The Cake and Pie Retirement Plan…
If you’ve been in the market for financial advise you know there are many salespeople out there trying to sell you on their product, their process, their software, their “shtick”, whether that may be stock picking, Roth IRAs, mutual funds, CDs, life insurance, annuities and on and on…
Back when I first started out in the financial services industry, my first “job” was to seperate people from their money. I used to be the salesperson trying to sell you on how great my firm was and how you were going to end up broke if you didn’t give us your retirement savings… this was total B.S.
As luck would have it, I’ve also been the recipient of bad advice and thrown away good money at bad investments from people who had no clue what they were doing. I admit, It’s hard to know who to trust and where to put your money for any real returns these days. Just take this first bit of advice, if a financial advisor ever suggests you put all your money in one plan or product or “sector” AND not have access to that money you need to run, not walk, as far away as possible from that person.
From my 30 years experience of saving, investing and leveraging my wealth, I don’t believe there is one way to get to truly passive income with no worries. The choice isn’t black and white and it’s certainly not between two products or offerings.
Here’s your first nugget, in your big financial picture you need to take an “AND/BOTH” approach not “either/or”. Flexibility is the key. You never know what will happen and you need to be protected at the first sign of uncertianty or financial trouble. Keep this in mind, most of all have the ability to pick and choose whichever option or options are best for you not what’s best for the salesperson’s commission. My personal belief is that you must have all your “bases” covered for protection against today’s risk and tomorrow’s uncertainties. Then move towards storing up assets and minimizing liabilities for maximizing your cash flow today. With the last piece being a growth mindset to transfer risk away from you and your family as you grow into your passive income years. Notice how I didn’t mention any products in my personal finance philosophy?
Now, when I was working with clients I was a teacher. I didn’t “sell products,” instead I taught my clients how to maximize their income and assets while minimizing stock market volatility, everyday risk and especially current and future tax consequences. All the other guys, the financial service shops, focus on product transactions and not the clients overall financial well being. The strategy and concept I was teaching helped my clients capitalize and leverage their current and future wealth. Like I’ve said before in my other ebooks and on my website, it’s not about the 10% to 20% of income you can manage to save or invest, it’s about understanding simple cash flow economics and utilizing your income to maximize your returns.
The TV gurus Dave Ramsey and Suze Orman preach pay cash for everything. This is a one solution for every problem approach. One size fits all. This is never the case, especially when it comes to personal finance and retirement planning. Your family’s personal economy, your family’s business is not a one-size-fit-AT-ALL!
Let’s focus a bit on the problem with paying cash for everything. Do you know you will always be at zero? You will never get ahead. You save up some money for a specific purchase (ie, a car or vacation, or new TV, your retirement – think about that) and you pay cash and then you start over. While this is better than buying on credit cards you never let your dollars work for you. You interrupt your gift of compounding. Compounding interest is the 8th wonder of the world according to Einstien. You have a growth curve and by paying cash you are forced to reset your compounding growth curenve every single time back to zero, which means there is no growth. Which means there is no wealth!
The strategy I advocate for allows you to store up weatlh and have access to the liquidity in your accounts without interrupting your compounding growth curve. Think of your money in one pool that remains untouched and the money you use for investments and lifestyle during retirement in a different pool allowing your pool of money to continue to grow uninterrupted. It is the same principal as saving but with a different approach, one that benefits you exclusively!
WAIT! WHATS WRONG WITH MY 401k?
Without the full breadth of information you might very well think that all your savings should go into your 401k. That’s what we’ve all been taught to believe. It sounds good, tax free retirement savings, right? Well, not exactly. While you aren’t taxed on the money you put into the 401k, you will be taxed on the money you take out. And you can’t predict what tax bracket you will be in when you retire. Since it’s inception the only thing consistent about the I.R.S. is that you will have to pay taxes. The government has the ability to change tax laws at any moment and history proves that they do and will in the future. You will also most likely be in a higher tax bracket at your retirement age, and who knows what those tax rates will be then. See the chart below? It’s trending upwards – that is bad if you think you will be in a lower tax bracket than today.
Another problem I have with using your 401k as your only retirement planning is the inflexibility. The money in your 401k is not liquid. You can’t take it out without imposing heavy fees for any emergency you may have. You might have medical bills, or want to buy some real estate, or have a business opportunity which requires some capital. 401ks are not designed to be liquid, you have no control over your own money.
I’ve seen plenty of clients who blindly put their faith in others when it comes to their 401k. What kind of financial support and advice does your employer provide when it comes to making your allocations? You, the “passive investor” are the one that goes to work everyday creating wealth and value for most likely someone else who owns the company you work for and every paycheck you take a slice of your money and give it to the sharks on Wall Street in the form of your 401k.
I’m not saying that you shouldn’t put some money into your 401k, I always advise to do some of everything. If your company offers a matching fund, I would advise you to take advantage of this “free money” provided you know that your company will match your 401k deductions at every paycheck. And remember, although your company offers a matching fund you may not receive those matching funds until you reach a certain amount of years working for that employer and your funds mature. Worse yet is when your company changes it’s policy on when you receive those matching funds as discussed in the IBM example. This is why a truly diversified strategy is necessary so that when one piece of the pie is affected you will still be in good shape.
