A Simple Recipe for Wealth and Freedom

It is always dangerous to quote someone since one is likely to get labeled with the same calumnies that are heaped upon the principal author.  This is even more the case when one quotes G. K. Chesterton, a writer whose incisive views and powerful reasoning always cause distress (or rapturous joy) in the reader. Chesterton, it might be argued, was the last great writer to both ascertain and articulate the truth about the modern world.  He did this as plainly as he could, but the truth is not always so plain or readily explicable.  Thus, Chesterton became known as the master of the paradox for which he is most loved and reviled...paradoxically!

Today, I will quote at length from Chesterton's essay, The Servile State Again.  Considering the recent revelations about our ever-growing spy-State, I think his warnings about a "gradually solidifying slavery" to be most current and apropos.

Because he is so often MISunderstood, I simply ask that my dear readers keep an open mind and meditate on his reasoning since the evidence of today seems to vindicate his views.

While I will make a few editorial comments within the essay, I will try to keep those interruptions to a minimum.  My additions will be in RED, but let me make one prefatory remark so as not to destroy the continuity of the great first sentence of the quote below.  It would be too great a diversion to try and define exactly what Chesterton means by "Capitalism".  And, in this land that considers itself fiercely capitalistic, it may be off-putting that he is condemning it.  Suffice it to say that he is not opposed to free enterprise. In fact, Chesterton would say that the "capitalist" is.  Rather, he sees a similar danger in the aggregation of wealth as in the aggregation of state power.  If you understand that notion, then you understand Chesterton's "capitalist".

Finally, I will sum up a practical response to Chesterton's conclusion at the end of this blog entry.  Now for a little G. K. Chesterton:


But Prussia is Capitalism; that is, a gradually solidifying slavery; and that majestic unity with which she moves, dragging all the dumb Germanies after her, is due to the fact that her Servile State is complete, while ours is incomplete. There are not mutinies; there are not even mockeries; the voice of national self-criticism has been extinguished forever. [Now if one makes a "national self-criticism", he has to flee to Hong Kong.] For this people is already permanently cloven into a higher and a lower class: in its industry as much as its army. Its employers are, in the strictest and most sinister sense, captains of industry. Its proletariat is, in the truest and most pitiable sense, an army of labour. In that atmosphere masters bear upon them the signs that they are more than men; and to insult an officer is death.

If anyone ask how this extreme and unmistakable subordination of the employed to the employers is brought about, we all know the answer. It is brought about by hunger and hardness of heart, accelerated by a certain kind of legislation [see my last blog here], of which we have had a good deal lately in England, but which was almost invariably borrowed from Prussia. [We have had a good deal here, too.  Think of Social Security and our other retirement plans.] Mr. Herbert Samuel's suggestion that the poor should be able to put their money in little boxes and not be able to get it out again  is a sort of standing symbol of all the rest[IRA? 401(k)?] . I have forgotten how the poor were going to benefit eventually by what is for them indistinguishable from dropping sixpence down a drain. Perhaps they were going to get it back some day; perhaps when they could produce a hundred coupons out of the Daily Citizen; perhaps when they got their hair cut; perhaps when they consented to be inoculated, or trepanned, or circumcised, or something. Germany is full of this sort of legislation; and if you asked an innocent German, who honestly believed in it, what it was, he would answer that it was for the protection of workmen. 

And if you asked again "Their protection from what?" you would have the whole plan and problem of the Servile State plain in front of you. Whatever notion there is, there is no notion whatever of protecting the employed person from his employer. Much less is there any idea of his ever being anywhere except under an employer. Whatever the Capitalist wants he gets. He may have the sense to want washed and well-fed labourers rather than dirty and feeble ones, and the restrictions may happen to exist in the form of laws from the Kaiser [government] or by-laws from the Krupps [corporations]. But the Kaiser will not offend the Krupps, and the Krupps will not offend the Kaiser. Laws of this kind, then, do not attempt to protect workmen against the injustice of the Capitalist as the English Trade Unions did. They do not attempt to protect workmen against the injustice of the State as the mediaeval guilds did. Obviously they cannot protect workmen against the foreign invader--especially when (as in the comic case of Belgium) they are imposed by the foreign invader. What then are such laws designed to protect workmen against? Tigers, rattlesnakes, hyenas? 

