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Our Philosophy
To accumulate wealth as early in life as possible…winning this game takes the right balance of earning power, spending discipline, good tax advice, thoughtful asset protection, shrewd liability management and intelligent investing. An early victory in this game not only will ensure a comfortable lifestyle for you and your family but might afford you the chance to start a new business, build an art collection, make an important donation to charity or simply retire at a relatively young age.
Given the fact that financial indecision affects the vast majority of Americans, here are some tips on how you can win one of life’s most challenging contests…the game of wealth accumulation.
- Taxes – A drain on your financial resources
- Impulse Buying – A well-traveled path to financial disorder
- Late Bill Payments – Chronically late or missed payments will impair your credit rating, which stays with you for life
- Non-Liquid Investments – These often have poor risk/reward characteristics and can tie up your capital for very long periods of time
- Commission-Based Investment Professionals – Their advice and recommendations can be heavily influenced by the commissions they will earn
Fee-Based Financial Consultant – Can develop and implement a personal financial game plan designed to:
- Identify your short-term and long-term financial needs and goals
- Regulate your discretionary spending
- Determine the types and amounts of insurance you need
- Ensure that your bills are paid on time
- Obtain intelligent financing for major assets (e.g., homes, cars)
Fee-Based Registered Investment Advisor – Can help you achieve short-term and long-term financial goals by:
- Designing a cost-effective investment strategy, paying particular attention to investment risk and tax implications
- Selecting appropriate investments
- Closely monitoring global investment, economic and political trends
- Frequently reporting on the performance of your investment assets
Tax Specialist – Can help you achieve a higher disposable income by:
- Suggesting asset ownership strategies which can reduce your tax bill
- Alerting you to all possible tax deductions
The smart player always understands that cash in the bank and liquid investments are the truest measure of real wealth. After all, the day you are judged to be worth a million dollars is often the same day you can withdraw a million dollars from your accounts.
Investments...A Macro View
For the past several years, we have been presenting to clients a digest of the prevailing rationale for positioning one’s investments. It is important to periodically review this rationale in view of the highly uncertain times in which we find ourselves today. Our most recent comments appear in boldface type.
5 Good Reasons Why the Stock Market Can Remain Strong
- Massive cost cutting by US businesses over the past 3 years has produced higher corporate profits, and that has encouraged investors to believe that an economic recovery is underway. The chinks have begun to appear in the profits picture for many US companies. The primary cost-cutting mechanism has been and continues to be the outsourcing of jobs to the low-cost countries of Asia, Eastern Europe and Latin America. As a result, the American worker is less and less able to support the US economy, creating additional pressure on business profits. It is a vicious cycle.
- In an attempt to spur the economy and stock market, the US Government has guided long-term interest rates to record low levels, and that has encouraged investors to believe that the stock market has a viable safety net in the form of an accommodative Federal Reserve monetary policy. We are edging closer to the cusp of change. Although long-term interest rates are still at attractive levels, there is tremendous pressure building for rates to rise. An interest-rate dam has been constructed by the eager beavers of Japan and China as they continue to recycle their trade surpluses into US Treasury bonds. This large demand for bonds helps to keep borrowing costs low and is a de facto lid on long-term interest rates. When Asian demand for US debt begins to slacken, the dam will break and the river of borrowing costs will rise. There are signs that this scenario is not far off. At that point, the flood waters will crest and many consumers will be swept away in a debt default.
- The American people believe that the large-scale US military involvement in Iraq and other Islamic nations is winding down, and that this will aid in reducing US Government deficits and encourage foreigners to increase their US stock market exposure. For starters, this will occur only if the US admits defeat and pulls its troops out of Iraq. This is highly unlikely to occur due to repercussions in the oil industry. In fact, it appears that either Saudi Arabia, Iran or Venezuela is being targeted as the next battlefield, but that China and Russia increasingly will counter US military efforts.
- The US Government has continued to officially report jobs growth and virtually no inflation, which taken together suggest a stronger stock market ahead. The jobs growth numbers are fraught with distortions, while the prices of many essential goods and services are rising sharply. It has become more difficult to fool the American public.
- The current Administration has given the economy and the stock market a huge injection of artificial stimulants (e.g., low borrowing costs, tax cuts, deficit spending, $80 billion of short-term Treasury loans extended to major financial institutions), thereby creating a euphoric hope that financial health and prosperity have returned. Borrowing costs are still low and deficit spending remains in full force. However, the tax cuts are gone and will be difficult to rationalize and reinstate in view of the enormous Federal deficits. It may require a privatization of Social Security accounts to rescue the investment markets from a sustained period of weakness, but the timing of Social Security reform remains highly uncertain.
10 Good Reasons Why We Can't Trust the Stock Market
- US stock valuations remain at historical extremes. Still true.
- The US Dollar is rapidly losing international support as a reserve currency. Still true.
- Income growth among US households is practically non-existent. Still true. Growth in consumer spending is almost completely reliant on access to additional credit and continued low interest rates.
