Author Archive
A few days ago, I interviewed Jim Ludwick using Google+ Hangout On Air (HOA.) This is the first time I’ve interviewed an expert live on air! Feel free to laugh as you watch me stutter and trip over my words left and right.
Jim is the owner of MainStreet Financial, he used to be an agent at NY Life. Now he is a licensed insurance advisor.
I did not waste his appearance and got right down to the nitty gritty. I asked about a client case during the interview. Specifically, this client of mine was talked into 1) buying a universal life insurance inside her defined benefit plan, 2) buying a whole life insurance policy for her young daughter, because “it’s a great investment” according to the agent’s illustration of 8% growth.
I asked Jim three questions:
Share this:
I go to great lengths to meet with my clients regularly. For instance, many of my clients live across the country. I fly to them.
Some might ask: what value is there in meeting regularly? There can be about $100k of value in it, let me tell ya!
Meeting regularly allows me to uncover hidden issues and potential opportunities, thereby helping my clients make smart financial decisions.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
A client of mine is trying to get his money out of an ill-conceived investment. I want to share this with you so you don’t make the same mistakes.
In 2009, he had a windfall of $1m. He asked a lady who had sold him a bunch of annuities where he should put his newfound cash. He further told her he was already up to his neck in annuities so he wanted to take some risks.
The agent pointed him to a celebrity business. Basically, some hollywood celebrity was trying to start an online gaming business, and needed $30m to do so.
My client went to their presentation and was mesmerized by the income projection. Then, when he saw that one of his relatives was a minority partner in the venture, he was totally sold. He signed a check for $1m on the spot.
He might as well have flushed it down the toilet.
Here is what he did wrong.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
It is well established that investors’ sense of risk reward is shaped by immediate past experience.
However, investing based on immediate past experience is like driving while only looking through your rear view mirror. It’s a disaster waiting to happen.
The proper way to think about risk reward is to see investing as a risk taking occupation. When there are more job openings than job seekers, wages will rise. When there are many job seekers chasing too few openings, wages will be lower. It’s just simple economics.
In academic circles, this wage of taking risk is called risk premium.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
1. ThinkAdvisor highlighted a Maryland study which showed that states which pay the highest fees to Wall Street (for managing pensions) have the lowest returns. That says it all about Wall Street. No wonder Rick Ferri wants you to steer clear of actively managed funds.
2. Reuters Money reported how Health Savings Accounts (HSAs) can be used as retirement savings accounts. This information is especially useful for small business owners and self-employed individuals who tend to neglect their retirement savings and face high deductibility in their health insurance. Here is the garden variety of ways they can save for retirement.
3. DIY Investor Robert Wasilewski encountered a bear while hiking. He survived to write about it, but he mused that the same reactions that kept him in the gene pool will surely “eliminate you from the investment pool.”
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
10. How Often Do Market Corrections Happen?
9. How I Make a Client 17% Wealthier
8. Variable Annuity Fees You Don’t Know You are Paying
7. Why you should avoid hedge funds
6. Be Careful When Buying a Condo as a Rental Property
5. Profit from Harry Dent’s prediction? think again
4. Is a Fidelity Personal Retirement Annuity (FPRA) a Good Investment?
2. The High Cost of Fee-Based Financial Advisors
1. P2P Lending: A New Asset Class?
Also see Top 10 in June.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.
Get informed about wealth building, sign up for The Investment Scientist newsletter
Share this:
Captive Insurance
I went to a conference for CPAs last week, and my biggest takeaway was a concept called captive insurance.
This is the concept of a business owner setting up an insurance company to insure the risk of his/her own business. Thus the name captive.
But what’s in it for one to have one’s own insurance company?
Tax Mitigation
It turns out that Congress has created legislation to encourage captive insurance – some would call that a tax loophole. IRC 831(b) states that small insurance companies ($1.2m or less in annual premium income) pay tax only on investment incomes. In other words, they don’t pay tax on premium income.
Can you see the tax loophole here? If a business pays its captive insurance company $1.2m in insurance premiums, the premium is deductible to the business and yet tax exempt to the captive insurance company. Depending on the tax structure of the business, this could mean a tax saving of 40% to 70%.
But tax savings aren’t the only major benefit!
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
P2P Lending: A New Asset Class?
Posted on: July 27, 2013
P2P Lending
Last night I was “wasting” time on Google+, when I stumbled upon Joe Udo’s blog where he had written about how he made an 11.3% annualized return with P2P lending. The next thing I knew, it was past midnight and I just had spent three hours eyeballs deep in the subject.
Let me first tell you what P2P lending is. P2P stands for person-to-person or peer-to-peer. P2P lending is the practice of lending to strangers, enabled by technology and the web.
The two leading companies in this arena are LendingClub and Prosper. Between the two of them, they’ve enabled nearly $2 billion of lending between investors and borrowers. However, that still pales to the total US consumer credit of $1 trillion.
I am super excited about P2P lending! Let me tell you why.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
Why You Want a Simpler Portfolio
Posted on: July 22, 2013
When I write a blog post, I like to drive home one and only one point at a time.
In my last blog post, the point I wanted to make was that cost matters. In case you didn’t notice, not only did I reduced my new client’s cost by 85 basis points, I also reduced the number of funds in her portfolio from 39 to 4.
