly, it is up to us to sift through all these people and find the best person for our needs.
The law doesn't protect you from incompetent advisors
I often read discussion forums and usually at some point, someone makes an appeal of authority that a financial advisor with a series 6x or series 7 license will put you first because it's the law. Sorry, but you see, you don't know what you don't know, and that expert you're consulting doesn't know what he or she doesn't know. A double blind spot! It is a tough situation to deal with, because after all, that is the reason you are seeking an expert! This person may be constrained by his education (or lack thereof) and whatever training materials he has. He may also not analyze every vehicle or have certain prejudices towards or against particular products for various reasons. He or she may be putting you first, but that doesn't guarantee your advisor knows what they are doing.
One thing I'm aware of is that academics, you know, the people with the PhD's, don't like something that carries the weight of academic research coming from someone who doesn't have a PhD. My dad told me this, and he was a college professor who retired as the department head of Biosciences Engineering at a well respected university. This is why when people write popular books that are filled with a lot of valid information, littered with evidentiary footnotes, like "Killing Lincoln", they will be looked down upon because the author wasn't an academic. Why is that? Is it because the book was faulty? Or is it because too many people that are non-PhDs might make the academic community to appear to be not as expert as they claim to be? Again, this is where just because someone has a PhD it doesn't mean they are the expert you need. In fact, the most valuable advisor you can find needs to be able to say, "I don't know" in certain areas. You will find that really good advisors tend to network with people OUTSIDE their zone of knowledge. These are people that have a much better sense of what they DON'T know.
One expert who lived on evidence
For another historical example, look at the famous Albert Einstein. We've all heard of him. So what was his story? He was an evidence based physicist. For 400 years, people had made assumptions about the laws of motion. This went back to Newton, who was well established in academic circles as the father of the laws of motion as well as gravity. One of the biggest theories that had existed for centuries was referred to as the Galilean transformations. It was used to convert coordinates of motion between two frames of reference, such as a girl bouncing a ball on a train, as observed by a man on the platform while the train passed. Buried in the middle of it was the assumption that time passed at the same rate for both the girl bouncing the ball and the man standing on the platform.
Einstein essentially said that he couldn't accept such an assumption without any evidentiary way to prove it. Seeing none, he threw the Galilean transformations out, and started to form his own theory. This allowed him to derive the Special Theory of Relativity, which demonstrated that time in fact moved at different rates relative to the motion between two bodies. While he had a PhD, he wasn't able to get a teaching post and instead worked in the Swiss patent office until after he had published these ground breaking papers. In fact, in one year he published four papers (1905), including the one on Special Relativity.
Even then, he wasn't immediately accepted by the academic community. After all, the core of his conclusions said that Newton was wrong! His papers on photoelectric effect had managed to earn him a position as a lecturer at a university in 1908. In 1911, he became a full professor and also predicted a very different outcome than Newton's laws when observing stars near the sun during a solar eclipse. But his career hung on a thread. Only when that could be observed, would the academic community finally believe his papers on Relativity. It wasn't until 1919 that such an observation was made, and it catapulted Einstein to amazing fame.
Einstein worked from an evidence based approach. He didn't accept assumptions. His willingness to be a gadfly and put centuries old traditional theories on the shelf and formulate whole new ways to look at problems led to amazing breakthroughs that still impact us today. (Did you know GPS devices must account for relativity to get the accuracy they achieve?)
Guarding yourself from experts
There is a way to guard yourself when seeking the right expert. Ask for the evidence and evaluate it before making a decision. Learn how to read the research so you can cross check what they are saying. When a financial advisor recommends a mutual fund to you, don't ask "how has this fund performed over the past 10 years?" Instead, ask them, "how have investors done over the past 20 years in mutual funds?" After all, isn't that what you are trying to do? Your advisor may stumble at that request, or hem and haw. The truth is, that answer has been published year after for some time now. The Dalbar Report indicates that investors, on average over the past 20 years, get less than 4% average annual returns when they invest in mutual funds.
Does the person giving you advice have some actual performance history proving their own investment advice has worked, and longer than a 10 year period? Have they accumulated wealth, and did they do it by buying what they are telling you to buy? For example, look at what happened in 2008 when the market went negative. Most of the mutual fund management companies increased their fees. You see, they tell you to stay in, but they don't share the risk with you. Instead, when people pull out of mutual funds, they take their own share out of the pot!
