Month: May 2024

Cultivating a vegetable garden is one of the most enjoyable and rewarding experiences I’ve had. Organically enriching the soil, rotating crops, companion planting cohabitant species, timing climatic growth and fruit-bearing cycles, and, of course, harvesting and enjoying the bounty is a truly enriching endeavor. Let’s consider the foundation, forms, and fruit of wealth-building, which can be equally rewarding. 

A sturdy foundation is critical for the stability and resiliency of your estate, and it consists of:

• Income, which is essential and requires work. Maximize income by using your God-given talents, with specialization in your field, and working hard. Think favorably about work, and never stop learning.

• Positive cash flow, which requires income to exceed spending. Maintain a strict budget and live below your means.

• Emergency savings equal nine months of total household spending.

• Strict debt management. Avoid consumer debt, and do not attempt to retire while in debt.

• The right amount of the right type of life insurance, so your estate can survive an untimely death.

While wealth-building comes in many forms, certain consistencies necessarily apply. Once the foundation is fully formed, invested capital must earn an average after-tax return greater than the rate of real inflation; otherwise, any perceived wealth-building is a mirage. Secondly, catastrophic risks must be identified and insured; otherwise, the estate is one calamity away from extinction. The following formulas may then be pursued:

• Dollar-cost-averaging through systematic purchases into high-quality stock funds tends to lower the average cost per share and helps avoid a large purchase at peak prices.

• Concentration of invested capital into assets which tend to appreciate during periods of high inflation, like real estate, capital-efficient stocks, and other real assets. That being said, understand and honor your personal risk tolerance at all times.

• “Give to Caesar what is Caesar’s,” but have an intelligent tax plan and do not pay a penny more in taxes than is required.

• Minimize investment expenses, which directly reduce returns, and then compound the reduction indefinitely.

• Plan the funding of retirement income strategically, so no more capital is required to fund that need than is necessary, so that invested capital can resume wealth-building.

• Think of the wealth-building process as a multi-generational effort, plan your estate wisely, and teach your children the same.

Finally, the fruits of wealth-building are mentionable:

• Through your diligence and stewardship, it will prove to be God’s faithful provision for you and your family for generations.

• It will incite a spirit of thanksgiving, which is proven to have profoundly positive effects on a person’s general health and happiness.

• It will enable you to give generously to others in need, especially those who can’t repay you, which is a most fulfilling privilege.

•  It will provide opportunities for you to enjoy the fruits of your labor.

While these are great blessings, it’s also mentionable that wealth is a tool, not an identity, and is, therefore, not to be hugged and horded but held loosely and shared. Furthermore, it won’t shield you from the trials and hardships of life on earth, which are apportioned to us all. I hope your consideration of this perspective of wealth-building is a blessing to you, and happy Memorial Day.

Shaun

“What do you have that you did not receive?”~1 Corinthians 4:7

“Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” ~Proverbs 21:20

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

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not reflect the views of LPL Financial.

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



https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I remember feeling deep respect for the head guide of our Mt. Ranier climb in 2009 as he opened our introductory meeting with the words, “The risk you are about to take may result in your injury or death”. The climb the sixteen of us were inspired to attempt came with unavoidable life-threatening risks. Likewise, building and retaining wealth in an inflationary culture requires a degree of risk-taking. Absent inflation, this isn’t the case; in fact, in the 125-year period from 1800-1925 America experienced zero net inflation, when wealth creation involved simply spending less than earnings on subsistence and saving the difference; but we are not living in the 1800’s, and inflation changes everything.

The U.S. government’s 1990-Based formula places today’s inflation rate at 7.5%.¹ If accurate, this means a 5% CD or Money Fund, the highest rate in many decades, is losing 2.5% in value before taxes are levied. Today many hard working, fiscally responsible Americans think they are growing their personal wealth as savings accumulate, even as that wealth shrinks in real terms! For simplicity, let’s understand present real inflation is north of the interest earned on cash savings, and identify the facts and strategies that can help us grow our wealth in spite of the Fed’s penchant to resolve government fiscal irresponsibility with currency devaluation. First, the facts:

• To grow real wealth, the average return on all assets owned must produce a net (of taxes) minimum return equal to the real rate of inflation.

• Investment holdings with a return potential higher than real inflation possess some level of market risk.

• An investor who wishes to grow real wealth in an inflationary environment must assume some risk with their investment holdings.