Oh, my young friends; oh, my Christian brethren, they are designed to protect this poor person from something which to those of established rank is more horrid than many hyenas. They are designed, my friends, to protect a man from himself--from something that the masters of the earth fear more than famine or war, and which Prussia especially fears as everything fears that which would certainly be its end. They are meant to protect a man against himself--that is, they are meant to protect a man against his manhood. [End of quote].

 Now "them there is fightin' words!"  Is he saying that the modern man has lost his manhood?  That he is a coward?  Perhaps.  But he is most assuredly saying that the modern man has been duped into trading his freedom, his faith, his community and individuality for a paternalistic and enslaving collective that falsely promises a security and prosperity for all. 

So what do we do about these encroachments on our liberty and the sacrifice of our self-reliance?  To keep this a financial commentary rather than a general social one, I will limit my answers to some specific, achievable individual assertions of manhood.

• If you are rightfully indignant about the unjust searches and spying by our federal government, then throw away your cell phone.  Seriously!  Save yourself $40, $50 a hundred bucks a month and be free from spying.
• If you sense the injustice of a government that seizes an entire segment of our economy (Obama-(non)care) with the full complicity of the insurance bureaucrats, then drop out of health insurance and look into alternatives (here are two: 1 and 2) or go with nothing...we're all going to die at some point, right? Here you might save $500 to $1,000 per month, will stop supporting a broken and enslaving system and will assert your self-reliance big time.
• Finally, if Google, Twitter, Facebook and the host of Internet Service Providers are going to destroy your privacy, then cancel your internet service.  Yes, you will lose access to my wise words...what a loss?!?....but with the saved time and money you could get involved with your family, community and church and build a truly free economy and society.

If these ideas cause you fear (admittedly, they do me), then you are beginning to sense the great loss that Chesterton warned us about, the loss of our manhood.   Why do we feel it absolutely necessary to our existence to have a phone, an insurance policy or a computer monitor (that's an interesting word, "monitor")?  And the fact that we do feel this way points indeed to two great truths:

1. The loss of our manhood; and
2. The loss of faith in God.

 Perhaps a few sheer acts of defiance of the dominant propaganda will help melt this "gradually solidifying slavery"!

Mortgage Myths and Real World Finance

Perhaps the most important thing to know about finance is what are the unintended consequences of a proposed course of action.  Unfortunately, these are very rarely discussed.  What is discussed, rather, are over-simplified, numerical projections often with faulty inputs to boot. Then, armed with this false information, the consumer draws erroneous conclusions...often with devastating results.  All the while the financial services industry stands by, profiting from the darkened minds of the buying public rather than correcting the faulty notions of their clients.

Now I don't want to join in the chorus of offering over-simplified or faulty projections.  And I have already written on this blog my disdain for the typical "rate of return" discussion.  Finance is more complex than that.  However, to prove my earlier assertions, I do think it will be helpful to make a comparison of two oft-debated courses of action for paying off one's home.  I believe it will be illustrative of both the poor method by which courses of action are proposed and analyzed as well as offer an insight into how real world finance and unintended consequences are the more important issues in making these type decisions.  So please pardon my use of numbers and projections.  I promise to keep them simple, accurate and easily verifiable if you choose to do so.

So first let's state the issue:  Which is better a 30-year mortgage or a 15-year mortgage?  The widely held belief (at least by the number of people I encounter holding it) is this: If you can afford it, a 15-year is better because you will have a lower interest rate, pay less in interest and get out of debt quicker.  All the answers are true, as far as they go, but not dispositive of the issue especially as it pertains to real world finance.  So let's examine the facts in greater detail.

Anyone can go to bankrate.com and find the national averages for 15 and 30 year mortgages and quickly establish that the 15-year rates are better.  As of today, 2.91% for the 15-year term and 3.66% for the 30-year term.  Score "1" for the 15-year mortgage!