Are the people making big money on investment books making their money on the advice in the book, or the fact that they can sell millions of copies? Did you know one of the best ways to get a book published is to already have published one? That is because fans of existing works are much more likely to buy other books from the same author. That is why you hear about famous authors writing many books, and the publishers know this!
What about those that have TV and radio shows? There is nothing wrong with having a show. But think about it: would you make more money using their advice or managing to get your own TV show? (HINT2: Research shows that one of the best money makers is running your own business. Maybe you CAN start a radio show and make a killing! But there are other places to build your business.) So try and figure out exactly what your expert is selling, and figure out if his advice is golden. If it is, then it probably doesn't matter what fees he is charging. He is probably worth his weight in gold!
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
Tuesday, May 22, 2012
Friday, May 18, 2012
Rebalancing my portfolio - part 2
I already mentioned the first step in rebalancing my portfolio: replacing my 401k with an EIUL. My second step is investing in some dividend aristocrats and holding onto them FOREVER, pulling in dividends and reinvesting them for the long term.
What'll you take - dividends or appreciation?
There are a few stocks that have been paying dividends for over 20 years. And not only that, they have increased their dividend payments each year. It's not that hard to find them. Better than that, some go back over 50 years in paying increasing dividends, each and every year. These are sometimes referred to as blue chip stocks.
There are a couple of ways to make money off of stocks. Either you buy low and sell high (we call that appreciation), or you buy and hold, waiting for dividends payments to come in. By taking the dividend route, you can buy more shares with the dividends and grow your capital, further increasing dividends payments. The longer you stretch this out, the less you are worried about the appreciation of your stock.
People have made a living out of predicting the rise and fall of stocks. They are called fund managers, and they consistently underperform the market indices. They try to guess (yes, I said guess) when the stock will be low and buy it, and try to predict the high to sell. Do you know what happens when they are wrong? Nothing! In 2008 a LOT of mutual funds increased their fees because so many people were pulling out of mutual funds.
When you pick some blue chip stocks that have stood the test of time, you aren't gambling on appreciation. Instead, you are investing in the power of the company.
Only buy companies you know
Notice how I said investing in the power of the company? That is because you shouldn't buy stock in companies you don't know a thing about. Just because a whole gaggle of people are diving into something (Facebook's IPO anyone?), doesn't mean you are catching the low. Often when you follow the news, you are late to the game.
Did I mention dividends? Yes, that is the main thrust of this part of my plan, but there is someone out there who HAS stood the test of time in picking stocks: Warren Buffet. That's why when I got my first dividend payout, I bought one share of Berkshire Hathaway B (BRKB). He has averaged double the market for the past 40 years. No one else has come close. His stock doesn't pay dividends, but he definitely knows how to grow stock value.
The tax man cometh
No investment strategy can be complete without considering taxes. Since the government has a huge appetite, you need to figure out how you are going to make as much as possible while being strategic in how much you get to keep (like how I couched, ehh?).
One option is to buy in an open account. That means you are buying with after-tax money, and any gains are subject to the tax laws of the day. They will tax you on any gains when you sell as well as any dividends you are paid. Over time, this can eat up your returns.
In my previous article, I mentioned that using a Roth IRA shouldn't be your primary vehicle for retirement savings. I mean that. Roth IRAs limit you to putting away $5000 a year, and that just isn't enough for a comfortable retirement. But it doesn't mean you shouldn't take advantage of what you CAN put in there. That is why this is just a part of my long term plan (you'll have to wait for part 3).
There is an old adage: would you pay taxes on a bag of a seeds or on the yield of the field where you planted? In many forums, I have seen people comment that if your tax brackets are identical at the beginning and the end, then it doesn't matter whether you pay now or later. That is absolutely true. And...very unlikely.
When someone suggests that when I retire I shouldn't worry about tax rates because I will have less needs, then that smells like someone is setting me up for a rough landing. I would prefer to work towards having MORE when I retire than I have now. Then, deciding what to do with the extra money will become a nice problem to have. That is better than deciding which shift to work at Walmart because I didn't save enough!
So, if I set things up to pay taxes as I approach retirement, I could either pay less taxes or pay more, based on what direction the government takes. That sounds REALLY risky. I would rather take my knocks now, and then be tax free at retirement.
