Wealth Management: Your Probably Not Doing It

If you have over $500k, give it to us!  We are a Fiduciary company and we Care about You!    

That advertisement is all over the web and all over TV.   Money management companies are in your face every day, asking to have your money.  What drives this behavior?  Their accumulation of your wealth drives their financial success, and whether they are commission or fee based doesn’t change that.   Available cash, mainly through mutual funds, drives investment and liquidity in the market.     The investment powerhouses use the financial leverage of your money to force companies to achieve short term profitability, low cost, and high profits. That drives up stock price, and increases your investment portfolio value, and there you have the circle.   The question is, how do you, your money, and retirement future fit into this picture?

This blog is focused on wage earners who will not receive a pension and have to depend upon themselves for retirement, will have to buy their own health care when they retire, and are in the 50% of the population in the US that ends up paying federal income tax.    That is the same group targeted by the investment industry.   They are under represented in government, usually not very active other than voting, and taxed at disproportionate levels to their benefits received from the government.  Large portions of this group have not received significant increases in real take home pay for years.

Lets challenge a couple of things:  has your Financial Advisor (FA) ever recommended to buy rental properties, investment properties, small businesses, peer to peer lending,  or done something other than recomend putting money mutual funds, annuities, insurance or other similar products?   Have you created tax strategies? Do you spend more time with your Tax Advisor than your FA? These things make up Wealth Management and don’t get discussed.   Side Hustles, alternative incomes strategies, and tax structure management only come up if you look for them.

I challenge you to go through an exercise to calculate your your own effective tax rate.   Add the progressive federal income tax, state income tax, local tax, property tax, and FICA.   If you live in a state known for siphoning gas tax into the general fund, add some of that in there also.  Take into account its very unlikely your taxes are going down, and most likely to be going up for those in this situation.     Now get some coffee or something stronger, sit down, and ask yourself you are addressing your own Wealth Management problems.

I have historically kept about 10% of my savings in an on line account targeted at small investors.   My Fidelity Go account that I manage, play with risk levels based on current information, and use as a test case, has always beat the return in my account with professional advice and 10X more money.   This helps to keep my perspective, that really most people have the ability to manage their own money.

We chose a path of small business for  second income.  This can be risky: the majority of small businesses fail, and if ours was our primary source of income, it would have failed.    The advantage we had was that we had good capital backing which was my disposable income, and the losses provided a great tax advantage.   We could afford to learn lessons, like own property, don’t lease whenever you can, don’t own a business with perishable inventory, and business is based on customer demand, not your own personal passions.  Those entities we owned eventually became profitable, providing not only a good tax strategy, but long term income.  

From a wealth management standpoint, I deeply regret not investing in real estate in 2009 and 2010.   Money was cheap due to amazingly low interest rates and property in great locations could be had for a song.  I had managed to keep a salaried job which was a blessing, but I was scared to make the right choices.  Doubling down at this point would have been a huge financial benefit, and I knew it at the time.   The lesson here is to think differently than the masses.

If your FA can bring you 6% return on average, and your tax advisor knows where 35% of your wealth due to taxes goes every year,  your time should be managed the same: Spend 6X more time with tax advisor and on wealth management strategies.    Shop around for a good tax advisor, who is experienced in all phases of tax law, including small business, investing, personal income tax, retirement spending, Obamacare, etc.   If they have been around the block, they have heard every hair brained idea imaginable to make money, seen every questionable tax dodge attempt, watched people experience significant financial failure, and been through numerous tax audits.  Be respectful of their time during tax season, but use as much as they allow.   Do research on wealth management and tax strategies and generate multiple ideas to rank and asses. This could be local business markets, on line opportunities, high interest rate savings, or anything related. That person will not only know the law, but also know the local landscape from his other clients.

You need develop a wealth strategy that minimizes you tax burden while maximizing return on your time.   Everyone is different, and you have to decide yourself what is best.   Ideas like NOT having a dual income household where one earner brings home significantly less than the other (progressive tax rates, remember??), starting a small business, buying rental properties or investment properties, or focusing a potential second wage earner on cost saving can give you better return for your time.   If your job can be portable, move to a lower cost location and change your cost structure.  This is especially true these days not only in real estate costs but tax structures.  

One of my favorite blogs is Financial Samurai, who is a specialist in overall wealth management and stepped away from a corporate existence, and has a wealth of information on this topic.   Check out his blog and follow his links for great information.

Retirement searches on the web tell you to Let Your Kids Go.   That is not only in the form of financial support, but also in the form of housing, and that can be extend to family overall and ‘posse’ you may have formed over the years.   If you had a family and really needed at least 3 bathrooms and 4 bedrooms, move on to a single bedroom house with pull out beds for guests, or better yet, make the leap to full time RV life.  Learn about the wealth strategy of becoming a resident of South Dakota. Then you and cousin Eddie can stay in your kids driveway! (‘Real Tomato Ketchup Eddie??) Evolve your thinking: houses, like cars, boats, etc are just things and can be traded at sold with no personal impact.   Remember, Money is Time, not the other way around.

Is saving for retirement bad?  No way!   Is putting your entire wealth into an investment portfolio that buys mutual funds and annuities good?  No way!  The first rule of saving for retirement: put every penny you can away before tax, no matter what anyone tells you.  The next rule, to quote George Carlin ‘trust no one, especially the government, and think for yourself.’    No one cares about your future as much as you.