Saving for Retirement by Investing in Sustainable Companies

Saving for Retirement by Investing in Sustainable Companies

Today, people like you and I, are demanding more from our investment portfolios. It’s not enough to just make a return on our investments. We want purpose-driven retirement accounts that offer great returns while investing in sustainable companies.

 

How to Save for Retirement by Investing in Sustainable Companies (1)

 

I am a huge advocate of the Roth IRA because of its huge upsides. To learn more about the difference between a Roth and a regular IRA you can read my prior article called “ Roth IRA: How to Become a Millionaire by the Time You Retire! “ and”Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”.

One of the biggest benefits of having a Roth IRA is that there is no RDM (required minimum draw). So what is an RMD you ask?

Let’s fast-forward to your 70th birthday. Six months after you blow out the birthday candles on your cake, you’ll be subject to a required minimum distribution (RMD) from your traditional IRA.

Remember, Uncle Sam allowed you to take a tax deduction for all those years when you were funding your traditional IRA account. Now, he wants his cut. The IRS is still waiting to tax all that money it has left alone for so long.

 

 

Benefits of Having a Roth IRA:

 

Taking an RMD is not a big deal if you’re already retired at age 70½ and are living off your retirement savings.

But if you’re a financially flush member of the silver-haired set who doesn’t necessarily need to withdraw funds from their IRA, the requirement is less appealing. Especially if your income bracket is high from your other streams of income.

If you have a traditional IRA, there is a 50% penalty on the amount that you should have withdrawn, if the RMD is not taken. 

Traditional IRA’s aren’t the only accounts that have the RMD provision. Other accounts subject to an RMD are 401(k) plans and employee stock ownership plans (ESOPs).

Another benefit of having a Roth IRA is that the IRS provides for an automatic spousal rollover if the spouse is the sole beneficiary. That means the surviving spouse automatically becomes the new owner of the Roth IRA upon the death of the original owner. 

 

Saving is the Core of Investing:

Remember “The rule of 184”.

If you save $100 a month and invest that hundred dollars at 8%, then in 10 years you’ll have $18,444.

Which means that the opportunity cost of every $100 spent per month is $18,444 in 10 years. 

You can apply this to any $100 increment, like cable, shopping, dinners, etc. This is similar to the $5 a day rule that I talk about in prior blogs. 

Remember, you should run your personal finances like it were a business. Just like a business, you have income and expenses.

When you are itemizing your monthly bills, ask yourself is it really worth it?

What if you put $100 per month in an ETF that invests in sustainable companies? You would be supporting sustainable companies by allowing them to produce healthier and better products.

Capital allows sustainable companies to invest in research and development which leads to newer/better materials and products.

 

“How the Economic Machine Works” by Ray Dalio

 

Ever wonder why we have economic boom and bust cycles? Well, Ray Dalio does a fantastic job of explaining how the economic machine works.

Ray Dalio is the founder, co-Chief Investment Officer and co-Chairman of Bridgewater Associates. In 2012, Time Magazine named him “One of the 100 Most Influential People in the World”. Bridgewater Associates is a global macro investment firm that is currently the world’s largest hedge fund.

Ray is an active philanthropist with an interest in oceanographic research and conservation. He is a participant in The Giving Pledge (a commitment to give more than half of his wealth to charity). Ray created a fantastic short film which explains why we have business cycles. 

In my Increase Your Financial IQ Course I break down his investment portfolio so that you too can use his strategy. For now, let’s watch an awesome 30-minute video that will help explain how the economic machine works. 

 

 

You can read Ray’s most recent economic update article here. 

To get Ray Dalio’s “All Season’s” stock portfolio diversification percentage numbers, read Stocks: A Diversified Portfolio.

 

 

How to Invest in Sustainable Companies:

 

Recent reports show that socially responsible ETFs now have over $10.63 billion assets under management. The size and power of these funds prove that ESG investing cannot be overlooked.  With an incredibly low average expense ratio of 0.42%, sustainable ETFs are becoming hard to ignore.