Think about it: does the government want the taxes from your $100,000 today, or would they prefer to tax your $250,000 that you built up as you enter retirement? As Dave Shafer says, you don't think the government invented IRAs and 401Ks to reduce their revenue stream do you?
Of course, I have heard the argument made that you should take every tax discount you can now. Waiting until retirement to find that they have changed the tax code and plan to tax you on both ends is a risk of its own. I can appreciate that, because how many times has the government changed it's mind when it comes to tax codes? This is what you might call caught in their cross hairs. My crystal all is as cracked as yours, but I'm going to gamble that taxing on both ends of a Roth is much LESS likely than tax rates being HIGHER when I retire.
What I bought
So after pouring over historical reports, spreadsheet data, and a little self speculation, here is what I have bought.
Disclosure: Long on GD, CVX, AAPL, and BRKB.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
What'll you take - dividends or appreciation?
There are a few stocks that have been paying dividends for over 20 years. And not only that, they have increased their dividend payments each year. It's not that hard to find them. Better than that, some go back over 50 years in paying increasing dividends, each and every year. These are sometimes referred to as blue chip stocks.
There are a couple of ways to make money off of stocks. Either you buy low and sell high (we call that appreciation), or you buy and hold, waiting for dividends payments to come in. By taking the dividend route, you can buy more shares with the dividends and grow your capital, further increasing dividends payments. The longer you stretch this out, the less you are worried about the appreciation of your stock.
People have made a living out of predicting the rise and fall of stocks. They are called fund managers, and they consistently underperform the market indices. They try to guess (yes, I said guess) when the stock will be low and buy it, and try to predict the high to sell. Do you know what happens when they are wrong? Nothing! In 2008 a LOT of mutual funds increased their fees because so many people were pulling out of mutual funds.
When you pick some blue chip stocks that have stood the test of time, you aren't gambling on appreciation. Instead, you are investing in the power of the company.
Only buy companies you know
Notice how I said investing in the power of the company? That is because you shouldn't buy stock in companies you don't know a thing about. Just because a whole gaggle of people are diving into something (Facebook's IPO anyone?), doesn't mean you are catching the low. Often when you follow the news, you are late to the game.
Did I mention dividends? Yes, that is the main thrust of this part of my plan, but there is someone out there who HAS stood the test of time in picking stocks: Warren Buffet. That's why when I got my first dividend payout, I bought one share of Berkshire Hathaway B (BRKB). He has averaged double the market for the past 40 years. No one else has come close. His stock doesn't pay dividends, but he definitely knows how to grow stock value.
The tax man cometh
No investment strategy can be complete without considering taxes. Since the government has a huge appetite, you need to figure out how you are going to make as much as possible while being strategic in how much you get to keep (like how I couched, ehh?).
One option is to buy in an open account. That means you are buying with after-tax money, and any gains are subject to the tax laws of the day. They will tax you on any gains when you sell as well as any dividends you are paid. Over time, this can eat up your returns.
In my previous article, I mentioned that using a Roth IRA shouldn't be your primary vehicle for retirement savings. I mean that. Roth IRAs limit you to putting away $5000 a year, and that just isn't enough for a comfortable retirement. But it doesn't mean you shouldn't take advantage of what you CAN put in there. That is why this is just a part of my long term plan (you'll have to wait for part 3).
There is an old adage: would you pay taxes on a bag of a seeds or on the yield of the field where you planted? In many forums, I have seen people comment that if your tax brackets are identical at the beginning and the end, then it doesn't matter whether you pay now or later. That is absolutely true. And...very unlikely.
When someone suggests that when I retire I shouldn't worry about tax rates because I will have less needs, then that smells like someone is setting me up for a rough landing. I would prefer to work towards having MORE when I retire than I have now. Then, deciding what to do with the extra money will become a nice problem to have. That is better than deciding which shift to work at Walmart because I didn't save enough!
So, if I set things up to pay taxes as I approach retirement, I could either pay less taxes or pay more, based on what direction the government takes. That sounds REALLY risky. I would rather take my knocks now, and then be tax free at retirement.
Think about it: does the government want the taxes from your $100,000 today, or would they prefer to tax your $250,000 that you built up as you enter retirement? As Dave Shafer says, you don't think the government invented IRAs and 401Ks to reduce their revenue stream do you?
