Your Unbiased Advisor: Lessons of investing great David Swensen

Is inflation really a threat to your money?

Current media spin is using inflation fear as a theme. Prices have risen because the economy is gaining strength after a pandemic shut down. Sure inflation exists. But it is a threat only if you are holding tons of bank CDs and bonds with low interest yields. Banks and bond issuers will have to bump up payouts to sell their new bonds so the old ones will be worth less. If you are holding a broad spectrum of stocks in a low-cost account, you will continue to enjoy the high earnings (stock market up 10% in ‘21). Do you really think Apple, Amazon, Google, Facebook, etc will stop growing and be defeated by 2% inflation? They will just raise prices to cover higher costs. For instance, Amazon has already increased revenue by raising the cost of selling my books. For most of us long-term investors, stocks are the safest investment strategy. Stocks will protect us from inflation since the average return of 11% is greater than the 3% inflation rate. Plus, since we invest in tax-free accounts, we earn an extra 25% by NOT paying income taxes on our withdrawals. 11%-3% = 8%. 8% is greater than 2% CDs/bonds.

Go tax-FREE: https://www.amazon.com/New-American-Retirement-System-ReserveTM/dp/1461030072

Most of us regret not having emergency fund

We all have financial regrets—few high school students learn how to manage and grow their assets. There is a simple tax-free way to grow your emergency fund at better rates than a bank CD. Bank CDs are safe but you lose money to inflation over time. Saving for the unexpected means not cashing in your savings for a new Playstation. Opening a tax-free account for $1,000 with a low-cost target-date fund can provide $15,000 after only a few years of saving. You contribute $10,000 over time and you have $10,000 available when you need it. You pay no income tax, penalty or default interest. If you have no emergency, your money grows tax-free for years. Even if you add no more money to this fund, you could easily have $500,000 when you stop working. When you start saving early in your life, you use time to build wealth. You let the Miracle of Compounding work for you. You put in $10,000 and receive $500,000 tax FREE. You can not find a better investment plan than that. And there is money there when you need it. You have a Wealth Reserve for life.

https://www.amazon.com/Your-Wealth-ReserveTM-Tax-FREE-Investment/dp/1484954882

GOP asks us working people to pay more

“Uncollected taxes equal the total taxes paid by the lower 90% of taxpayers.”

According to 5 IRS commissioners, the wealthy don’t pay their taxes. In fact, by not paying their fair share, we and our kids will end up paying for their $2 billion tax break. Those who don’t pay taxes increased their wealth by 55% this past year. Now the GOP complains about the deficit when asked to pay for the infrastructure bill which will create more jobs. Most corporations have had a fantastic year and keep more of their profits. In fact, most large American firms pay little or no taxes because they are able to claim their ‘home’ is in a foreign country where taxes are lower. For some companies like Amazon we pay for their refunds. Other corporations have paid Congress for sweet deals and are actually subsidized by our tax dollars despite big profits. Congress needs donations for elections so members don’t dare touch the tax laws. This is the American version of socialism: Socialism for the rich: the rich take the profits while we pay for the deficits created by gov tax breaks. Congress is full of millionaires. They make the laws. As Mitch says, Congress will “turn America into a socialist country." Already gives money to rich.

https://www.amazon.com/Americas-Socialism-Rich-little-people/dp/1535218584

Is this tax avoidance scheme right for you?

This strategy is called a syndicated conservation easement. It is a land deal that the IRS says is often an abusive tax shelter. Congress created this “incentive” in 1980 for owners who pledge to never develop their properties. Through a broker, you join other investors to buy large acres of land and promise never to develop it. You get a whopping tax deduction of as much as five times the amount invested. This is one of the tax avoidance schemes that Trump is being investigated for on his upstate NY property. He claimed he does not pay taxes because “I an smart” during the election. The IRS Commissioner Charles Rettig told a Senate panel last month that 28,000 taxpayers are under examination, some for similar land deductions. $21 billion in tax deductions are now being challenged. This tax avoidance strategy may be right for you since the rewards are much greater than the costs if your deduction is disallowed. Most investors never face jail and would have to pay tax later rather than now. Legal staff is available to help you avoid ever paying your taxes. With IRS’s current lack of enforcement staff, working Americans are more likely to pay the taxes you avoid than you are. Working Americans can avoid paying your taxes by using their own legal tax shelter.