The largest socially responsible ETF is the iShares MSCI KLD 400 Social ETF DSI, which has around $1.38 billion in assets.

In the last trailing year, the best performing socially responsible ETF was the LRGE fund which reigned in a whopping 20.23%.

ETFs are the way to go, due to their incredibly low cost. According to Nerdwallet.com, a 1% fee could cost $590,000 in retirement savings over 40 years.

So now that we have covered how you can make money by investing in sustainable companies, let’s talk about how you can save money by being green at home.

 

How to Save Money by Going Green:

 

Here are a few easy actionable steps that can help you save money by going green:

  1. Run your appliances at night…Energy rates are usually higher during the day, so run your dishwasher and washing machine before you head to bed.
  2. Typically you spend less per unit when you buy things in bulk, and it helps reduce the amount of packaging you use per item.
  3. Freezers with top opening doors release less cold air that ones with doors that open outwards.
  4. Remember to stock up when an item is on sale! I buy non-perishable items in bulk (careful not to purchase perishable items in bulk unless you have space in your freezer).
    • Warning: Don’t be fooled by buying too much of a perishable item unless you can freeze it.

 

 

Saving the environment and preventing climate change is the most important issue we face today. This challenge impacts every individual on this planet, regardless of social economic status or physical location.

I find it odd that schools don’t teach children about sustainability or how to manage their finances. These two topics impact everyone, yet we don’t teach our student about personal finance and sustainable living.

Meaning that people grow up and go out into the world without the proper preparation to handle their finances or what it means to live in harmony with the planet.

It’s no wonder why so many people are in debt or live month to month. Every person on this planet is impacted by the monetary system, and everyone has a financial report card so why isn’t it part of the mandatory school curriculum?

My goal is to help as many people as possible make smarter financial decisions and live a more sustainable lifestyle!

This is the main reason why I created the Increase Your Financial IQ Course.

 

The Increase Your Financial IQ Course:

 

I teach the course as if I were talking to a friend. You, most likely, are busy with a million things… So I give it to you straight and try to get to the important points as quickly as possible.

Does this course contain EVERYTHING I know about finance? Heck no!

It goes over the critical things you need to know to build a stable platform that will give you confidence in your future.

I talk about personal finance from a holistic point of view. Many authors only talk about one or two subjects, but I cover the topics that I would go over if I were trying to teach a friend how to set themselves up for a secure future.

What the Course Covers:

 

The first course that I will be releasing (soon) is called the “Increase Your Financial IQ Course”. It will cover the following topics:

  • Starting small by having $1,000 in savings
  • Budgeting (The 50%, 30%, 20% rule)
  • 5 methods of debt payment
  • Managing your credit
  • Roth/Regular IRA’s and 401k’s
  • How to create a diversified stock portfolio (ETFs)
  • A macro view of the economy (the Federal Reserve)
  • Purchasing your first home (the process, down payment assistance plans, PMI, etc.)
  • How to save for your children’s college fund (529 plan, Education IRA, UTMA/UGMA)
  • Long term care insurance

Like what you see? Stay a while!

 

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below!

Tax-Free Income: A Guide to Reducing Your Taxes Legally While Going Green (Part 2)

Tax-Free Income: A Guide to Reducing Your Taxes Legally While Going Green (Part 2)

Only you have the power to reduce your taxes! This is because you have to know which actions will result in the ability to write off a cost as an expense. You have to know enough about how to apply the tax code to your situation in order to use it to your benefit.

For example, you don’t have to know all of the rules of a 1031 exchange, just that you know what one is and when you might be able to take advantage of one.

 

Tax-Free Income_ A Guide to Reducing Your Taxes Legally While Going Green (Part 2)

Similarly, you don’t have to know the exact tax form you need to write off a recent home energy efficiency purchase (e.g.insulation). You just need to know that you can lower your tax burden and reduce your utility bill by adding insulation to your home.