Similarly, it is quite easy to run two amortization schedules and see that indeed, less interest in paid on the 15-year mortgage. I ran an imaginary $200,000 loan and found that the 15-year mortgage at 2.91% interest would result in a total cost of $247,054.24, while the 30-year loan at 3.66% interest would result in a total cost of $329,776.06.  Clearly, $47,054.24 in interest is lower than $129,776.06. Score another one for the short-term loan.

Ordinarily, this is where the analysis stops...and hence the faulty conclusion drawn.  Add to this the "fact" that you will get out of debt 15 years faster and the case is a slam dunk.  Or is it?

Not if we take a look at what actually happens to the person who takes this 15-year mortgage.  Remember the conditional statement that prefaced the argument in favor of a 15-year mortgage:  "If you can afford it...."  In fact, the short-term mortgagee is paying a note 49.8% higher than the 30-year borrower, $1,372.52 versus $916.05.  This is a $456.47 per month increase.

But that is not a problem since we assumed the person could pay the higher note.  The real question rather is: Who is more likely to have additional resources to save and invest?  If we assume that these people are of equal means (and we will assume this or the comparison will have no value), then clearly the longer term mortgagee is MORE likely to save money.  This is real world issue number one: People have limited resources and must make the resources stretch to cover multiple items.

So, let's assume that the 30-year borrower does indeed save some money, the $456.47 per month that he is not paying in mortgage expenses.  And let's assume he does this for 15 years at 5%.  How are the two borrowers positioned now?

Well, the 15-year mortgagee just got out of debt by spending $247,054.24.  Let's hope he never hit any bumps in the road and never needed cash along the way since all of his available money was going to pay off debt...and he wouldn't want to incur any others!  

But the 30-year mortgagee over that same time frame would have accumulated $122,632.43.  Yes, he would still be in debt, but throughout the first 15 years of the mortgage he would have had money available for any issue that arose as compared to his counterpart who would not have.  This is a big deal in the real world because it will keep you from getting into a cycle of debt.  That is why I advocate "becoming your own banker", but I digress.

At this point, if we compare net costs, the short term borrower is out $247,054.24, the total cost of the loan, while the long term borrower is out $42,256.57 in net costs (this total is derived from taking his total payments over 15 years, $164,889, and subtracting his accumulated side fund, $122,632.43, but we must recall that he still has outstanding debt which we will address in a moment).  

But now we are starting to see the unintended consequences and real world dilemmas and why they are so important.  In fact, if we revised the mortgage question to more accurately depict the likely outcome of the arrangements, then the "better" of the two choices begins to shift.  For example, if I proposed to you:

Which would you prefer a lesser note that allowed you to save money on the side to create an emergency fund, invest for retirement and handle all future financing needs (this is a biggie because it keeps you from incurring new debts!) OR a higher note that will keep you from saving anything, disallow an emergency fund, may propel you into new debts, but IF IT DOESN'T then you will be debt-free in half the time?  Which would you choose?

It is at this point that the 15-year mortgagee throws out their last hoorah, "But I will be able to save my entire house note after I've paid it off!"  That's true, but rarely done since they are usually further in debt or not disciplined enough to start saving the note...and wasn't the alleged point of the short-term mortgage the thrill of being "debt free" so you could spend all that money!

In any case, let's compare the claims.  So flash forward another 15 years.  The 30-year mortgagee has continued to save his $456.47 per month, but now the 15-year mortgagee got serious and started saving $1,372.52 per month over that same time period.  Both earned the same 5%.  So what are the side funds worth for each person: $382,378.35 for the long-term borrower, $368,731.89 for the short-term borrower.

It is still true that the short-term borrower experienced less costs, around $70,000 less, but the pre-paying of those costs came at a price.  And again, let's pose the mortgage question in a different way and see which one you'd opt for:

Would you rather have:

1. A 30-year note of $1,372.52 with an end value of $382,378.35? (The net effect of the 30-year mortgage); or
2. A 30-year note of $1,372.52 with an end value of $368,731.89?  (The net effect of the 15-year mortgage).

Now be honest!

But what is proposed to me repeatedly is option number "2" despite the poorer performance, the pitfalls along the way and the real world dilemmas that it presents.  But that's the power of bad financial information and the failure to address unintended consequences.