Of course, I have heard the argument made that you should take every tax discount you can now. Waiting until retirement to find that they have changed the tax code and plan to tax you on both ends is a risk of its own. I can appreciate that, because how many times has the government changed it's mind when it comes to tax codes? This is what you might call caught in their cross hairs. My crystal all is as cracked as yours, but I'm going to gamble that taxing on both ends of a Roth is much LESS likely than tax rates being HIGHER when I retire.
What I bought
So after pouring over historical reports, spreadsheet data, and a little self speculation, here is what I have bought.
- General Dynamics (GD) - they have a history of paying increasing dividends over 20 years, while currently sporting a 2.88% dividend yield. On April 11th, they announced a $0.51/share dividend. I believe that the need for military aircraft isn't going to diminish anytime soon.
- Chevron (CVX) - they have been paying increasing dividends for over 24 years, while showing a dividend yield of 3.34%. They are one of the Big Oil companies. Because this planet is going to be running primarily on oil for the next century, I believe this is not only a good investment, but a good hedge against inflation.
- Apple (AAPL) - they don't have a consistent history on paying dividends, but have a long history of consistent growth. This is one of those I-think-people-will-keep-buying-their-stuff feelings. They actually reached a point where they have too much cash and not a clear idea on what to do next. Sounds like a nice problem to me.
- Berkshire Hathaway B (BRKB) - this is another non-dividend payer, but there is a 40-year history of growing bigger than the market. Heck, they hardly ever do a stock split. The only reason this one split recently had to do with a particular company they had acquired. Other than that, I expect this one to keep growing.
Beyond these four, I don't feel compelled to buy any other companies at this point in time. That may sound crazy, but did you know that the theory of diversification asserted that owning more than 30 companies produced a diminishing set of returns? When you own some mutual fund that has dozens of stocks, if not hundreds, there is no way for you to analyze it. You are totally in the hands of the fund manager, and their track record isn't good.
I originally started with General Dynamics, Chevron, and Apple, but just received my first dividend payment. I thought owning a piece of Warren Buffet would probably be good for me, so I got underway. From here on, you can see how things perform as I continue blogging. Please show me where the TV personalities are blogging about which mutual funds they own.
Please don't just buy what I buy. Do your own research and decide for yourself what you're comfortable with.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
Tuesday, May 15, 2012
24x7 software is a whole 'nother ball of wax
Today I was hacking away, and getting really annoyed at how slow my laptop had become. I check 'top' and saw that several copies of Google Chrome were running, one with over 92 hours of accrued CPU time. For those of you from the non-UNIX land, that is time actually spent running. When the CPU switches to another process, the clock pauses, and when it switches back, the clock resumes. That isn't 92 hours of wall time, but instead much more than that.
Libre Office seemed to be dominating the system with 35% utilization. For a 2-core unit, you need to half it to get the real picture.
Bottom line: stuff was slow and eating up the system. Well, what can you expect after leaving this machine on for so long? Current uptime reads 12 days. And considering that my MacBook Pro handles low power by going into hibernation (and I have driven it to that state many times), what else can you expect from beating on these apps so hard.
At my old job, we managed a 24x7 mission critical ops center. It was in that crucible that I learned the price of not only having your software do the right thing, but also having it on ALL THE TIME. It is one order of magnitude to get it right. It is a whole 'nother order of magnitude to have it stay up all the time and remain bullet proof. We had a training lab that wasn't really on our radar screen, because we rarely made adjustments to it. The only times we paid attention were when we would get a call from the trainer due to "half the machines are broken." After responding a handful of times, we started to see a pattern. The PCs that had the hardest trouble appeared to have been up for more than two weeks. We told the sysadmin to essentially reboot each PC every two weeks as standard operating procedures, and the number of incidents fell dramatically.
So when you go out and build a system, be sure to put that on your radar screen. Any leg of your system, whether it is the kernel, a JVM, some other VM (like Python), or whatever, may have microscopic memory leaks or bugs in garbage collection that don't get run into often. But when you start to run stuff all the time, then you can expect weird, why-is-that-failing-now junk to happen every few months. Sometimes you have no choice but to simply reboot the relevant machine and push on. Sometimes no amount of analysis will give you an answer. Welcome to 24x7 operations software.