In fact, adding adequate insulation is one of the most cost-effective home improvements that you perform on your property.

Tax Credit Amount: 10% of the cost, up to $500.

You can find plenty of ways to insulate your home at Eco Economic’s Sustainability Shop.

 

You Are Your Own Bookkeeper:

 

To take advantage of this tax credit, all you have to do is keep track of the expense on a spreadsheet and give it to your tax accountant at the end of the year. You are your own bookkeeper, which can be a good or bad thing.

It’s great if you know which expenses to keep track of or terrible if you don’t know what you are doing.

If you don’t know what you are doing, the result will be that you will pay the most you can possibly pay in taxes.

 

Why You Need to Understand the Principles of the Tax Code:

 

The government uses incentives to get the free-market (entrepreneurs, homeowners, and investors like you and me) to focus on projects that it wants us to invest in, build, and/or fund.

The government wants people to “go green”, which is why they provide a 30% tax credit for installing solar panels and offer a credit of 10% of the cost, up to $500 for adding insulation to your home.

When we do want the government wants, the government rewards us with tax breaks!

Luckily, you don’t have to memorize all 2,600 pages of the tax code. You just need to understand the principles behind them.

Once you understand the tax code principles, you’ll know when you may be in a situation to write an expense off. When you get good at recognizing these kinds of situations, you will edit your actions so that you purposely take the path of putting yourself in more of these kinds of situations.

The saying, “You don’t know, what you don’t know” rings true in this situation.

If you spent time learning about the principles behind the tax code, then when you find yourself at a crossroad, you can ask your tax advisor how to navigate the situation to your advantage.

With the tax code principles in hand, you can apply this knowledge to your daily actions.

For example, you can write off meals with a business partner or a friend who consults in your industry.

You just have to write down:

  1. What you talked about
  2. Who you eat the meal with

 

Then you can write it off as a marketing or consulting expense.

The two areas that our government gives the most tax incentives are in the areas of owning a business and in real estate. This is because these two areas provide jobs, housing, products, and services.

 

 

Sustainable Business Practices: Upcycle, Recycle, and Downcycle

 

 

It is becoming an indisputable fact that the future of business prefers ESG companies.

The world’s economies are slowly moving from a linear to a circular economy. The main driver is due to the fact that the “old way of doing things” is just no longer a viable option.

The transition toward a circular economy has to occur because our linear economy of “make, use, and dispose” is unsustainable.

The goal of a circular economy is to use raw materials more efficiently, resulting in a reduction in waste. When a product reaches the end of its life, its materials are kept within the economy wherever possible. By doing this, we can continue to use the same materials over and over again.

In a circular economy, we would “make, use, and return”. Here is a great video by CNBC that quickly explains how a circular economy works.

 

Upcycling:

 

Upcycling, also known as creative reuse, is the process of transforming by-products, waste materials, useless, or unwanted products into new materials or products of better quality or for better environmental value.

In other words, upcycling is the process of converting old or discarded materials into something useful and often times more beautiful with more value.

Downcycling: 

 

Conversely, downcycling is a recycling practice that involves breaking an item down into its component elements or materials. Once the elements or materials are recovered, they are reused if possible. Usually, the reused materials are created into a lower-value product.

The main take away is that resources are limited because our planet does not have the capacity to produce an unlimited amount of natural raw materials.

For example, not only is the amount of copper in the ground is finite. But, pulling new copper out of the ground results in deforestation and the use of transportation fuel (which is bad for the environment and our Global Warming problem). Instead, it would be better for us to reuse the copper that is already in circulation.

 

 

Why We Need to Move to a Circular Economy:

 

The human population continues to grow at an incredibly fast rate. In fact, the UN reports that “roughly 83 million people are being added to the world’s population every year”.

The latest world population projections indicate that the global population will reach 10 billion people in the year 2055 and 11 billion in the year 2088.

