Why All Women’s Investment Decisions Must Consider Taxes
June 29, 2008
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
“Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one’s taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands.”
(1872-1961), Judge Learned Hand, U. S. Court of Appeals
“The hardest thing to understand is the income tax.” – Albert Einstein
As the old adage goes, “It’s not what you earn, but what you keep that matters.” The IRS has a job and that is to take as much money as it can from you. As a wealthy woman that wishes to remain wealthy, your job is to pay as little as legally allowed.
The government gets you coming and going. You pay, Income taxes on what you earn, capital gains taxes on your investments, estate taxes when you die and we won’t even get into sales tax, gas tax, luxury tax, excise tax, etc,.
If you want to hold on to your wealth, than you’re going to need to spend a fair amount of time thinking about how to pay as little in taxes as possible.
You’re going to have to utilize such tools as retirement plans, LLC’s, FLP’s, tax efficient investments, charitable remainder trusts, 529 plans, life insurance, living trusts and more. Obviously this means that you will have to speak with a tax professional on these matters and what tax minimizing strategies will work best for your situation.
How Taxes Kill Investment Returns
Deferred capital gains are lke interest free loans. And as long as you hold on to the investment, you never have to pay capital gains taxes.
If you lose money on an investment, they loses can offset the gains from another. So the government actually gives you some downside risk protection.
Rather than selling a stock and paying capital gains on it, you can donate it to a family foundation or a non-profit organization and take a tax deduction. It’s a win-win because you get a deduction on the amount that would have gone to the government in taxes and the non-profit can sell the stocks and help their efforts.
If you’re want to see some real numbers as to how taxes and inflation will impact your net returns, then click here to see How will Inflation and Taxes Affect Your Investments?
What Does Asset Protection Cover?
June 27, 2008
Asset Protection for women is a very important topic. If you’re like most of your wealthy female peers you have a lot to lose. In case you were curious about your rich female peers here how the stats stand:
According to a study done last year by Asset Management Advisors, 555 women were surveyed, most with net worths of $1 million or more. The survey found that 36% of the respondents inherited their wealth, while another 29% made money from their husband’s employment. Only 7% made their fortunes from their own businesses and less than half of the women surveyed were employed full-time.
With that kind of wealth, you can bet that many unscrupulous people out there would gladly try to separate you from your money. Just recently, I was at a charity fundraiser and met a newly divorced 40 something woman who told me the horror of having to write a check to her soon to be ex-husband for…..$2,500,000!!! According to her, he was a blue collar working man when they met that swooned her, wined and dined her and after a brief courtship they were married. No prenuptial was signed. Just a few short years later he wanted out and took half of her assets with him. Not too romantic is it?
The inner workings of asset protection are beyond the scope of this blog, however, finding a competent asset protection/trust attorney should be at the top of your list. You’ll need to sit down with one or more professionals who can make you as close to bullet proof as possible.
The range of tools for asset protection run from Federal and State exempt assets such as IRAs, 401(k) plans and pensions to LLC’s and FLP’s, to trusts and international offshore options.
Unfortunately, there are many shady characters in the asset protection world that run bogus seminars and such to sell you questionable asset protection programs. As with all things, please do your due diligence on any one you plan on working with.
The Quatloos web site is one of the best sites with regards to updated information on asset protection scams
Think You Don’t Need Asset Protection? Think Again
June 25, 2008
Common Mistake #12 Ignoring The Need For Asset Protection
Chances are, you’re very aware of how hard it is to amass any kind of wealth. How distraught would you be if, one day, a frivolous lawsuit cleaned you out? The goal of asset protection is to keep that hard earned wealth from being taken away. Essentially, the purpose of asset protection is to structure your assets in order to protect them from lawsuits, creditors and un ugly divorce.
Our increasingly litigious society has taught many unscrupulous people that the fastest way to attain wealth is through a lawsuit. All business owners that operate with out the shield of good asset protection run the risk of losing everything they spent a lifetime building. If you Google “Malpractice Attorneys,” you’ll get 1,140,000 hits!
Just recently, a New Jersey couple’s son was struck in the chest with a line drive during a little league game. The couple is planning to sue the maker of the baseball bat, the sporting goods chain that sold the bat and Little League Baseball Organization for the injuries that Stephen suffered. Whether or not this lawsuit is justified isn’t the point, the key is issue is that every one regardless of how incidental there involvement will be gravely impacted should this lawsuit go forward.
Next time we’ll dive deeper into the asset protection pool
Why You Must Have A Wealth Management Team
June 21, 2008
Common Mistake #11 Not Having A Wealth Management Team
“People who work together will win, whether it be against complex football defenses, or the problems of modern society.”