- US consumers are up to their collective eyeballs in debt. Still true and getting progressively worse.
- The US Government is up to its eyeballs in debt. Still true and getting progressively worse.
- America is engaged in an unfamiliar brand of war that is likely to escalate. Still true and getting progressively worse.
- There is massive hidden unemployment in the US economy. Still true and now US policymakers are fanning the flames of discontent with China. If this leads to a trade war, it may or may not result in more American jobs. The US simply cannot compete with China’s low cost of labor.
- There is massive unreported inflation in the US economy. The inflation is increasingly out in the open and being felt by all consumers. However, the Federal Government continues to mask the truth with its distorted statistics.
- Pension fund shortfalls and criminal behavior in publicly-traded companies are still at uncomfortably high levels. Still true, almost beyond comprehension. The automobile and airline industries are cutting or eliminating pension benefits in order to survive. There is a whole new round of high-level investigations into corrupt business and accounting practices in the mortgage and insurance industries, with potentially serious implications for both.
- Despite the persistent gold price-capping activities of the US and European central banks, firm gold prices are suggesting that the global paper money system introduced in the early 20th century is beginning to fail. Still true but highly difficult to ascertain as this is rarely addressed in the mainstream media.
With the initial wave of Baby Boomers transitioning into retirement, the greatest intergenerational transfer of wealth in history is about to commence. Without prudent and thoughtful steps, the main peril becomes the substantial amount of transferable wealth that would be lost due to a lack of planning foresight. Such losses would be regrettable, since they would likely have a significant impact on both present and future generations, as well as the many opportunities for good works. When considering approaches to planning, clients should be guided by the universal choices available to all who have accumulated wealth, i.e., assets may be left to heirs, to charity, or to government. Each individual has a choice.
Preservation and protection of accumulated wealth contemplates a variety of planning steps, where each step or series of steps offers a solution uniquely suited to the client’s objectives. Typical planning objectives include:
- Reduction or elimination of excessive wealth transfer taxes (i.e., estate, gift, income and generation-skipping taxes)
- Protecting assets from litigation losses during the owners’ lives and the lives of heirs
- Creating harmonious and satisfying transfers of wealth
- Taking reasonable steps to ensure continuation of the owner’s desired lifestyle. This is especially important since a great deal of planning is never completed because individuals are concerned that they will run out of money.
As with wealth accumulation, financial indecision poses a significant impediment to achieving desired objectives. Here are some tips on how to ensure satisfactory preservation and protection of accumulated wealth.
• Taxes – in most cases, these (estate, gift, income and generation-skipping taxes) are preventable losses
• Litigation – third party and judgement creditor losses can be prevented if timely action is taken
• Procrastination – the most common cause of failure
• Lack of Information – encourages procrastination and prevents worthwhile action steps
• Fragmented Planning – lack of cohesive planning can cause losses due to inefficiencies
• Fee-based Financial Consultant – works for you, no self-serving objectives, often acts as the coordinator of client planning team
• Legal Counsel – qualified attorney who creates the documents necessary to implement a working plan; also advises client in specific areas (tax law, asset protection, selection and design of trusts, etc).
• CPA – quantifies important elements of planning, advises in critical areas to prevent tax planning errors and losses
• Insurance Broker/Advisor – provides various products needed in planning
• Investment Advisor – maintains accurate, up-to-date investment management and information
Current planning should acknowledge the possibility and the inevitability that changes will be required due to various causes. The important fact to remember is that planning should be reviewed on a regular basis, and changes should be made when it is appropriate to do so. The best current planning can fail in the future if changes are not made in a timely fashion. Clients and advisors should agree on timetables for plan reviews.
Preserving and Protecting Assets … A Macro View
1. The first federal death tax in this country was established in 1797, and abolished just five years later in 1802. The federal death tax was reenacted it in 1862 to raise revenue for the Civil War. The third federal death tax was enacted in 1898 to finance the Spanish-American War. With the advent of World War I, the estate tax was reintroduced in 1916 and has existed in various forms ever since.
2. The estate tax will change between now and 2009, and it will be repealed in 2010. Unless Congress passes new legislation, the pre-2001 estate tax will reappear in 2011. Individuals are advised to remain current and mindful of these coming changes and flexible insofar as the final form(s). No one can say for sure what the final form will be.
3. A failure to properly maintain and coordinate planning steps can often lead to multiple tax losses, e.g., retirement plans can lose up to 80% of their value between combined estate and income taxes.
4. These are litigious times, and lawsuits can devastate those who are unprepared and unprotected. Quality planning can reduce the possibility of litigation losses. Preparedness is particularly important for individuals who are more likely to be sued, such as physicians.
5. Individuals should be very careful to follow rules established for various planning methods, since failure to adhere to given rules can result in lost effectiveness of the method. An example of this is the failure to follow procedural guidelines in certain partnerships.
6. As in most endeavors, it is what individuals don’t know that can often hurt them (or their families, heirs, or businesses) the most.
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