Defined Benefit Plan: The Best Retirement Plan You Have Never Heard Of

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Defined Benefit Plans

 

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?

 

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Deflation – How a Mortgage Can Destroy Your Real Estate Wealth

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real estate deflation

“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.

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Career Risk and Herding Behavior

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career risk fund manager

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.

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Top 7 Financial Advisor Designations

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financial advisor

“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.

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Top 10 Investing Myths That You Know To Be True… But Are Not

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investing myths

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?

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Are Negative Interest Rates in America’s Future?

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Negative Interest Rates

“ “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.

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Correlation Does Not Imply Causation

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correlation does not imply causation

 

His argument was presented with data so it must be correct.

I stopped watching the news on TV years ago. I think it was the invention of the 6 box debate on-screen all-at-once. This was around the time that the news became entertainment, rather than news. However, despite my distaste for TV news, I was watching a news show yesterday and I saw a story about how guns were dangerous and should be outlawed. This story was followed up by a story about how the temperature was becoming more erratic, this was due to global warming so we should all drive electric cars. These stories are just one of many, where commentators (frequently not scientists, specialists, or frankly anyone who is remotely qualified to speak on the subject) elaborate how their point of view is correct because of this specific set of data. After studying the data in these and other similar types of issues, I can absolutely tell you that…

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Top 8 Titles Used by Financial Advisors – Is Your Financial Advisor Registered?

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financial advisors
 

This post is a continuation of the last post, Who is your Financial Advisor? In this post I will discuss some of the more common titles and licenses used in the finance-related profession. These are titles which professionals use to promote themselves. Some of these titles are given to them by their broker dealer, some are titles provided to them by obtaining a license and passing a test for proficiency, and some are self-designated.

Financial Advisors, their titles, and licenses

This is not an exhaustive list. There are many title professionals choose to call themselves. This post is only meant to discuss the more popular ones to help you navigate through all the terminology. Here is a list of the most common used titles for the finance-related profession:

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The Real Estate Investor’s Guide: Using a Self Directed IRA to Buy Real Estate

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Using a self directed IRA to buy real estate

 

“Every nickel I make gets put back into real estate.”

This is what an investor told me my first week of working on Wall Street. At the time I didn’t understand it, but this quote epitomizes the mind of the typical real estate investor. All they know is real estate, all they trust is real estate, and they are not remotely interested in any other type of investment.

I get it. Real estate is a very attractive asset class. I discussed some of the reasons for this here, These Top 7 Powerful Tools Can Create Legacy Wealth from Real Estate, and Inflation – The Secret to Building Wealth in Real Estate. Real Estate is unique in a number of ways. One of which is the ability to use massive amounts of leverage. When leverage is paired with inflation, you have a powerful combination.

As great of an asset class as real estate is, many real estate investors still come up frustrated.

While real estate investors may choose to invest every nickel they have into real estate, they are reluctantly forced to invest their retirement accounts into stocks, bonds, and mutual funds. Some investors are so turned off by non-real estate investments, they choose to not contribute to their IRAs or 401ks at all. This is mainly due to the “inadequacies” (in their mind) of the other available investments.

If they only knew the truth…

So rather than saving for their retirement in a tax-deferred or tax-free account, and potentially getting the significant tax deductions, they choose to ignore the retirement account option completely. Until now…

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The 2018 Comprehensive Guide for Year End Financial Planning Strategies

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year end financial planning

 

“A goal without a plan is just a wish.” – Antoine de Saint-Exupery

 

12 Smart Actionable Tips For You To Maximize Your Year End Financial Planning Strategies

The end of the year is fast approaching. Now is the time to plan your year end activities so you can make the most of your financial planning and tax strategies.

In a perfect world, you would have a comprehensive financial plan that you review often to ensure you are on track. However, I’m more realistic. I know you are probably not going to do this…

And to be frank, you would not be reading this in December if you had already done your planning for the year.

Having a financial plan is an important step in making sure you have a path to reach your goals. Financial planning is about figuring out where you want to go, putting together a path to get you there, and monitoring your progress along that path to adjust for unexpected events.

While most financial planning should be done continuously throughout the year, many people wait until year end to complete their checklists. This post should help provide you with 12 immediate actions you can take to get up to speed on your financial planning before year end.

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Proof That Share Buybacks are a Powerful Strategy for Building Wealth

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The Curious Case of IBM Share Buybacks

This is an overlay chart of IBM’s stock price and its market cap since 2000. Do you notice anything interesting about this chart?

IBM share buybacks

Look closer…

The stock price and market cap have performed differently. How can that be? Aren’t they the same?

While the stock price and market cap are highly correlated, they are not the same.

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2018 Tax Reference Guide

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2018 tax reference guide
 
 
This is our 2018 Tax Reference Guide. We created it to make your life easier. Each year we collect this data so you don’t have to. You might want to bookmark this page for future use. Don;t miss out on the tax changes for 2018 and how they impact your financial life.

 

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What is the True Cost of Owning a Home?

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Cost of owning a home

 

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.

