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The Capital Retention and Multi-Generational Wealth Connection

Time has shown the common-most ‘top priority’ among elite investors globally has nothing to do with buying securities or building investment portfolios, and everything to do with the protection of capital and knowing when to sell. Mountaineers ascending grades too steep to arrest a ‘slip-n-fall’ often attach to a fixed rope, so when things go wrong they can live to climb another day. While numerous and varied investment strategies prove successful at increasing investment values, retaining capital when things go wrong is the single indispensable factor in surviving to invest another day. Mark Twain went bankrupt late in life by doubling down on failed ventures instead of abandoning them, learning by mistake the critical importance of the ‘exit plan’ to the multi-generational retention of capital wealth.

I was fascinated by a recent webinar in which three profoundly successful investors each shared their very different approaches to investing, the systems being so dissimilar apologies were offered at every exchange to temper strongly held but opposing views! Yet the one commonly practiced principle by the three was to have an ‘exit plan’ for every equity ‘trade’ at the time of purchase. What is an ‘exit plan’, how do the basic strategies work, and which are right for you?

Wall Street promotes the idea “time in the market”, not “timing the market”, is what produces reliable and lasting wealth, but Wall Street profits on the widely-held belief, and offers no comfort to the casualty investor when the delusion recurrently vaporizes. Here are some key practices that will save you from becoming a statistic:

  • A ‘Forever Stock’ holding involves the purchase of capital efficient, industry-dominating, dividend-paying, dividend-increasing companies at attractive valuations. All other stock purchases constitute a trade, and all trades must involve an exit plan Day 1.

  • Never fall in love with a holding of any kind. If you don’t understand this principle, read the book of Hosea. Nothing in this world is worthy of your confidence but GOD alone.

  • Run with your winners and cut your losers. Appreciating stocks tend to continue appreciating, and vice-versa. Give leash to your winners and maintain a cold and distasteful low tolerance for losers.

  • Take a ‘free ride’ on every 100% winner by promptly removing the original investment amount. Never make an exception to this rule.

  • Investigate and use Stop-loss orders on all equity trades, stocks, ETF’s and mutual funds alike, or make sure the person managing your critical retirement capital is doing so on your behalf, at all times and with strict discipline.

  • Never trust your personal insight or instinct to tell you when to sell. The counter-intuitive stock market, coupled with your vulnerable emotions, will betray and punish you ruthlessly.

  • Enjoy, and be thankful for the financial freedom these principles will afford you, and teach them to your children.

Think about it, Shaun.

“In all toil there is profit, but mere talk tends only to poverty” ~Proverbs 14:23

“The sluggard does not plow in autumn; he will seek at harvest and have nothing.” ~Proverbs 20:4

“The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” ~Proverbs 21:5

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Shaun Scott No Comments

Challenges and Solutions for a 2020’s Retirement

Retirement planning and income investing professional, David “Doc” Eifrig, of Stansberry Research, has been warning near-term retirees, “The deck is stacked against you”.¹ What are the converging hazards to the planned ‘2020’s retirement’, and what solutions may avert disaster?

Many retirees dread the humiliation of running out of money and having to return to work or move in with their kids late in life, yet according to The World Economic Forum, most retired Americans will outlive savings by an average of 8-10 years.²  Converting to an exclusively unearned income while in debt, failure to accumulate sufficient retirement capital, neglecting to factor inflation into the planning, and loose spending in early retirement years are common pitfalls retirees stumble into, but various external threats are now aligned to endanger even those avoiding the common hazards.

The greatest threats to a planned retirement in the next few years are:

  • High Inflation. How can retirees overcome higher than expected expenses without earned income? The indications are high inflation is here to stay, and its potential damage is unlimited.

  • High costs for Long Term Care present the second most threatening financial risk, particularly for the independent spouse.

  • Tax hikes are a mathematical certainty following an era of reckless government spending, and are the end goal of the coming issuance of a central bank digital currency (CBDC).

  • Financial planners using Monte Carlo Simulation understand how devastating an early retirement bear market can be to a retiree’s drawdown rate, yet a significant bear market may be lurking.

  • Negative real interest rates neuter fixed income yields and force retirees into riskier securities to battle the aforementioned threats. This magnifies the effect of an early retirement bear market, which can alone decimate even the best-laid plans.

The most effective solutions for these perils include:

  • A net positive cash flow (net income exceeds total living expenses) is most critical at all times. It is achieved by frugality, fiscal discipline, and various passive income sources (like rental, charter-economy, or increasing annuity income).