Wednesday, May 9, 2012
Your 401k won't create wealth
If you are paying income tax on your cash flow that is too high in your opinion, then there are many strategies that could lighten that road not using an 401K investment strategy. The real issue is would you rather pay taxes on input or output? So you input $100,000 and have a $250,000 output. Which would you rather pay taxes on? Personally, I have learned there are many options to deal with the tax issue on my income/cash flow. But when you are retired and are FORCED to take cash flow from your 401K and incur income tax there are much fewer options. The popular one for most financial planners is to be so poor as to not have to pay a high income tax rate. There are some real reasons why I think most 401K plans are a fools paradise (low rate of returns, loss of control, penalties for access, more net tax obligations, etc.) but for most folks who are employees I think the biggest one is the con job Wall Street has done convincing them that this retirement strategy can become one’s primary retirement income. Nothing wrong with funding a 401K if your company is matching you up to the match, but if that is all you got you are in trouble. That is why I show people how to build real wealth in other vehicles and then suggest they have a EIUL to protect them from premature death and the tax man. I think that the 401K/EIUL comparision is a straw man argument because both are poor wealth creators. Better put that $15K/year into investment real estate and have some real time tax protection, build wealth, and then protect it with a EIUL. You see it is the plan that is important and how each strategy fits into the plan. I just don’t think buying mutual funds is much of a wealth building plan whether you get a tax break from it or not. You don’t think that the government designed the 401K to decrease tax revenue do you? --David Shafer, http://www.bloodhoundrealty.com/BloodhoundBlog/?p=3203That comment is one big nugget of wisdom when it comes to investing for the future.
You especially can't escape the simplicity of David's closing sentence, "You don't think the government designed the 401k to decrease tax revenue do you?" We BOTH know the answer to that!
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
Wednesday, May 2, 2012
Cash reserves - important piece of any investment plan
Back in 1999-2000, at my old company, the travel department got downsized by a huge amount. It meant there were backlogs of expense reports not getting filled. When your corporate credit card doesn't get paid, they suspend it! (BTW, this impacts YOUR credit rating, not the company's). Of course, I only discovered this when it came time to book a trip. I had to pay for the trip myself, because my card was delinquent. From that time forward, I paid cash up front for my trips, and had to wait sometimes 60-90 days to get compensated. Even when new memos came out, telling people to not do this so that our trips woud be properly covered by the insurance policies supplied by our creditor, I wouldn't consent, because I had already been burned once and wouldn't suffer that again.
The key requirement in both these circumstances is you must have enough cash on hand to front these expenses. Maybe $75 isn't much, but are there times where you felt you didn't have that much wiggle room in your paycheck-to-paycheck budget? I certainly have. It's the key reason that the last time I cashed in a major chunk of stock option from my current job, I didn't immediately apply to the debt on our town home. Instead, I decided to pool some liquid capital and wait for the next allotment of stock option to pursue that debt.
This extends to the realm of whatever business you plan to run. One vital component to success is having enough cash reserves to handle shocks of this kind. Business expenses, especially investment real estate, are very bursty and never smooth and average. If you investigate the reason people were getting foreclosed on properties over the past decade, you will find that many suffered from lack of cash reserves that were critical when Murphy dropped in with bad circumstances like being out of work for 6 months. People that get behind, rarely catch up. I've heard the same for renters as well.
As Jeff Brown often says, Murphy is still alive and knows where we all live. It is better to assume that he will show up periodically rather than hope that he won't. If you plan to get into investment property, you need to right amount of cash reserves so a panic doesn't ensure when things bad happen. You should have a minimum of 6 months of total cost of expenses and mortgage expenses, and count 50% vacancy in there as well. 12 months is even better. If you start with 6 months of cash, consider routing any extra rent into that reserve until you are up to 12 months, before actually working on reducing the debt. With that much in easy-to-reach cash reserves, you can weather many storms and actual pursue a solid investment plan.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
Wednesday, April 18, 2012
Rebalancing my portfolio - picking a team of experts
As I continue on my path of rebalancing my portfolio, I am amazed at the number of people I need to consult to put together my grand plan just right.
For example, I now have my EIUL established. I have a rock solid agent that helped me put it together, and whom I know I can call to explain complicated details should I need to. I have learned much about EIULs, but as I recently read, not anywhere near what my expert agent knows.