Vince Lombardi (1913-1970), football coach for the NFL
In this ever complex financial world, no one can go it alone. It would be fool hardy to think that one financial advisor could competently handle a wealthy woman’s financial needs. Would you let a gastroenterologist perform heart surgery on you? Probably not. Would you let a general practitioner perform brain surgery on you? Probably not. The complexity of these various procedures underscores the need for well trained and competent specialists.
The same applies to the financial arena. A solid financial game plan must incorporate
1) An Investment Advisor
2) A Tax attorney (usually specializing in a certain nuance)
3) A Finanical Planner
4) A Certified Public Accountant (CPA) or EA (Enrolled Agent)
4) An Estate Planning Attorney
5) An Insurance expert
6) An Asset Protection Attorney
7) A Trust Attorney
In some cases, a Private Banker and Personal Attorney may also be added to the team if the individual’s situation warrants it.
Why would an affluent woman need so many financial professional? Because the intricacies of each field are so detailed that in order to have a bullet proof financial game plan, a great team must have a quarterback, a running back, lineman, wide recievers, etc. Alone, despite and individual players greatness, few could score touch downs alone, but together working as a single unit playing from the same page of the playbook, an amazing transformation occurs and touchdowns are made and games won.
And just like each football team occasionally calls out a field goal kicker to work their magic, sometimes you may need to get real estate attorney, a corporate attorney or a charitable planning specialist.
Surround yourself with a team of top financial and legal professionals that will help you build, protect and grow your wealth.
Women’s Conservative Investing Style Costs Them Money
June 19, 2008
Common Mistake #10 Being Too Conservative With Your Investments
“Fortune favors the bold.”
Virgil
Roman epic poet (70 BC – 19 BC)
Historically speaking women have a track record of being conservative with their investments.
According to a survey by SmartMoney magazine., husbands are more willing to take financial risk when investing than their wives (62 percent for men versus 19 percent for women).This is bad for wealthy women for a number of reasons.
1) Women Outlive Men
Since women outlive men by 7-15 years depending on whose stats you use, women, more than men, must have an investing style that is more aggressive in order to insure that the growth of their portfolio will be sufficient for their retirement.
2) Women May Outlive Their Money
Women can expect to be single for the last two decades of their life, either due to being widowed or divorced. Not a pleasant thought, but then running out of money before you die is pretty damn terrifying as well.
3) Women Need To Learn About Investing Now!
In a recent study by Oppenheimer Funds, they found that with regards to investing, women:
76% wish they had learned more about investing growing up
62% do not understand how a mutual fund works
Only 35% say they’re more knowledgeable about investing than they were five years ago
4) Woman Shouldn’t Make Investing Decisions With Their Heart
Yet when it comes to the heart, women are more prone to being scammed by their “lover.”
Here are a few current stories on women being bilked out of hundreds of thousands of dollars by scum bags that lead them on:
Authorities: Homeless man scammed women on dating site
The Romance Scam
Looking for love? Keep an eye on your wallet
I encourage you to familiarize yourself with these types of romance scams by going to a great site called Romance Scams
The moral of this story is for all wealthy woman that want to remain wealthy and women that aspire to become wealthy, you MUST start taking an active interest in learning about investments and investing while staying away from romantic scammers and the low life “I’ll double your money in 90 days” con men.
“What about the risk?” you might protest. “I feel more secure putting my money in a CD or Money Market account.” You stand to lose much more by being conservative than if you have a well diversified portfolio. How can this be? It’s called purchasing power risk
The risk of loss in the value of cash due to inflation. Basically what this means is that while you’re money is sitting in a CD or other similar vehicle, the amount of things your money can buy slowly erodes day by day.As of May 12, 2008 a first class stamp will cost you 42¢. Twenty years ago, a first class stamp cost 25¢. In twenty years the cost of a first class stamp almost doubled in price! We could do the same with milk, eggs and other common items in daily living. I won’t even get into the absurd explosion in the price of a gallon of gas.
How Much Money Will I Need To Retire On?
With that price jump of a first class stamp still fresh in our memory, let’s talk about how much you want to retire on.
Let’s say hypothetically that you’re magic retirement number is $150,000 per year. Keep in mind that in twenty years assuming a standard rate of inflation of 3%-4% per year, your $150,000 in today’s dollars will only buy you about $75,000 worth of things in twenty years.
Think long and hard about how much you’re going to need in order to retain your desired lifestyle once you retire AND more importantly, how much purchasing power you may lose during your twenty plus years of retirement.
Now do you still think earning 3.8%* in a CD is still the way to go?
*Highest CD rate for one year listed on Bankoholic
Are You A Rich Woman Looking For A Rich Man?