  • Avoid big voluntary outlays in retirement. Buying homes and making loans to children can do quick, irreversible damage to your retirement. Do these things before relinquishing earned income.

  • Learning to maintain your home can save thousands annually.

  • Buying certified, pre-owned vehicles saves thousands on every purchase.  

  • Mitigate catastrophic risks. Married couples in the upper-middle class should have some Long-Term Care protection. Avoid being caught with a high percentage of your retirement capital in ‘yet to be taxed’ accounts. Avoid excessive cash savings and own ‘dividend aristocrat’ stocks to fight inflation. Have an exit plan on equity trades to offset the bear market.

  • Have an ample emergency fund for unexpected bills, but quickly replenish it from the positive cash flow following outlays.

  • Consider whether a tiny investment of your retirement capital in mega-technology trends, like those mentioned here, would be appropriate.

  • If you are blessed with sufficient retirement cash flow, dollar cost average into a great stock fund for the first dozen years of your retirement, to help pay for the second dozen years of your retirement.

  • Be thankful for your success, and generous with others in need!

Think about it, and I hope these suggestions are a blessing to you. Shaun

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“A good man leaves an inheritance to his children’s children.” ~Proverbs 13:22

“God loves a cheerful giver” ~2Corinthians 9:7

1 Daily Wealth Premium, by David “Doc” Eifrig, “Conventional Wisdom Won’t Save Your Retirement”, October 1, 2021

2 Daily Wealth Premium, by David “Doc” Eifrig, “Don’t Fall Into The Retirement Nightmare”, September 3, 2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions, and it may not achieve its investment objective.

Shaun Scott No Comments

Solutions to the Dilemma of Rising Prices

The ongoing debate over whether the recent surge in prices will be ‘transitory’ or ‘lasting’ has quieted, as price-hikes persist with no end in sight. The cost of living in America is presently increasing at over 8% annually, based on the U.S. government’s own 1990-based formula.1 Meanwhile, Trish Regan, of American Consequences, reports inflation-adjusted wages are down 1.2% in the same period.2 This divergent trend won’t have to last long to pinch a large swath of middle class Americans with little or no savings. What caused the sudden inflationary surge, what will alleviate it, and what solutions can help working Americans survive it?

While an arbitrary increase in the money supply is the primary impetus for rising prices, there are other catalysts. Supply chain disruptions caused by the Covid19 lockdown and sudden economic re-opening is causing consumers to pay more and wait longer for virtually all imported goods. Loaded container ships sit idle outside major ports due to vaccine mandate regulations and a shortage of workers, both issues affecting prices. A shortage of container ships causes further delay, and many return to China empty or slightly loaded, the natural result of America’s exported manufacturing industry. It’s notable the USA/China trade imbalance, roused by the Trump Trade War, is inspiring China to seek new trading partners. Dependence on a less interested supplier is bad enough, but China also controls the global supply chain for raw materials, from which everything is made, and commodity prices are rising noticeably.

A return to free market-based interest rates would expediently correct the rising price problem, as Paul Volker demonstrated, but with the U.S. government, numerous municipalities, and 25% of all corporations in the U.S. burdened by an excessive debt load, don’t count on the Fed allowing it. Setting a limit on the creation of new currency units that is consistent with economic growth would kill the life-blood of rising prices, but due to the fact it would set interest rates ablaze, we must also rule it out. Absent the moral courage to enact these solutions, price increases are likely here to stay, which means we must find our own solutions.

These are some ways to fight price increases:

  • Maximize positive cash flow by running a tight family budget, then save & invest more to pay for tomorrow’s higher prices

  • Consider The Alpha Strategy for all purchases (contact the office for a free e-copy)

  • Don’t relinquish earned income without serious consideration

  • Avoid big positions in low or non-income producing investments, like cash and speculative growth stocks

  • Focus on income and dividend investments, especially those able to raise prices with inflation, and are capital efficient

  • Own some inflation hedges (REIT’s, MLP’s, commodities, gold)

  • Consider utilizing the Charter Economy

Think about it. Shaun

“A nickel ain’t worth a dime anymore” ~Yogi Berra

“You shall do no wrong in judgment, in measures of length or weight or quantity.” Leviticus 19:35

1 John Williams’ Shadow Government Statistics, Inflation 1990-Based, 10/14/2021

http://www.shadowstats.com/alternate_data/inflation-charts

2 American Consequences, “The Incredible Shrinking Dollar”, 10/13/2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Shaun Scott No Comments

Embrace the Emerging Charter Economy

The Fed’s policy of perpetual dollar debasement makes it increasingly difficult for common folks to put food on the table, but new technologies present valuable solutions for the nimble. Consider the charter economy, and how it can help your family solve the dilemma of rising costs.