Just the other day, I saw a posting from Bawldguy about a real life scenario where he helped one of his clients invest in real estate. In his blog posting, he explained that they may reach a point where one of their properties is free-and-clear, and they can sell it off tax free thanks to accumulated depreciation. Taking all that money, one option would be to open a new EIUL and put it there (spread out over five payments). One of the questions that popped up in the comments section was "why not just put that money in your existing EIUL?" I have had the same question appear on this blog as well.
Bawldguy didn't know, so he tapped his buddy, Dave Schafer to answer. Apparently, dumping such a huge amount of money into that EIUL would force the life insurance policy to raise it's face value a significant amount (to meet IRS regulations) much sooner than the original plan. If you didn't know it, insurance costs are directly tied to the face value of a policy. Raising the total fees on this EIUL plan would lead to less efficient performance relative to all the other money being planned for investment.
Apparently, creating a separate EIUL solely targeted for this lump sum would allow the agent to set things up in a much more cost efficient manner without upsetting the plan that was in motion with the first EIUL. Whew! I feel like everyday I learn more and more. It's why I'm glad I have such a good agent on my team.
Every time I chat with Bawldguy on the phone, it is a hoot. I learn a lot, realize we have some differences of opinion on some things (like investing in dividend paying stocks and gold), but carry many similar ideas, such as investing the whole shebang in real estate up front for maximum leverage and maximum time value of money. (I figure grabbing some chunks of rent a little later on to buy bits of stock and gold should still be possible, right?) I also learn that someone who has been doing this for 35 years knows a heck of a lot more than me.
When I asked him about tax preparation, he indicated that TurboTax probably wouldn't be adequate when you start doing stuff like cost segregation studies to pool up accelerated depreciation. (Stay tuned for future posts, to find out what that mouth of gibberish was.) He made it clear that I would need an accountant that understood the ins and outs of real estate investments. I was hoping that wouldn't be the case, but I'm sure he's right. That's another team member I need to shop around for.
One thing that has also nagged me for some time has been asset protection. I asked my in laws how they protect their rental assets. Do they have an LLC? Apparently not, because LLCs cost way more in bank financing. But I hear many REI clubs talking about running your rental business through LLCs. And I've heard of land trusts as well. Every time I seek to answer one question, I find two new ones. Well, I've read posts from Clint Coon, an attorney and a real estate investor that specializes in asset protection of rental property. I will definitely have to pay him a call when I get into the swing of real estate investing. I don't want someone to get bit by a dog on one of my potential properties and decide to sue me because they discover I have plenty of money. I would prefer they not even know who I am and instead have their attorney tell them their's no money to be dug up.
After asking a potential expert how many years he has done this and how many clients has he served, I often ask, "what happens 20 years from now, when you aren't here?" Many of these things are NOT fire-and-forget situations. There needs to be a proper hand off to the long term situation if this expert isn't going to be a member of my team in the distant future.
So after talking to gobs of experts, collating dozens of opinions, and starting to make some key choices, I am slowly putting together my team of experts to guide me on my path of portfolio rebalancing. But amidst all this need to put together a team of experts, one thing remains:
For example, I have read both sides of the argument involving transferring assets without violating a bank's "due on sale" provisions. I prefer to not violate it, and yet get as much asset protection as possible. When I saw one of Clint's comments essentially say, "no one tell the bank," it means I need to review his advice more thoroughly before seeking him as part of my team. I have certain opinions on what I think is right, decent, and honorable, and it is up to me to decide if the attorney I retain to properly protect my assets can see eye-to-eye with me.
If your lawyer, your accountant, your broker, or your agent recommend something you don't agree with, it's your responsibility to look elsewhere. It's not your lawyers responsibility, and you can't say "my accountant made me do it." To paraphrase Rod Johnson at QCON during "Things I Wish I'd Known," it helps to pay good money for good legal and tax advice, but don't forget to manage your professionals. They like to invent work for themselves. I like to extend that: it is your responsibility to do all this according to ethical standards you intend to uphold.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
For example, I now have my EIUL established. I have a rock solid agent that helped me put it together, and whom I know I can call to explain complicated details should I need to. I have learned much about EIULs, but as I recently read, not anywhere near what my expert agent knows.