To see a website dedicated to the global population growth visit worldometers.info. It is pretty scary to watch how many people are born every second and know that each one of those people needs to be fed, clothed, and bathed. Now imagine that each one of those people wants to buy a house, car, and iPhone.

 

 

How to Reduce Your Carbon Footprint While Increasing Your Income?

 

Eco Economics is devoted to helping you learn about personal finance while creating a more sustainable future.

Remember, saving is the core of investing. One way you can save money is by buying reusable and sustainable products. A second way to save is by insulating your home.

Start saving money today so that you can purchase income-producing assets to secure your financial future.

Becoming a minimalist will inherently help you save more money (because you are buying less). This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

How to View the Tax Code: 

 

By learning the tax code you can keep more of your hard earned money.

Think about your financial IQ, financial report card, and financial freedom like it is a game. Once you shift your perspective, you will love learning about how to win the Financial Freedom Game of Life.

Treat the tax code as if it were a treasure map. As you follow the map, your taxes will go down. In turn, you get to keep more of your money, which you will then re-invest to make more money!

The Financial Freedom Game of Life is exactly that… A Game, so use all of the tools you can to ensure that you have the best chances of winning.

Are you saving for retirement? Hopefully, the answer is yes. If it is “Great”!

Are you invested in mutual funds? Like a Target Date Fund?

If the answer to this is yes, you are likely paying too much in fees!

To quote Nerdwallet,

“A 1% Fee Could Cost $590,000 in retirement savings over 40 years.”

Want to learn more about how to create a diversified low-cost stock portfolio that will perform well in any market?  Want to reduce your taxes? Know the difference between tax incentives, credits, and deductibles? Interested in knowing how to tax defer indefinitely?

Sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

 

Be a Life Long Learner:

 

There are many ways to learn throughout life, all of which cost money, time, or a combination of both. Typically, there are 3 ways to learn. You can pay to learn a subject, ascertain knowledge from a mentor, or you can go through the-school-of-hard-knocks.

With a mentor, you are limited to the time that you are able to physically spend with them and you need to coordinate your schedules. Your mentor has their own life, so you will likely need to conform your schedule to theirs.

The difficult part with the “learn-as-you-go” through the trial-and-error method is that you may not know what you should have done instead.

More importantly, you cannot undo mistakes (you can only learn from them because the damage is already done). Typically, there is a cost for fixing a mistake, whether it be a monetary or time cost.

Another result of the “learn-as-you-go” through the trial-and-error method is that you will constantly get blindsided by obstacles and have serious feelings of uncertainty.

 

 

The Increase Your Financial IQ Course: 

 

 

For some strange reason, high schools don’t give you the tools to prepare you to face the world of finance. I got my B.S. in International Business and a Master’s of Business Administration.

After all of that schooling, none of the accredited curriculums taught about how to master your personal finances.

What did they teach instead?

How to manage finances for a company i.e. balance sheet, income statement, calculate the time value of money.

Everything was geared toward helping a company, and none of it was focused on how I can create the best financial springboard for myself.

Luckily, I have been passionate about wealth management since I was 19. This passion led me to read and listen to books written about investments, personal finance, retirement funds, estate planning, and taxes.

I was further shocked by the fact that none of these books have taken the topic of personal finance full circle. This is the reason why I became so passionate about creating a course that teaches personal finance from many angles and about the many subjects within the realm of personal finance.

What the Course Covers:

 

The first course that I will be releasing (soon) is called the “Increase Your Financial IQ Course”. It will cover the following topics:

  • Starting small by having $1,000 in savings
  • Budgeting (The 50%, 30%, 20% rule)
  • 5 methods of debt payment
  • Managing your credit
  • Roth/Regular IRA’s and 401k’s
  • How to create a diversified stock portfolio (ETFs)
  • A macro view of the economy (the Federal Reserve)
  • Purchasing your first home (the process, down payment assistance plans, PMI, etc.)
  • How to save for your children’s college fund (529 plan, Education IRA, UTMA/UGMA)
  • Long term care insurance

 

 

How to Get the Most from the Courses:

 

The first 3 sections from “saving $1,000 to the 5 methods of debt payment” will be covered rather quickly. Basically, saving is the core of investing. You have to learn how to prioritize every dollar.