The financial services industry is plagued with greed and corruption. The Madoff’s and Stanford’s have created distrust in the general public that need us so much. There are numerous brokerage companies
like E-Trade, Scottrade and TD Ameritrade that sell their platforms to the public convincing them of easy investing and trading. This is so dangerous and with the market being manipulated by short sellers, high frequency trading and shady schemes there is hardly any transparency in the industry.
The average Joe on the street now has access to the once elusive stock market. Wall Street is no longer exclusive to members only. There’s plenty of appeal to “get in the game” but just how qualified is the average Joe to compete in a game against the pros? Do you feel adequate playing one-on-one against Michael Jordan or taking on Tiger Woods in a round of golf? Heck, I wouldn’t feel good about my chances going against Tiger Woods and I think I’m pretty darn good.
Sure, there are plenty of television programs, heck, whole networks devoted to offering you, the individual consumer investor advice. There are financial “experts” and “advisors” that yell and shout at you through the television to BUY BUY BUY or SELL SELL SELL!!! Every week there is a new list of “hot” stock picks. They have sound effects for this and that and they treat their viewers like morons. They don’t educate you, they just yell at you.
We are bombarded with commercials pushing websites for you to be your own stockbroker with a click of a button. If a baby can do it so can you! You don’t even need a computer, you can manage your whole portfolio on your phone. Why on earth would you want to do this? So you can make bad impulsive decisions based on what the guy on the TV is yelling at you?
There isn’t a day that goes by where I don’t get an email from a financial institution telling me if I sign up for one of their investment accounts I’ll get $50 free dollars to start. The only reason they want to give you $50 free dollars is because they know they will get way more back from you in the form of fees and investments. They know that once you start you will feel compelled by human nature to keep “playing” the game.
You will hear people talk about how the market does on average over the last 60 years and show you a 10% rate of return on average. Everyday I read a new article providing evidence that for long-term investors starting at the beginning of 2010 that this will not be the case in the future. You will be lucky to get 5% rate of return. We live in different times.
What if you were someone planning to retire in 2007 when the market fell dramatically and continued on a decline for 2+ years and is only now starting to bounce back to the levels of pre-2007? You most likely saw your investments take a huge dive downward. I know plenty of individuals who had to postpone their retirement for 5 or more years because of this. What if for some reason you were unable to work, then you just had to suffer those losses and in some cases they were devastating losses and consequently had to severely scale back your lifestyle during your retirement years. Truth is no one knows what will happen in the future or when the next financial crisis will hit.
Plain and simple, investing equals gambling. You are betting your money on a stock. There’s no guarantee you will win. Why are casinos so profitable? Because they never make a bet they can’t cover. The odds are always in their favor. Next time you go to Vegas while you are at the airport look at the
people who are just arriving and look at the people departing. You’ll notice a big difference in the excitement in the arriving and then the dejection of the departing. Everyone thinks they are going to win but seldom ever do. Then there’s the crazies who just can’t seem to throw away enough money still playing slots in the lobby. Never bet against the house.
Difference between “normal” investors and high frequency traders. High frequency trading occurs when high frequency traders use sophisticated computers and algorithms that can trade stock(s) faster than we can blink our eyes. This happens thousands of times a day. The purpose is to gain fractions of a penny on every trade adding up to significant amounts of money. I consider this the illegal equivalent of Lance Armstrong’s doping during his Tour de France wins, its an unfair advantage over all the “normal” investors. Not everyone has access to this type of computer power or knowledge to compete with or benefit from these trades. Unfortunately this practice also leads to market volatility.
Regardless of your acumen for investing your money is at the mercy of market manipulation. When market manipulation exists, and it does at every level – YOU WILL LOSE.
I read an interview with Suze Orman once where she said she has about $1,000,000 invested in the stock market. She went on to say that if she lost all of that $1,000,000 she wouldn’t care. Granted she’s worth about $25 million, so it doesn’t mean as much to her as it means to you or me. But if Suze Orman can’t pick winning stocks and is okay with just gambling away $1,000,000, what does that tell you? What are your chances of coming out on top? Slim to none over your lifetime. “Investing” in the stock market is only one small aspect of your successful personal finance strategy.
Which financial strategy guarantees a rate of return on the principle you deposit?
Which financial strategy guarantees a death benefit when you die?
Which financial strategy guarantees unencumbered access to your deposits – no application, no approval?
Which financial strategy guarantees uninterrupted compounding?
Which financial strategy guarantees a higher than average interest rate on long term deposits? Which financial strategy guarantees protection from bankruptcy and also the distribution on the account?
If you want to know the answer to your retirement income questions, call Brian Buffinton right now 727.626.1180 or go to BetterBalanceFinancial.com for more insight on how to structure your retirement plan.