Understand your personal risk tolerance and never stray far from it. Minimize the emotional swings which accompany risk and volatility by investing only in enterprises you understand well. Minimize investment expenses, which reduce returns and compound the reduction indefinitely. Value investments with present income because inflation devalues the promise of future income. Compound dividends in capital efficient businesses over the rest of your life. Cap individual holdings at 5% to limit risk concentration. Eradicate dead money by finding a 4%+ interest rate on all cash savings. To these basic inflation-friendly investment strategies you may want to add:

• Position overall allocation at the high end of your risk tolerance level when the major indexes are above their 200 Daily Moving Averages. Accept higher volatility.

• Position overall allocation at the low end of your risk tolerance level when the major indexes are below their 200 Daily Moving Averages. Seek stability.

• Maintain Stop-Loss orders on all holdings with market risk except for capital-efficient dividend compounders. To avoid algorithmic price abuse, do not enter your Stop-Loss orders into the trading system.

In closing, remember you fight inflation, not deflation; many savers hide in the very cash instruments most quickly devalued by the inflation they fear! Understand you must manage the risk inflation forces you to take, or it’ll manage you, and the market is equipped to inflict the maximum amount of pain on the largest number of investors possible. Be creative and use every means available to mitigate investment risk as you overcome the destructive forces of the modern American inflation.

Shaun

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” ~Proverbs 13:11

“There was a great famine in the city. The siege lasted so long that a donkey’s head sold for eighty pieces of silver, and a cup of dove’s dung sold for five pieces of silver.” ~2 Kings 6:2

1 Shadow Government Statistics, Inflation, May 10, 2024 https://www.shadowstats.com/alternate_data/inflation-charts

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not reflect the views of LPL Financial.

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

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Thirty-five years of planning folk’s retirements has taught me the vast majority of people do their planning last minute solely to gauge the adequacy of long-term funding; rarely is due consideration given to the many strategic income options available, or the need for a tax smart income plan, one that doesn’t disrupt established investment or estate plans. This makes me think of the mountaineer who trains exclusively in the gym, who has the strength and endurance required for the climb but lacks the technical mountaineering experience to pull it off. It’s not ‘if’ something will go wrong in the mountains, it’s whether one will know what to do ‘when’ something goes wrong. In light of that commonality, let’s consider the guiding principles requisite to effectively mapping a retirement income:

• Maintain a comprehensive budget which differentiates fixed and voluntary expenses. Map both expense assumptions in your plan and observe the impact voluntary expenses will have on your retirement.

• Use fixed income sources, like Social Security, defined benefit pensions, and lifetime income annuities, to fund fixed expenses. Peace of mind may accompany the knowledge one will cover the other.

• Use fluctuating income sources to fight inflation with compounding dividends and growth, and to fund voluntary expenses. We reside in an inflationary culture; to avoid being eaten alive by inflation we must appropriate a portion of our capital to holdings that generally appreciate in an inflationary environment, like real estate, stocks, and other real assets. That said, it is essential to manage risk with these holdings.¹

• Diversify income sources based on need. Applying specific income sources to specific expense types has several benefits. Income which matches the nature, duration, and amount of certain expenses increases continuity in the overall plan. It also applies the financial principle of diversification to one’s retirement income sources, always a prudent maneuver. Finally, it helps avoid disrupting established investment and estate plans, since income streams are not few and inflexible. It takes many technical tools to safely ascend a glaciated mountain!

• Project growth rates on risk-holdings conservatively in your planning, and embrace the withdrawal strategy for those assets that is most complimentary to, and consistent with your customized retirement plan (see Guiding Withdrawal Strategies to Avoid Capital Depletion).  

• Map your retirement income from these various sources with a combination that will keep you in the lowest average tax bracket throughout the duration of your retirement. Understand this requires planning; the lowest bracket today might result in tax abuse later. 

The safest way to survive a big mountain expedition is to be on an accomplished team led by experienced guides. Ask your financial advisor to work with your CPA and Esquire to create a smart income plan, and then studiously apply it.      

Think about it, Shaun.

“In abundance of counselors there is victory” ~Proverbs 24:6

1 Smart Asset, “How to Create Your Own Retirement Income Plan”, Written by Eric Reed, December 3, 2023

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not reflect the views of LPL Financial.

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

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.