With such a small numbers of funds, is the portfolio diverse enough?
Emphatically yes. In fact, it is much more diversified than the previous portfolio of 39 actively managed funds.
What I use are asset class funds; DFQTX holds all 5000+ stocks traded in the US equity market; DFTWX holds all foreign stocks; DFGEX holds all domestic and foreign REITs and of course VBTIX holds all bonds. With these four portfolios, you are holding all of the world’s productive assets. How much more diversified can you get?
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
Is a Fidelity Personal Retirement Annuity (FPRA) a good investment?
A client of mine recently asked me the above question. He is a high-income business owner who makes close to $1m a year and he has used up all of his available tax-advantaged investment vehicles. He is interested in this Fidelity product primarily because it is tax-deferred.
Now let me start out by saying that I love Fidelity. I custody all of my clients’ assets with them. Their advisor support team is fantastic and without Fidelity, I wouldn’t have been able to build my independent wealth management practice. FPRAs are also cheap compared to other variable annuities out there and if you absolutely have to buy a variable annuity, an FPRA is definitely the way to go. But…. I don’t recommend it.
Firm | Youtube | Facebook | Twitter | LinkedIn
Share this:
How I Make a Client 17% Wealthier
Posted on: July 16, 2013
I got a new client recently. The first step I took was to totally redo his portfolio. His old portfolio looked something like this.
Fund Symbol Expense
YAFFX 1.26%
UMBWX 0.99%
TWCGX 0.97%
SGRKX 0.96%
SCETX 1.20%
RYTFX 1.39%
ODMAX 1.36%
OAKIX 1.06%
OAKEX 1.41%
…..
AEMGX 1.31%
Altogether there were 39 funds in his portfolio. I skipped over a bunch in the list above, but anybody who has read my blog for any period of time should be nearly shouting out what’s wrong with this portfolio.
These Fund Expenses are Too High!
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
1. Chuck Jaffe of MarketWatch’s, “No Such Thing as Risk Free Investments” informs us that instead of looking for risk free returns, investors should know the risks. To that end, you may want to read “Taking Investment Risks”, which summarizes nine types of investment risks and classifies them into good, bad and ugly. You may also like to read “Managing Investment Risks” which shows you how to “take the good risks, control the bad risks, and avoid the ugly risks.”
2. I read this news, “Investment Banks Eye Hedge Funds for the Masses” with alarm. It is not surprising though after the JOBS Act relaxed hedge fund (marketing) rules, bankers and hedge fund managers can’t wait to go after the average Joe’s pocket. Before you handover your money though, heed David Swensen’s warning, and read “Why You Should Avoid Hedge Funds.”
Share this:
10. How Often Do Market Corrections Happen?
9. Variable Annuity Fees You Don’t Know You are Paying
8. Multi-family Office: The High Cost of Exclusivity
7. Do you want to be Morgan Stanley’s production?
6. Portfolio rebalancing is like earning a ‘bonus’
5. Why Asset Class Diversification is Superior
3. Be Careful When Buying a Condo as a Rental Property
2. Profit from Harry Dent’s prediction? think again
1. The High Cost of Fee-Based Financial Advisors
Also see Top 10 in May.
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.
Get informed about wealth building, sign up for The Investment Scientist newsletter
Share this:
Is the Sky Clear Enough Yet?
Posted on: June 28, 2013
Wise words written by myself two years ago: “The whole idea of investing only when “the sky is clear” is flawed. When the sky is clear, it can’t get any better; you can be sure another storm is brewing just beyond the horizon.”
Get informed about wealth building, sign up for The Investment Scientist newsletter
[I wrote this two weeks ago.]
On September 12, a client of mine called me to get out of stocks altogether.
He used a vivid analogy: “The storm is raging; I will wait until the sky clears before I get in again.” The storm he referred to was the European debt crisis. Judging by my many interactions with investors, he is not alone.
This morning, I woke up to great news: the Europeans have finally hammered out a debt deal in which Greece only needs to pay 50% of what they owe to the banks. With this debt reorganization, it looks like we will not have a Greek default (even though this is really a default by another name, but that’s the subject of another piece).
View original post 119 more words
Share this:
Last week, I got a panicked phone call from a client of mine, “Michael, my wife bought an annuity a few weeks ago. Now we really regret it. The agent won’t take our call! Can you help us?”
I went to their home to examine the annuity contract. It was actually relatively straightforward; for $100k, they will get $456 per month for the next 30 years, beginning three years from now. My client is 71 years old; he will be getting his last payment when he is 104 years old! By then $456 will probably be worth $56 in today’s money. Not what I’d call the deal of a lifetime.
Firm | Youtube | Facebook | Twitter | LinkedIn | Newsletter
Share this:
The other day, I was invited to visit a multi-family office that only serve super-wealthy families that have $10mm and above.
I was curious what set them apart from my firm, which mostly serves folks in the $1mm to $5mm wealth range.
I came away with one word: exclusivity.
The name
What they do is no different from wealth management, but they call themselves “multi-family office.” Just in case you don’t know what family offices are, they are offices billionaire families set up to manage their own complex financial affairs. A family office serves only one family. By adding “multi-” to “family office,” a wealth management firm can make their millionaire clients feel like they are billionaires.
The Investment Scientist 