Finally, my experience tells me that the short-term borrower will never achieve even the value specified here ($368k) because they will end up in a cycle of debt that forever prevents them from "saving that house note" once the place is paid off.  On the other hand, it is quite likely that the long-term borrower will both achieve this value ($382k) and exceed it because they have appreciated the value of cash flow, began regular savings early and, if they become their own banker, managed their debt for additional savings.  

The Gift of Giving

Last year I attempted to examine the real reason for the "commercialization" of Christmas.  Today I am going to consider the act of giving and why such a thing makes us happy.

If you plumb the depths of any action or profession, you will always find a great paradox (or several of them) that seems to contradict or nearly negate the value of the thing done.  A simple example: Those who work in medicine know that despite all their efforts for health, the end for each patient is death.

This is not to say that healthcare therefore is useless or should be eliminated, but it does put the total operation in a different perspective. This type of thinking is philosophical, of course, something we have way too little of, which is why our society continues to suffer so deeply on very many fronts.

Well, the financial planning field is no different.  So much of our time is dedicated to saving and security and future goals and wealth....things that the client believes will make them happy (or, at least, feel better).  But each year Christmas comes and offers a corrective to that.  Instead of saving, the person wants to spend.  However, it is not the spending that is satisfying, but rather the satisfaction of another person's needs that brings joy to our hearts.

If anyone ever needed a contrary proof to the proposition that "wealth makes you happy" all he need do is witness one Christmas where someone will spend with reckless abandon in the hope of showing true love to another.  Further, it is not the thing purchased that brings the happiness, but rather the sheer joy of giving.

Why is this?  Perhaps the closest we can come to an answer is to see that in giving we come as close as we will ever be to Him that gave us everything.  I am sure there are other attributes that more closely resemble the divine, but giving, that out-pouring of oneself for another, has to rank up there.

Truly, giving (our ability of self-donation) is a gift itself and is one of the ways we reflect the One who created us.  "Give, and it shall be given to you." Luke 6:38.

Merry Christmas and God bless you!

Silver Bullets, Silver Linings and Silver Savings

At the risk of being misconstrued, I will be short and to the point in this blog: There are no quick fixes to the problems plaguing our society, its government or our economic system.  Just as the sky did not fall in the morning after we re-elected the one who is arguably the worst president in American history, it is equally true that our country would not have seen a revival if we had elected the one who was arguably the worst nominee for that position.  The very idea that we should place that much hope and faith in a man is, well, blasphemous.  In short, there are no silver bullets to kill the hounds haunting our formerly fair land.

But there is a silver lining to this sad state of affairs and our realization of it.  If the problems are so big that not one of us alone could fix it, then it becomes perfectly clear that we must turn to the One who can fix it and then do our simple part in following His will. Fixing America starts with each one of us, our families and our communities.

I have built my financial planning strategies around one simple concept:  Helping to build productive, self-reliant and secure families through sound financial advice.  To me it is just applied common sense, but it does have to be "applied" and it can be tricky to maintain common sense in this increasingly complex world.  But one bit of common sense that perennially rings true to the people I counsel is that we ought always to invest some of our money in "hard assets."  I call them intrinsic worth items since the value, its worth, is IN the item rather than in a piece of paper or some other evidence of value (think of an account statement here).

Of course the most famous intrinsic worth items are gold and silver.  And it is wise to have a portion of your net worth in such things.  What to buy and how much can be debated, but one should never neglect adding to this important wealth preservation tool.

Recently I came across a simple and automated way to build up a personal, hard-currency reserve.  It is called Silver Saver and it allows you to buy silver or gold on a relatively low monthly (or weekly) allotment.  Further, you can take delivery of your metals when your account reaches certain minimums.  I recommend this since I think it is better to have physical possession of your intrinsic worth items rather than relying on being able to get them in more uncertain times.

The negatives of this program are that the premiums are a bit higher when you purchase small amounts (but you can buy larger ones and cut these down) and there are storage fees while the company houses your metal.  Still, for the ease of use and investment, I think Silver Saver is hard to beat.