June 18, 2008
I’m often asked by my wealthy women clients if I know any eligible rich bachelors. Since I’m not in the business of playing the part of matchmaker, I politely say no. However for those of you rich women that are determined to marry a wealthy bachelor, then you may want to use this information from the IRS as a guide to help you land that super rich single man! or you could just go to a web site that specializes in matching up rich men to rich women
Tim Russert’s Death and Harsh Reality For Women
June 14, 2008
As a regular viewer of Meet the Press with Tim Russert. I was shocked and saddened by his sudden death. How could a vibrant, eloquent, brilliant journalist and commentator die at the young age of 58? He leaves behind a younger greiving wife and son.
It is these shocking events that hit us like a kick in the teeth. It is these events that hopefully make us reassess our lives on every level. There are no guarantees in life and we must make sure to truly appreciate every wonderful thing that crosses our lives.
Then, when the shock slowly starts to wear off, the widow is left to deal with a very harsh reality. Was there a will? Did he have life insurance? Was the policy in effect? If so was it enough to cover the family? Was it sufficient to address the estate taxes? Did your husband share with you all pertinent information regarding your financial affairs or will you have to learn this while deep in the midst of immense pain and anguish? Are you the named beneficiary of his IRA? Are you aware of the taxation laws regarding getting his IRA? Will you accidentally pay more than you need to in taxes? There are dozens of questions that need to be answered, however, doing so right after then death of your partner is not the time to do this. These issues MUST be addressed when your husband is alive and well. We discussed this in depth in an earlier blog titled THE TALK.
The average woman is widowed at the age of 56. My mother was only 46 when my father was stricken with cancer and died 90 days later. He had no life insurance, no pension and little savings to speak of. According the the Census Bureau women in their 50′s and older are four times more likely to be widowed than men in the same age group. The average woman can plan on being widowed and living another two decades alone.
We all live on borrowed time. Let’s plan for the worst and pray for the best, and cherish every day we’re blessed with in between.
Tim Russert, you will be missed. Rest in Peace.
Don’t Repeat Your Family’s Money Mistakes
June 13, 2008
Common Mistake #9 Repeating Your Families Bad Money Habits
Whether you know it or not, the attitude you have towards money was ingrained within you at a very young age. Your parent’s beliefs about money were subtly and covertly installed as a truth before you were old enough to drive. If you’re sceptical regarding this idea, then consider the Curse of the Lottery
Time and time again, people who’ve been blessed with amazing financial windfalls inevitably end up broke and miserable again within a few years! Why? Because of the power of their beliefs regarding money.
What is your earliest memory regarding money? Was it positive, or negative? Were you raised to think that “money is the root of all evil?” Or were you raised to think that “money makes the world go around?”
Are you aware of your Moneybolic Setpoint™? That’s not a typo. I didn’t mean to write Metabolic Set Point which is commonly defined as “Set point theory states that every individual has a personal metabolic rate that maintains a given weight, regardless of calorie intake. This ‘personal weight’,called the set point, is believed to be why some dieters find that weight loss slows down at some point (weight loss plateau effect), or else they keep reverting back to a higher weight.”
Your Moneybolic Set Point™ is the level of money at which you always end up with, whether it be through work, inheritance, investment or any other other vehicle.
The legendary Clinical Hypnotherapist related a story in which he helped a client push through his limiting beliefs regarding money. As the story goes, Dr. Erickson’s patient had been for all practical purposes successful. However, whenever he was about to pass a certain financial threshold, something would occur that would set the patient back. In some cases he would get fired, or in other cases he would get seriously ill and end up missing a lot of work which in due time cost him his job. By putting his patient into a hypnotic state, Dr. Erickson discovered that the patient’s father was a hard working blue collar man who’d achieved an impressive level of success but had some misgivings because he’d never gone farther than middle school. One day when he’s son asked him for help on his math homework, the father feeling dumb because he knew he couldn’t help his son, launched into a tirade about how his son would never be better than him and not to act as if he was smartet than his father. Needless to say, this tongue lashing from the patient’s father made a powerful impression on the young boy. Luckily through the use of Dr. Erickson’s hypnotherapy, the damage was repaired and the patient finally was able to acheive success beyond anything his father had ever experienced.
Take a moment to think of the people in your life that ALWAYS seem to be broke no matter how much money falls into their hands (or slips through their fingers as the case may be). Now think about people you know that are always flush with cash, and live a luxury lifestle no matter what trials and tribulations fall upon them. Are you starting to see some consistencies? You should.
The important question is “What is YOUR Moneybolic Set Point™?”