If you want to save more money, you’ll have to either earn more or get creative and find lower-cost substitutes. If you make $1 million and spend $1 million you are still living month-to-month. You have to learn how to live below your means.

This being said, more attention will be paid toward the sections discussing “credit to long term care” (the modules will be longer with more in-depth content).

While my goal is to help you understand finance, I really want to help those who truly desire to attain Financial Freedom. To attain this goal, you have to have personal restraint and discipline.

 

 

Why I am Creating These Courses:

 

The Increase Your Financial IQ Course is designed for the person “renting a home and living month-to-month”, and getting them into a position where they can save enough to invest in income-producing assets and purchase a home.

The Financial Freedom Course is designed to help take you from owning a home to purchasing investment properties and focuses on tax-advantaged strategies of wealth creation.

The ultimate goal is for you to make enough passive income to quit your day job.

If you are interested in either of these courses, sign up for the FREE Increase Your Financial IQ Email Course for more information on sustainable financial planning and wealth creation! By signing up, you will be the first to know when my Increase Your Financial IQ Course becomes available.

 

Like what you see? Stay a while!

 

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below!

 

How to Invest in Socially Responsible Companies while Timing the Market

How to Invest in Socially Responsible Companies while Timing the Market

“How to time the market?”, is an age-old question. In this article, I will go over how you can use market indicators to decide where we are in the economic cycle and how to create a balanced portfolio. First, I’ll talk about how to invest in the market and when. Then, I will talk about how you can use this information to create an impactful investment portfolio by investing in sustainable and ESG companies.

How to invest in socially responsible companies while timing the market

Technology has enabled people, like you, to invest in small quantities resulting in:

  • Millions of new stock owners with sustainable ideals that companies cannot afford to ignore
  • The ability to diversify
  • A reduction in overall cost associated with investing (fees)

I’ll show you how you can diversify your portfolio while making a positive impact on the environment by supporting companies that help solve the world’s biggest challenges.  It is about putting your dollars to work by buying products from and investing in companies that put the people and the planet first.

In my post called, “Sustainable Investing: How to Diversify and Perform Well in Any Market” I talk about using the business boom and bust cycle to think critically about which sectors of industry will perform well and why.

For example, consumer staples, health care, and utilities tend to do well or at least hold their value in recessionary times.

Why? Because you need to buy groceries, go to the doctor if you get sick, and turn your lights on at night… You will do these things, even when the market is down.

There are two kinds of mentalities when it comes to investing. You are either a Momentum or Contrarian buyer.

Not sure which one you are? Read “Investing Strategies: Contrarian Versus The Crowd Consensus”.

Once you have a good idea of whether you are a momentum or contrarian buyer, you can use the following two indicators to help you make purchasing decisions. In the Increase Your Financial IQ Course, I go over several other market indicators, but for now, these two will provide a great start.

 

 

 

1. The Fear and Greed Index (Consumer Sentiment):

 

Consumer sentiment is “how the public feels” about the current state of the economy. One useful metric is to use CNN’s Fear and Greed Index, which is calculated daily.

 

CNN fear and greed index

Photo Credit: CNN Money

 

 

The Fear and Greed index is composed of the following 7 economic indicators:

CNN fear and greed index

Photo credit: CNN Fear and Greed index

 

 

 

2. The Federal Reserve:

 

 

I like to go straight to the source. What better way to see where the market is going than to watch a 45-minute recap of the Federal Reserve Open Meetings (FOMC)!

The Federal Reserve is the entity that sets the monetary policy and tone of the economy. They meet 8 times a year, and their full-time job is to think about the US economy.