Use the workers’ shelter: https://www.amazon.com/New-American-Retirement-System-ReserveTM/dp/1461030072

Help your graduate avoid paying for tax cuts/subsidies for the rich

High school and college graduates need the best gift you can give them: a future of tax-FREE income. Get them started now since your gift can grow a THOUSAND times its value over time. For instance, $50 invested now can provide them with $20,000 when they need it later. Since you have started your grad off with this special IRS-approved tax shelter they will find it easier to keep saving/investing the right way. They will end up with a tax-FREE retirement. They can create a $500,000 tax-FREE account. Some young people have grown their accounts to over $1 million by investing $167 a month while they work. They will pay NO taxes on their wealth. They can avoid future tax increases. They can boost their savings by 30% just with the fed/state tax savings alone. And if they need a home down payment or business start up fund, they can use the contributions tax and penalty FREE.

Perfect gift: https://www.amazon.com/Tax-Shelter-Young-Americans/dp/1500426520

Lessons of investing great David Swensen

The legendary head of Yale endowment passed away this week. He changed ivy investing at many schools by developing a much wider asset mix to try to steady the flow of capital for scholarships and expenses. Over his tenure at Yale his asset picks returned 12.4% per year on average with dips during the trying years of 2008-09. What can we learn? During this period—1985 to 2020—the stock market index fund you owned earned 13.02%. The Vanguard’s equivalent earned 13% after 0.04% fees. Swensen invested new money in new types of assets. He relied on the Miracle of Compounding—reinvesting dividends and interest to match the S&P 500 index over a long time. His last 10 years grew $100 to just under $300. Our last 1, 5 and 10 years’ returns were also exceptional: over 13%. He was not a fast trader. His portfolio included many of the stars that are represented in the top global corporations of today.

Invest like a pro: https://www.amazon.com/Best-Robo-Advisor-Ultimate-Automatic-Management/dp/1537111957

How can you and your spouse agree on a spending plan in retirement?

Just like planning the family vacation, you both need to discuss your future money situation. If your spouse has a different vision of retirement, if you don't agree on financial issues or you avoid them completely, then conflicts are inevitable. Left unattended, these problems may become so serious that they threaten your relationship. Most of us have fights over money—usually spending habits and dishonest dealings. Actually 29% of divorced boomers said they ended their marriage due to disagreements about money. You have to discuss where all money comes from and goes in a detailed way. Exactly how much is being spent in a month by both of you is important to know. Buying secret lottery tickets or secret food/liquor stores is just the beginning. If you are not used to sharing this info, you will not be able to know how much to spend in retirement. Sure you both could agree to keep a certain amount for secret purchases, but you must be careful. You both must agree on the investing strategy in retirement. So when the market falls temporarily, you have a plan (emergency fund) to still keep spending on essentials. If you are subsidizing a child, you must agree on how much and for how long. Otherwise you both could end up running out of money too soon. Your discussion should include the cost of aging or healthcare changes. Do you have a reserve to cover those costs? Finally, make and update your wills, power of attorney, health care directives and final passing arrangements.

Make plans together to stay together: https://www.amazon.com/What-your-RMD-much-spend/dp/1718946716

Can you withdraw 4% from your nest egg annually?

Financial advisors often fall back on this old rule as a guide to retirement income. This rule was created by William Bengen with data from the 80s when lifespans were shorter and advisors did not have computer software to provide a comprehensive retirement plan. Those assumptions are null and void. You can determine your rate of withdrawal based on your needs not your advisors’ guesswork. One of the assumptions that can throw off your expected retirement income is that your portfolio needs to be in fixed income—CDs, bonds and annuities. This has proved to be dangerous for you but a safe harbor for advisors. Advisors are not likely to be managing your money for the rest of your life. They can only guess what will happen in the next 1-3 year window. You are safer using the growth and income strategy that Warren Buffett recommends.

https://www.amazon.com/4-Retirement-Rule-Wrong-Lifestyle/dp/1492218960/

Is life insurance EVER a “great” investment?

“For some people, [permanent life insurance] can be a great investment” says one sales person. “Above all, life insurance is most compelling typically as an investment for high-net-worth individuals who are in a high tax bracket and are dealing with taxable accounts,” he adds. Finally, this sales person admits, “you already enjoy most of the tax benefits that are afforded cash-value life insurance.” You are better off buying and holding a non-dividend stock so you can avoid paying tax on your accumulations, just like permanent life insurance. Cash value life insurance is never a good investment. If you invest to grow your wealth, your wealth becomes your legacy more efficiently than expensive life insurance. Most of your premiums are going to the agent and the insurers’ profits.