Finally, and this will help offset some of the higher costs associated with this program, you can share in the profitability of Silver Saver if you share the site with others and they begin purchasing too.  And, yes, I am participating in this "profit from sharing" program, but that is not why I am recommending it.  Rather, I am hoping that all my friends and clients who have yet to take me up on investing in intrinsic worth items will finally begin doing so by taking me up on this easy and valuable program.  Check out Silver Saver by clicking on the hyperlinks above or by going here: https://silversaver.com/share/RYQZA/

Is Wealth A Blessing, A Curse Or A Sin?

     Recently a client (and good friend) posed a question to me after hearing a sermon preached on the gospel story of the rich, young man, where Christ tells this man to "go, sell what you have and come follow me."  One of my friend's questions was this: Am I not supposed to save, but instead give everything away?  To put it more generally, what is the nature of wealth and what should be our relation to it?  Is wealth a blessing, a curse or a sin?

     Now just to pose the question presupposes a religious answer.  And knowing that I am NOT a pastor, preacher or spiritual director, gives me great pause in attempting an answer.  So perhaps my first advice to you is to seek your answer from those sources.  Still, because I have been in the financial services industry for years and because I have pondered that same issue and what it means in regards to the work that I do, I will offer my musings on the topic.

      First, contrary to the purveyors of the "prosperity gospel", wealth is not a blessing in the sense that those who are wealthy are favored of God and those who are poor are not.  While it is certainly true that all that we have is a blessing (or gift) from God, this is not the same as to say that those who have more indicates a special relationship with God.  In fact, a better argument can be made for the exact opposite! "Blessed are the poor in spirit: for theirs is the kingdom of heaven." Matthew 5:3.

     No, the entire book of Job teaches us the fallacy of that idea and shows us that the Hebrews made that same fundamental error.  Job, who was wealthy, then poverty stricken (amongst other things) then wealthy again, remained faithful to God, bearing patiently the trials and tribulations of life, knowing that this life is simply a trial and pilgrimage to the next.  But it was his friends and fellow church-goers who showed up to indict Job, when his fortunes turned South.  "You must have done something wrong, sinned and offended God in some way for all this misfortune to have come to you," they said.  The Hebrews of old believed in what today we call the "prosperity gospel," but the book of Job should be our corrective to that.  It also, on the very first line of the first chapter, offers us the key to having a "special relationship with God": "Job...was simple and upright, fearing God, and avoiding evil." Job 1:1.

     Second, wealth can not be considered a curse either.  Job was a man of wealth and praised by God.  Joseph of Arimathea, clearly a friend of Christ, is said to have been wealthy.  History is replete with wealthy individuals making incredible, charitable gifts, establishing hospitals, schools and other works of mercy.  How could they even do this if not from their abundance, from their wealth?  This is not to say that someone of less means can not be charitable, but it is to establish that wealth, in and of itself, is not a curse or an evil and that great things can develop from it.

     Which brings us to our final query: So if wealth is not bad, why did Christ admonish the rich, young man to sell all that he had?  And the answer is quite simple really: Wealth can be bad, can be a temptation and the cause of our damnation IF we are more attached to it (a creature) than to our Creator and thereby refuse the inspirations of God.  

     In the story, the young man claims to have kept the commandments all his life, but still searched for more in the quest for salvation ("All these I have kept from my youth, what is yet wanting to me?" Matthew 19:20).  Christ understood this to mean that God was calling the young man to greater sanctity, in a word, that he had a vocation.  So Christ responded:  "If thou wilt be perfect, go sell what thou hast, and give to the poor, and thou shalt have treasure in heaven: and come follow me." Matthew 19:21.  [Emphasis added].  

     Christ gave the young man one of the evangelical counsels, poverty, because those are the requirements of "perfection" (as best as we can obtain it on this earth).  When "he went away sad: for he had great possessions," Christ knew that God did not have the first place in the young man's heart and said, "Amen, I say to you, that a rich man shall hardly enter into the kingdom of heaven."

     So wealth is not a measure of God's blessing, a curse or a sin (necessarily), but it can be, and often is, the most challenging of temptations to overcome.  "You can not serve God and mammon."  Matthew 6:24.  So let's make the virtues of detachment, liberality and charity regular parts of our financial plan.

Death and Higher Taxes?