Just the other day, I saw a posting from Bawldguy about a real life scenario where he helped one of his clients invest in real estate. In his blog posting, he explained that they may reach a point where one of their properties is free-and-clear, and they can sell it off tax free thanks to accumulated depreciation. Taking all that money, one option would be to open a new EIUL and put it there (spread out over five payments). One of the questions that popped up in the comments section was "why not just put that money in your existing EIUL?" I have had the same question appear on this blog as well.
Bawldguy didn't know, so he tapped his buddy, Dave Schafer to answer. Apparently, dumping such a huge amount of money into that EIUL would force the life insurance policy to raise it's face value a significant amount (to meet IRS regulations) much sooner than the original plan. If you didn't know it, insurance costs are directly tied to the face value of a policy. Raising the total fees on this EIUL plan would lead to less efficient performance relative to all the other money being planned for investment.
Apparently, creating a separate EIUL solely targeted for this lump sum would allow the agent to set things up in a much more cost efficient manner without upsetting the plan that was in motion with the first EIUL. Whew! I feel like everyday I learn more and more. It's why I'm glad I have such a good agent on my team.
Every time I chat with Bawldguy on the phone, it is a hoot. I learn a lot, realize we have some differences of opinion on some things (like investing in dividend paying stocks and gold), but carry many similar ideas, such as investing the whole shebang in real estate up front for maximum leverage and maximum time value of money. (I figure grabbing some chunks of rent a little later on to buy bits of stock and gold should still be possible, right?) I also learn that someone who has been doing this for 35 years knows a heck of a lot more than me.
When I asked him about tax preparation, he indicated that TurboTax probably wouldn't be adequate when you start doing stuff like cost segregation studies to pool up accelerated depreciation. (Stay tuned for future posts, to find out what that mouth of gibberish was.) He made it clear that I would need an accountant that understood the ins and outs of real estate investments. I was hoping that wouldn't be the case, but I'm sure he's right. That's another team member I need to shop around for.
One thing that has also nagged me for some time has been asset protection. I asked my in laws how they protect their rental assets. Do they have an LLC? Apparently not, because LLCs cost way more in bank financing. But I hear many REI clubs talking about running your rental business through LLCs. And I've heard of land trusts as well. Every time I seek to answer one question, I find two new ones. Well, I've read posts from Clint Coon, an attorney and a real estate investor that specializes in asset protection of rental property. I will definitely have to pay him a call when I get into the swing of real estate investing. I don't want someone to get bit by a dog on one of my potential properties and decide to sue me because they discover I have plenty of money. I would prefer they not even know who I am and instead have their attorney tell them their's no money to be dug up.
After asking a potential expert how many years he has done this and how many clients has he served, I often ask, "what happens 20 years from now, when you aren't here?" Many of these things are NOT fire-and-forget situations. There needs to be a proper hand off to the long term situation if this expert isn't going to be a member of my team in the distant future.
So after talking to gobs of experts, collating dozens of opinions, and starting to make some key choices, I am slowly putting together my team of experts to guide me on my path of portfolio rebalancing. But amidst all this need to put together a team of experts, one thing remains:
YOU are the only one solely looking out for YOU.It's easy to forget this. You will meet plenty of people that know more than you, and can push you in the right or the wrong direction. Remember that they are there to advise you, not decide for you. Boil everything down to, "if I had to explain this to my mother, would she think it's right?" Bawldguy often describes a rental property on whether or not it passes the would-you-put-your-own-mother-there rule. Well, I extend that to, would-my-mother-approve-of-doing-business-this-way? That can makes certain decisions crystal clear.
For example, I have read both sides of the argument involving transferring assets without violating a bank's "due on sale" provisions. I prefer to not violate it, and yet get as much asset protection as possible. When I saw one of Clint's comments essentially say, "no one tell the bank," it means I need to review his advice more thoroughly before seeking him as part of my team. I have certain opinions on what I think is right, decent, and honorable, and it is up to me to decide if the attorney I retain to properly protect my assets can see eye-to-eye with me.
If your lawyer, your accountant, your broker, or your agent recommend something you don't agree with, it's your responsibility to look elsewhere. It's not your lawyers responsibility, and you can't say "my accountant made me do it." To paraphrase Rod Johnson at QCON during "Things I Wish I'd Known," it helps to pay good money for good legal and tax advice, but don't forget to manage your professionals. They like to invent work for themselves. I like to extend that: it is your responsibility to do all this according to ethical standards you intend to uphold.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.