One serious indicator is whether the Fed is raising or lowering interest rates.

Why should you pay attention to interest rates? 

When the Fed wants to get the economy out a recession it will lower interest rates to spur lending. This allows businesses to borrow, buy equipment, and hire people.

Conversely, when the economy heats up too quickly, the Fed will raise the interest rate to slow it down. When businesses and individuals borrow too heavily, they become over-leveraged. Their debt-to-income ratio gets too high, and the rate at which people default on loans go up.

This, in turn, can lead to a domino effect…Where one person’s missed payment is someone else’s income, which causes that next person to miss their payment.

When people become over-leveraged, it means that they do not have enough equity (cash or liquidity) to cover their debt obligations (payments).

Interest rates are just 1 of 3 major powers that the Federal Reserve has to help stabilize the economy. I go into a ton of detail about this subject in the Increase Your Financial IQ Course (coming soon)! 

Remember, economic reports like the Fear and Greed Index, GDP, and employment rates are statistics that tell us about the current and past state of the economy. It is telling you how the economy has recently performed.

Indicators like the Federal Reserve changing the interest rate reflects how the economy is doing and is a more forward indicator. The Federal Reserve will adjust interest rates based on its analysis of where the economy is and what the future looks like.  

 

 

Owning a Mix of Offensive and Defensive Stocks

 

 

It is important to compose a portfolio that has both offensive and defensive stock so that you can be prepared for a fluctuating market.

Let’s take a look at what offensive and defensive stocks look like…

 

A Few Examples of Offensive Stocks are:

  • Financials (banks, lending companies, etc.)
  • Homes (home builders, Home Depot, machine/equipment to build or remodel, etc.)
  • Technology (consumer technology)
  • Consumer discretionary goods (cars, luxury goods, etc.)

 

These kinds of stock do well when the public has confidence in the market. On the other hand, in recessionary times, people tend to tighten their belts and not purchase luxury goods.

A rule of thumb is to think of offensive stocks as ones that tend to experience greater fluctuations during economic booms and bust cycles.

 

A Few Examples of Defensive Stocks are:

  • Utilities
  • Health care
  • Blue chip
  • Commodities
  • Grocery stores

 

These kinds of stocks are more reliable and aren’t as heavily impacted by the market.

For example: If economic times are good, you probably aren’t going to start leaving all of your lights on, buying 3x more groceries, and getting surgeries that you don’t need. Conversely, if economic times are bad you aren’t going to stop going to the grocery store or taking your medication.

One way that can help you decide whether a stock is a defensive or offensive purchase is by looking at its Beta.

Often times the Beta can help you decide when to invest in a stock (Sector Investing).

So what is Beta you ask?

 

Beta:

 

Think of the number 1 as being equal to the “markets performance”, and a company’s Beta is always in relation to the market.

Beta is a number between 0 and 2. I suppose you could have a Beta that is higher than 2, but that just means that the stock is 2x as volatile as the market.

If a stock has a greater than 1 Beta, it typically means that the stock will do really well in good times. Conversely, a stock with a greater than 1 Beta will suffer more in bad times. Just equate a large Beta with more volatility.

For example, KB Homes (a new home builder) has a 1.47 Beta. Note that, the Beta can change depending on the stocks perceived volatility.

Photo credit: Yahoo Finance (please note that stock prices are always changing)

 

If a stock has a lower than 1 Beta, then the stock will tend to hold its value. Economic hard times won’t have a massive negative effect, but the stock won’t rally in a meaningful way in economic good times either.

Now, let’s talk about how you can use this information to create an impactful investment portfolio by purchasing in sustainable and ESG companies.

 

A Case for Including ESG Companies in Your portfolio:

 

A study published by Taylor & Francis Online combined findings from 2,200 individual studies and concluded that “the business case for ESG investing is empirically very well founded.”