Occasionally I come across something in my industry that can only be the portent of bad things to come.  Consider this excerpt from an email I received from my brokerage house:

As you may know, brokerage firms will be required to report to the IRS detailed cost basis, gain and loss, holding period and other tax information for the disposition of clients’ covered securities – i.e., stocks acquired on or after January 1, 2011. [Emphasis added]

In a moment, I will flesh out what this means and why it is an ominous sign, but first I want to emphasize two points:

1. That the custodians of your investment assets are now REQUIRED to be functionaries of the IRS; and
2. That, at least in the case of my brokerage house, this is being applied to QUALIFIED as well as non-qualified accounts (more on this in a minute).

The practice up to this point in time is that people who bought and sold securities in non-retirement accounts were required to keep track of the purchase price, purchase date, sales price and sales date of the securities in their portfolio.  They also had to declare their capital gains or losses on their tax returns upon the disposition of those securities.  One could argue the reasonableness (or unreasonableness) of capital gains taxes, but those were the rules.

But these rules did not reach to qualified (retirement) accounts, because when people took distributions from those accounts, they were not subject to capital gains taxes, but to income taxes.  Yes, there were built up "gains" in these accounts, but since the securities were always sold before any cash distributions and since income tax rates were higher than cap gains rates, the government happily assessed the distributions at income tax rates.

It appears now that the government may be setting up the system by which they collect both capital gains and income taxes on qualified (retirement) accounts.  Why else would they require custodians to report "detailed cost basis information" on these accounts?  This may be the first stages of the planned changes to retirement account taxation that I wrote about earlier in this blog.

I think Mr. Franklin's quote might more properly have been: "The only thing certain in life are death and HIGHER taxes."  Especially when a government goes about spending its people into a multi-trillion dollar debt notwithstanding the objections of all sane economists and the majority of the people. 

So what is there to do?  Well everyone needs to speak to their financial advisor or CPA to determine the immediate financial moves to consider.  But, in truth, the greater issue is reigning in a government that has clearly stopped trying to "establish justice...and secure the blessings of liberty" for us and has become one that perpetuates the gravest injustices and destroys our liberty.  Sooner rather than later, we better all stand up and say ENOUGH!

The Best Investment In The World...Isn't One

Let me say from the front end that I am not going to fully explain that cryptic title in this article.  For the full explanation of it you will have to agree to two things: First, to read a book that I will provide to you, and second, to sit down with me and allow me to explain what you must do to take advantage of the best investment in the world.  This article is simply meant to demonstrate the findings of my years of research into this issue and to accelerate your arrival at the same conclusion.  

    So what issue am I addressing anyway?  For what problem am I promising you the “best” solution?

    There are two answers to that question.  The first answer is helping you determine the best place to store (invest) your money.  

    The second answer is more complex, but describes the mental processes that I have gone through over my years of examining the financial services arena.  If people were only concerned about the return on their investment, the answer to the above question would be the highest yielding investment.  However, my experience has shown me that people are actually concerned about many more things than just the return on their investments.  Some of these concerns are whether the money is liquid or not, whether or not there is a risk of loss, whether or not there are tax implications to the investments, whether these assets are subject to loss through lawsuits and how much control they have (or don’t have) over the assets.  If these concerns have ever crossed your mind, then you have an idea of what the real issue is.  Perhaps it can be summed up like this:  Is there a place where I can invest my money that alleviates all or most of my concerns as well as the pitfalls of other investments?

Past Results Are No Guarantee of Future Returns

    The “Past Results” disclaimer is on every piece of investment literature you see.  What it is really saying is that despite the rosy picture we have drawn showing the market generally proceeding upward, it is possible that we could be wrong and that the market could go down and you could lose it all.  Not a very comfortable thought is it?  And even if you don’t “lose it all,” what if you are the unlucky soul who is slated to retire the same year that the market has a major correction of say 40-60 percent?  Could you retire then?

    Most people that I advise simply ignore this fear.  It is not that they don’t recognize the potential of the market working against them, they just assume that nothing is guaranteed and that the market is as good a place as any to risk it.  Actually, that is how most “professionals” sell market investments!