The charter economy is simply a “sharing” economy in which useful possessions are “rented” to others when not in use. Americans pay high real estate taxes on basements and garages, and then fill them with depreciating, non-income producing accoutrements, like cars, lawn mowers, and generators, which in most cases rarely get used. Your family is a micro economy, and this is an inefficient use of your God-given capital!

The charter economy is mutually beneficial, which means it’ll save you money when you smartly rent an item instead of buying it, and it’ll make you money when you rent an “in-demand possession” instead of storing it. This new sharing economy is booming, in part because modern technologies have solved the former hindrances of a) finding a willing lender and renter, b) negotiating a fair price, c) making payment, and d) trusting associated parties. Choose a well-established vendor with many users, lots of favorable reviews, and a strong insurance policy (for protection from damage, theft, or injury). Reputable sites include, but are not limited to, Airbnb, VRBO, Turo, Neighbor, StyleLend, Fat Llama, Spinlister, RVshare, and Boatsetter.1

The most practical and profitable “not-in-use” items to rent include homes, cars, storage space, parking spaces, tools, bikes, snowboards, skis, surfboards, paddleboards, kayaks, RV’s, and boats. Neighbor’s site has a calculator to provide estimated income amounts on various items, and other free calculators can be found online. My own recent search for a rental garage on Aquidneck Island revealed there is zero supply available, and the going rate for a secure 12×24 space is north of $300/month!

Rules for success in the charter economy include:

1) Provide high quality photos and descriptions. When placing an ad, use clear, well-lit photos which accentuate the intended use. If renting storage space, for example, the picture should reveal the whole space, which should be clean, empty, and inviting. Offer a very detailed description of your products.

2) Treat it like a business. People want to deal with professionals, so be punctual, courteous, and kind, and offer a fair price.

3) Focus on products that are in high demand.

4) Post and encourage reviews, the more the merrier!

5) Make sure you are protected.2

Remember to appreciate and enjoy the God-given new relationships the charter economy will send your way! Shaun

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.” ~Matthew 6:19-20

1,2 Retirement Millionaire, “Charter Income: America’s No. 1 Income Strategy for 2020”, August 21, 2020

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL does not provide research on individual equities.

Shaun Scott No Comments

Today’s Disruptive Global Economic Trends

Disruptive trends are in place in the world today which are changing the social and economic experience for virtually all people everywhere. This week let’s identify a few of these primary shifts in mass behavior, not to judge the moral integrity or economic feasibility of these developments, for a sufficient number of policymakers with sufficient power and wealth have collectively determined to pursue, and ultimately implement these changes: they are going to happen. Rather, let’s simply acknowledge the trends and begin considering the financial implications of each.

Let’s face it, robots are incomparably more productive at accomplishing repetitive tasks than humans, and in today’s highly inflationary environment, productivity is paramount. Robots don’t get sick or need sleep or rest, and they don’t require benefits or over-time pay. While robotics benefits shareholders and corporate balance sheets, it threatens the human jobs it can potentially displace. Does that include yours? Might the displacement of employees caused by the advent of robotics introduce a universal basic income in America, and with it widespread dependence on government for basic subsistence? How exposed is your private wealth to such a development?

The perception that recent climate variation is caused directly and exclusively by human behavior has invigorated a powerful trend towards the development of renewable energies, including financial penalties on companies emitting an excess of “greenhouse gases”, but financial bonuses to those with the means of purchasing “carbon credits”. The (too) early abandonment of oil and gas holdings in this long transition from fossil fuels to renewable energies may have created a substantial investment opportunity short-term for the oil dinosaur, but this may ultimately be the biggest economic disruption in world history to date.

“Smart cars” were the first step towards autonomous, electric vehicles, powered by modern battery technology. I recently read America’s “car fleet cycle” runs 15+years, and that only 50% of today’s car owners intend to buy electric, so this, too, is a multi-decade trend. But might gasoline surcharges be applied, and a special license issued for gas purchases, to accelerate the trend?

Blockchain technology provides investors a new “store of value”, and allows for transactions to occur faster, cheaper, and without counter-party risk, benefits the rich are not ignoring.

The emergence of Asia is the final trend I’ll mention today, and the chart below says it all.1

 

 

 

These are some of the disruptive trends that should be on the radar of investors today. Think about it, Shaun.

1      https://howmuch.net/articles/trade-timelapse-usa-china

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.