Create your Reserves not the insurers’ Reserves: https://www.amazon.com/Life-Insurance-Need-Save-right/dp/1480002178/

Last chance to reduce taxes due May 17

If you owe, you have one last chance to get a refund or reduce what you owe. Thanks to the deductibility of a traditional IRA contribution, you may cut yourself a break. Instead of owing the government, you could have a refund. The amount depends on your situation. By opening or adding to your traditional IRA contributions for 2020 not 2021, you give yourself a retroactive refund. Yes, the IRS will receive a contribution confirmation from your bank or mutual fund firm but at least you have one less bill this month. Even though every tax preparation company can get you an extension to file the paperwork, the tax itself must be paid by May 17. There are rules.

https://www.amazon.com/Your-Wealth-Reserve-Save-year/dp/107028288X

Where is that refund?

The Internal Revenue Service today reminds taxpayers that the most convenient way to check on a tax refund is by using the “Where’s My Refund?” tool at IRS.gov or through the IRS2Go Mobile App.

Where is the stimulus 1 or 2? If you did not receive stimulus 1 or 2, start filing here: https://www.irs.gov/newsroom/recovery-rebate-credit.

Stimulus 3? https://www.irs.gov/coronavirus/third-economic-impact-payment

Tax returns for 2020 are due May 17 not April 15 but the estimated tax payments are still required on schedule. The IRS will redo your taxes and send a refund if you paid tax on Unemployment in 2020 or you paid ObamaCare’s excess advance premium tax credit repayment.

Have tax forms; will file … for FREE but WAIT . . .

If you have unemployment income, ObamaCare coverage you don’t have to make payments. If you already filed and paid tax on your unemployment income, IRS says it will send you a refund of the tax automatically. DO NOT FILE an amended return to obtain a refund on this tax. Taxes due MAY 17. Input the W-2, unemployment, SS benefits, IRAs, pensions, RMD, brokerage, etc. forms you have. You can file for FREE online. If you didn’t receive a correct form, file a Form 4852. Usually filing your state return costs as little as $15 unless you buy the Pro helpline. Avoid $300-400 paid preparer fees—new IRS return forms mean higher fees.

Retirees did not have to take their RMDs in 2020 so taxes may be less: it was a good time to convert IRA to Roth IRA for tax-FREE future. Unless you were self-employed, you can’t deduct home office expenses of working from home. You can deduct as medical expense all Covid prevention supplies. Some states continue the health insurance mandate and penalty unless you have an exemption. Since the IRA contribution deduction has no age limit now, you may reduce your income/taxes by making a contribution of up to $7,000. The standard deduction went up to $12,400 single; $24,800 joint. Jan 15 last day to make 2020 estimated payments. You have to report your April/May and December/January stimulus payments even though they are not taxable. Some of us receive a bank credit; some a debit card; some a check. Even if you don’t have to file, you should file so scammers can’t use your SS number to mess up your IRS file. Tested E file software ratings. Efile Jan 15; IRS processing Feb 12.

E file avoids covid at your preparers’ office: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

What to do if you can’t pay by May 17?

Avoid the penalty for not paying estimated tax. Ask for an automatic extension to file till October. If that does not work for you, you can apply for a payment plan. An individual can setup an IRS installment plan if you owe $50,000 or less and can pay back the amount owed in 3 years. If you are a business owner, you can setup an installment plan if you owe $25,000 or less. The IRS will charge a one-time fee of $105.

If you own less than $25,000 and can pay the amount owed within six years, ask the IRS for a streamlined payment agreement. The IRS will charge a one-time fee of $102.

Request an Offer in Compromise if you cannot pay the total amount owed. This allows you to settle your tax debt for less than the total amount owed if you will be unable to pay back the total amount owed within 10 years. The IRS will charge a one-time fee of $150. Given the pandemic economic hardship, apply for the extension to file now: https://www.irs.gov/pub/irs-pdf/f4868.pdf

Special circumstances help: call the IRS Taxpayer Advocate Service 1-877-777-4778 for free assistance.

More ways: https://www.irs.gov/newsroom/heres-how-people-can-pay-their-federal-taxes

IRS has $1.3 billion refunds for 2017 tax returns

Unclaimed income tax refunds worth more than $1.3 billion await an estimated 1.3 million taxpayers who did not file a 2017 return, according to the IRS. “Time is quickly running out for these taxpayers. There’s only a three-year window to claim these refunds, and the window closes on May 17.” If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. Filing instructions are available on the IRS.gov Forms and Publications page or 800-829-3676.

You have 17 days to collect your cash!

**********ACCOUNTABILITY**************

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