    Try this experiment: Go into your financial advisor or stock broker’s office and say, “Which of my portfolio holdings has a guaranteed return?”  The advisor will quickly put his finger to his lips, give you a loud SHHH and tell you, “We don’t use that word around here!”
    What if you could get an investment with a guaranteed return?  Would you prefer that investment over the riskier one?  Better yet, what if you could guarantee the rate of return too?  Is there such an animal?

Your Silent Partner

    No, your financial advisor can’t guarantee your returns, but he can promise to get the government out of your pocket…for now.  It’s called qualified money, but you probably know it by the more common names: IRAs, Roth IRAs, 401(k)s, Simples, SEPs, and a host of other tax-privileged investment vehicles.  

    Here’s the pitch: Invest your money in one of these programs and the earnings are not taxed as income (some even give you the added benefit of excluding the contributions from your taxable income).  Then after year one, your contributions plus the earnings grow even more (compounding) without tax again etc. etc. etc.  Usually these pitches are accompanied by beautiful graphs showing you the difference between this tax-deferred growth and the growth of a taxable (non-qualified) fund.  

    It’s a no-brainer.  You feel so good about beating the tax-burdened investments and getting one over on the government that you sign right up.  You’ve already forgotten that the return is not guaranteed.  In fact, the beautiful graphs that depict the growth of your investments use what are called “assumptions.”  Maybe you’ve heard the old adage about what happens when you assume…Ah, who cares, those graphs sure were impressive!

    Then you learn the price you pay for tax deferral.  For the wonderful benefit of not being taxed on your earnings, you get a host of federal legislation telling you when and how you can use the money.  First, there are limits to how much you can invest in these programs.  Next, there are taxes and penalties for early withdrawal (i.e. use) of the money.    Also, you may move the money, but it must always remain in a qualified plan and in the care of a qualified custodian.  Finally, the money can’t stay (and grow) in there forever.  You must take a “minimum required distribution” at age 70½ regardless of your need or desire or tax circumstances.  Say hello to your silent partner, the IRS.

    I can hear all the advisors out there right now criticizing me: “Oh, but the government is liberalizing the rules regarding early use of qualified money.”  But they just don’t get it.  What I find repugnant about this whole scheme is not how stingy (or generous) they are in their regulations, but the very idea of anyone telling me how to use my savings.

    Most people that I talk to want to be able to get to their money, even their retirement money, if they need to and they are not interested in paying taxes and penalties to do so.  Now as a financial advisor I should strive to find an investment choice that would provide that option without losing the benefits of tax deferral.  Is that possible?  

Two Taxing Problems

    Why wouldn’t it be possible?  I thought we lived in the land of the free!  If such an investment doesn’t exist, why couldn’t we create it tomorrow?  In fact, why couldn’t we create an investment vehicle that would have every attribute we wanted?  Just saying that sounds revolutionary!

    Therein lies the first taxing problem: getting people, investors and advisors, to think outside the box.  The limited choices being offered to the investing public are not due to a lack of options, but rather to a lack of thinking, a lack of knowledge.  The answers are there if you know what you are looking for.

    So let’s describe the best investment in the world.  We’ll start with the characteristics already discussed.  We want:

·    A guaranteed return
·    At a rate we specify
·    With tax deferral
·    Not susceptible to lawsuits
·    But, without losing our control over the assets
·    And maintaining liquidity

    Bring this list of features to most financial advisors and they will laugh at your outlandishness then tell you that you can’t have it all.  So which ones are you willing to sacrifice?

    My answer is none.  In fact, I would add another feature.  I want tax free income from my investments when I retire.  Can I get that too?  

    This is the second “taxing” problem.  It arises from another assumption made by financial advisors, namely that retirees will be in a lower income tax bracket when they retire so they will not mind paying taxes on their portfolio income.  There are two problems with this reasoning.  First, my experience is that many retirees are not in lower income tax brackets.  And second, everyone I know would prefer NOT to pay taxes or lower them if they can legally do so.  Is this a surprise to anyone?

The Best Investment in the World

    The best investment in the world does exist, but it isn’t one.  Sorry, but I told you I wasn’t going to explain that statement.  What I will tell you is that you can have the best investment in the world.  All that is required is a change of thinking, a change of doing and a commitment to achieve it.