Monday, April 16, 2012
@NashvilleJUG reaches 50 members!
This is great news. I just saw an email today sent to me from http://meetup.com/nashvillejug. Maybe that number doesn't seem huge to you, but after just a year-and-a-half, I think we are reaching more and more people in the Java community in our area.
Earlier today, I was on the phone with a recruiter that helped secure me an interview over two years ago with a local company before I even moved to Nashville. She was calling to share a potential opening, but it wasn't for me. With that aside, she asked how was NJUG going. I was happy to tell her it was growing fast and pointed her to our website. I explained we average 20-30 people every month. She was impressed.
I remember the first meeting back in October 2010. I gave a talk about "7 Reasons to use Spring" and Csaba was my audience. To tell you the truth, this was the way things were for several months. I don't know whether Csaba had confidence or not (you'll have to convince him to write a blog!), but I did. I felt like we had to be active and consistent, and that eventually we would draw out participants. How many did I expect? Having been a part of the Melbourne Linux User's Group, I was used to average attendance numbering in single digits. I figured this group would reach a similar state, and I would have been quite content to see a handful of passionate Java developers once a month. When it's not 100+, then it's easy to have 1-on-1 conversations with everyone. I never expected things to grow so quickly as NJUG has. When 35 people show up to see the lead architect from The Lampo Group, it is an incredible feeling. This was even more intense when I had been away for several months due to family issues. Coming back to a group with a packed room was awesome!
As I continued this phone call with my recruiting friend, I mentioned that while we keep the meetings technical, she was free to attend and network as well as post openings on our Google Group. After receiving yet another email from new recruiter through LinkedIn today, I realized that this felt like more than just technical material being shared at monthly meetings. The opportunity to interact and meet other developers as well as recruiters encourages me. I realized that should I need help finding a new position in the future, I have lots of contacts in this area that will help me out. Knowing that my cohorts of NJUG have the same opportunities is also good to know.
It feels like we are building the key component to any technology: the community. In this case, we are building up Nashville's piece of the Java community, and that makes me very happy as I watch the membership numbers grow thanks to warm, fuzzy emails from meetup. With a slate full of speakers for the next few months, I can't wait to see ya' at the next meeting!
Earlier today, I was on the phone with a recruiter that helped secure me an interview over two years ago with a local company before I even moved to Nashville. She was calling to share a potential opening, but it wasn't for me. With that aside, she asked how was NJUG going. I was happy to tell her it was growing fast and pointed her to our website. I explained we average 20-30 people every month. She was impressed.
I remember the first meeting back in October 2010. I gave a talk about "7 Reasons to use Spring" and Csaba was my audience. To tell you the truth, this was the way things were for several months. I don't know whether Csaba had confidence or not (you'll have to convince him to write a blog!), but I did. I felt like we had to be active and consistent, and that eventually we would draw out participants. How many did I expect? Having been a part of the Melbourne Linux User's Group, I was used to average attendance numbering in single digits. I figured this group would reach a similar state, and I would have been quite content to see a handful of passionate Java developers once a month. When it's not 100+, then it's easy to have 1-on-1 conversations with everyone. I never expected things to grow so quickly as NJUG has. When 35 people show up to see the lead architect from The Lampo Group, it is an incredible feeling. This was even more intense when I had been away for several months due to family issues. Coming back to a group with a packed room was awesome!
As I continued this phone call with my recruiting friend, I mentioned that while we keep the meetings technical, she was free to attend and network as well as post openings on our Google Group. After receiving yet another email from new recruiter through LinkedIn today, I realized that this felt like more than just technical material being shared at monthly meetings. The opportunity to interact and meet other developers as well as recruiters encourages me. I realized that should I need help finding a new position in the future, I have lots of contacts in this area that will help me out. Knowing that my cohorts of NJUG have the same opportunities is also good to know.
It feels like we are building the key component to any technology: the community. In this case, we are building up Nashville's piece of the Java community, and that makes me very happy as I watch the membership numbers grow thanks to warm, fuzzy emails from meetup. With a slate full of speakers for the next few months, I can't wait to see ya' at the next meeting!
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