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What You Don’t Know About Renting vs Buying a Home Can Cost You Money

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renting vs buying a home

“If you rent a home, it is an expense. When you buy a home, it is an expense. If you buy a home and rent it out to a third party, it becomes an investment. A better way to put it is that when you are renting, you rent from a landlord. When you buy a home to live in, you are renting from yourself.”

This is the third and last post of this series. The first post, Should You Rent or Buy a Home?, examined what factors you should consider when renting vs buying a home. The second post, What is the True Cost of Owning a Home? , examined the true cost of owning a home. In this final post I will be examining whether it makes sense to rent or buy a home. Numbers don’t lie, so lets look at some real numbers.

There are many calculators available online to help you figure out whether to rent or own. Unfortunately very few include the true costs of owning a home in their calculations. If you read the prior post, you will have some understanding of what was left out and how to calculate it. The math in post this will be relatively straight forward and a bit more fun.

I will be showing you some examples of real properties that I have found in the past year to illustrate this secret that very few people know. Whether you are a real estate investor or looking to buy a home to live in, you will want to know this secret.

“you are paying someone else’s mortgage, so why don’t you pay your own?”

There is a myth out there that when you rent, “you are paying someone else’s mortgage, so why don’t you pay your own?” This is a farce. It doesn’t matter whose mortgage you are paying, what matters is your costs to live in that home.  No matter where you live, your cost to live in that home is an expense. If you rent, you pay rent to a land lord. If you own, you pay a mortgage, taxes, insurance, maintenance, etc. There are costs for both options. Unless you live in a tent you will be paying for a home either way.

The reason many people think that owning is better than renting is that they equate owing a home as an investment rather than an expense. Once they make the realization that it is…

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Should You Rent or Buy a Home?

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American dream rent or buy a home

“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…

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Why are Individual Investors so Bad at Investing?

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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.

investors dalbar study

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.

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Investing is Not Gambling… if it is Done Correctly

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investing is not gambling

“The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.”
-Benjamin Graham – The Intelligent Investor

 

Are you gambling with your money?

Investing is not gambling.

Gambling is exciting. Gambling is entertaining. Gambling can make you rich… or so you imagine, but the odds are against you. That is why it is called gambling. That is why casinos are such profitable businesses.

There are professional gamblers who play Texas hold ‘em for a living and do quite well. But they are not gambling, they are playing the odds, they have a system, and they know the probable outcome of their “gamble”. There is certainly a large amount of skill involved as well. Reading people, remembering prior drawn cards, and concentrating for long periods of time.

This does not apply to all games of chance, like the lottery. A friend of mine likes to say, “The state lottery is a tax on people who are bad at math.” If anyone ever looked at their chance of winning the lottery, they would not waste a nickel on it, certainly not the rent money. According to the Massachusetts state lottery, the odds of winning a jackpot in Powerball is 1 in 175,223,510. I assume those odds don’t account for potentially splitting the jackpot with one or more people.1

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Your Emergency Fund – Understanding the Importance of Cash

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emergency fund

“Never spend your money before you have it.”  -Thomas Jefferson

 

Have you ever lost your job? Has your car ever required an expensive fix? Have you or a family member ever need funds for a hospital visit?

Now imagine that you didn’t have access to cash to pay for that emergency. What would you do?

The mass issuance of credit cards has allowed people to neglect the need for an emergency fund. This is a mistake. An emergency fund is not only about preparing for the rainy day that you will need the funds. It is also about reducing risk, providing you options, and helping you sleep better at night knowing that your financial emergencies do not have to be debilitating.

According to Go Banking Rates, 71% of Americans have less than $1,000 saved in their savings account. Although some age groups vary by a small margin, 70%+ of them (including seniors) have less than $1,000. If their income is cut off for even a few weeks, how are they going to survive?

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Dividend Growth – Learn How This Simple Secret Can Exponentially Increase Your Returns

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Dividend growth

“Inflation is taxation without legislation”      -Milton Friedman

Regardless of what happens in the future with inflation in the US, it is important to consider how it will affect your investment portfolio. While I discussed how a hypothetical dividend stock could help you compound the growth of your family’s wealth in the first three parts of this series, I have not mentioned how the effects of inflation can eat away at this performance. This fourth article in the series will discuss both how inflation affects your investments, and how to use dividend stocks to beat inflation. This inflation beating secret could help you minimize the effects of inflation through another form of compounding or super-compounding.

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These Three Dividend Secrets Could Make You a World-Class Investor

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dividend secrets
Ever since I was young, I was always good with numbers. I picked up new mathematical concepts very easily even though many were abstract. Once I started studying finance, and real money was involved, it became even easier to grasp many of the concepts.

Wall Street tends to embrace complex systems. Maybe because the creators of these systems think that the complexity will make it more successful, or maybe they believe that because it is complex they have found the holy grail of investing/trading. While these systems are interesting to me on an academic level, in my 15 years of working on Wall Street and studying what works, the conclusion I have reached is that simple is better.

I have seen simple investment systems, multi-million dollar trading systems which require astro-physicists and rocket scientists to run, and everything in between. With all those reference points, one thing that has become crystal clear, adding complexity does not necessarily make things better.

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