Later this week we’ll discuss:
Common Mistake #10 Being Too Conservative With Your Investments
Common Mistake #11 Not Having A Wealth Management Team
Common Mistake #12 Ignoring The Need For Asset Protection
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
Common Mistake #14 Not Negotiating Harder For More Money On A Job Interview
Don’t Invest in Your Family, Friends or Church Members
June 12, 2008
Common Mistake #8 Investing In Your Family, Friends, or Fellow Church Members Chances are at one point or another, you will be hit up by a friend, family member, or fellow member of your church or group that you belong inorder to invest in a “sure thing.” Inevitably the “sure thing” turns out to not be so sure afterall. Often referred to as Affinity Crime or Affinity Fraud, this form of theft is so common place that the Securities and Exchange Commission (the government watchdog that oversees the investment and financial markets have an entire page devoted to it. Check it out here
And to add some depth to this phenomon, check out a few of these resent stories
Hedge fund manager convicted in Ponzi scheme The part of this that should jump out at you is the sentence that says, “Among those investors were longtime family friends and Steve Atwater, the former NFL Pro Bowler.” Yep, he bilked his own long time family friends. Nice huh?
Or how about this story: Investment manager’s high life ended in jail cell It starts by describing this “investment manager’s” opulent lifestyle,then continues, “It all came courtesy of what remained of the more than $150 million that almost 500 clients – from all-pro athletes to his mother – had entrusted to the charismatic hedge-fund manager.” Please read that last sentence again. HE SCAMMED HIS OWN MOTHER! He defrauded the woman that brought him into this world!
Now what if you think your son, daughter, uncle, aunt, etc, is going to be the next Bill Gates and invent the next “Big Thing?” In that case, treat this as a business investment. Have your relative draw up a business plan and have them submit it to an Angel investor group. An angel investor or angel, is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. If the business idea is solid enough to gain participation by one or more angels than, it’s passed a basic litmus test and worthy of putting some of your own money into the venture. That doesn’t ensure that you’ll make any money on the deal, much less recoup your principal investment, but at least you did it the right way. One last important point. When your friend or family member approaches you for money, have them sign a document that they will 1) write up a business plan if they haven’t already done so and 2) Will submit the plan to the angel investor group of your chosing. If they fail do to these two things then they will not be receiving once cent from you.
Coming up in the next few days:
Common Mistake #9 Repeating Your Families Bad Money Habits
Common Mistake #10 Being Too Convervative With Your Investments
Common Mistake #11 Not Having A Wealth Management Team
Common Mistake #12 Ignoring The Need For Asset Protection
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
Common Mistake #14 Not Negotiating Harder For More Money On A Job Interview
NEVER Loan Money to Friends or Family
June 10, 2008
“Half of our mistakes in life arise from feeling where we ought to think, and thinking where we ought to feel.”
-John Churton Collins
These next common mistakes get pretty lengthy so I’m going to tackle them one at a time each day this week.
Common Mistake #7 Being An ATM Machine For Your Friends and Family
When you’re affluent, you’re going to become a magnet for your family to come to you hat in hand asking for a “loan.” That “loan” will almost always turn into a gift. When (and if) you ever ask for pay back, you may be surprised at the creative responses you’re going to get in response. To some extent, at the core root will be resentment. Yes resentment that they had to come to you for money and that you had it to give to them. Many will feel that since you’re rich, regardless of how you attained your money, that you owe them part of it. Friends and Family will bleed you dry if you let them. You may worry about losing a relationship over your not giving them a “loan,” however, chances are that you will lose it even if you do.
Every dollar that you give to someone else is a dollar that you can’t save or invest for your own future. This is called opportunity cost. The power of compound interest should immediately come to mind whenever someone approaches you for a handout.
If hypothetically you’re 30 years old now and you were to invest $1,000 a month every month for 35 years earning a standard rate of return, how much would your nest egg be worth at 65? Well, through the power of compound interest you’d have over $2,300,000! Guess what happens when you keep siphoning off money from your nest egg? Yep, your nest egg’s growth gets stunted. Don’t believe me? See for yourself. Check out this compound interest calculator and play around with some numbers
The rest of the mistakes will be discussed in depth through out this week. See below for a sneak preview.
Common Mistake #8 Investing In Your Family, Friends, or Fellow Church Members
Common Mistake #9 Repeating Your Families Bad Money Habits
Common Mistake #10 Being Too Convervative With Your Investments
Common Mistake #11 Not Having A Wealth Management Team
Common Mistake #12 Ignoring The Need For Asset Protection
Common Mistake # 13 Failure To Make Every Financial Decision With Taxes In Mind
Common Mistake #14 Not Negotiating Harder For More Money On A Job Interview