This means that after studying and combining all of the research from several thousands of studies, the authors found that investing in companies that care about its social and environmental impact is financially practical.

The old line of thinking used to stand that, “You can either make a profit or do good”. That you could only accomplish one or the other. This study shows that this is no longer the case.

Agencies like MSCI perform reviews of ESG funds and assign them a rating called an “ESG Quality Score”.

Since its founding in 2006, the United Nations Principles for Responsible Investing (PRI) has attracted over USD $68 trillion in assets under management as of April 2017.

In a prior article, I list 5 great ESG ETF Funds that you can invest in that will allow you to support companies that “Do Good”. Eco Economics is about helping you support these kinds of companies.

You can make a difference in two ways:

  1. Buying natural, reusable, and zero waste products from Eco Economic’s Sustainability Shop
  2. Taking ownership in ESG companies through the purchase of their stock

Owning stock in a company helps the company by raising money to invest in R&D and buy equipment to produce more products.

 

 

Why should we invest in a Low Carbon ETF?

 

 

Here is a TED talk by Bill Gates on how we can solve the Global Warming issue. We have to solve this issue and fast! After all, it is our lives at stake.

 

 

 

The Take Away:

 

In sum, it is not about selling stocks on Wednesday and planning to buy them back on the following Monday. Smart investing is based on long-term (patient) investing in companies with strong fundamentals. Moreover, it’s about properly diversifying your portfolio. If you are investing in ETF’s consider manually dollar cost averaging.

Are you interested in increasing your knowledge of personal finance and want to learn about how you can live a more sustainable lifestyle? Sign up for the FREE Increase Your Financial IQ Email Course for more information on sustainable financial planning and wealth creation!

To quote a Forbes Article,

“The success rate for day traders is estimated to be around only 10%, so … 90% are losing money.” 

Similarly, the article quotes Cory Michael’s (Vantage Point Trading) even more pessimistic view. He says,

” Only 1% of [day] traders really make money.” 

So how can you start saving money today so that you can increase your investment portfolio?

Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Eco Economics was created to help you learn about personal finance while creating a more sustainable future. 

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

 

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Do you invest in an ESG company? If so, which one? Feedback is always welcome, so feel free to comment below!

 

 

Tax-Free Income: A Guide to Reducing Your Taxes Legally (Part 1)

Tax-Free Income: A Guide to Reducing Your Taxes Legally (Part 1)

The government uses incentives to get people to do what they want them to do. For example, if the government wants more affordable housing, then it will provide some great incentive to get you (an investor) or developers to invest in affordable housing.

My goal is to get you to have a different perspective on taxes. I want you to start seeing taxes as our government’s way of incentivizing people to help them accomplish their economic and social agendas through tax breaks.

How to reduce your taxes legally

Over the next several posts, I will be writing a guide on how to lower your taxes permanently and the legal way! Currently, I am creating the “Increase Your Financial IQ Course” and am now adding on to create the “Financial Freedom Course”. 

 

 

 

Who Receives the Most Tax Breaks?

 

Business owners and investors receive tax breaks because they provide jobs, housing, products, and services.

Starting your own business can be risky, as only 1 out of 10 make it. This is why the government gives incentives to entrepreneurs so that the model of, “with greater risk, comes greater reward” motivates people to take chances. 

In a prior post, I write about how there are 3 streams of income (earned, passive, and portfolio).

Earned income is taxed at the highest tax rates, while passive and portfolio income is taxed at capital gains rates. 

The reason why you pay less in taxes on investments (passive and portfolio income), is because you have already paid earned income taxes on this money. You needed to earn the money prior to being able to invest it. 

Moreover, when you invest in real estate or a company (through the purchase of a company’s stock) you are supporting the economy.

You will see that the two areas that the government gives the most incentives are in the area of owning a business and in real estate. This is because they want you (private industry and entrepreneurs) to employ and house the public.

Why? So they don’t have to do it…

Because we live in a free-market and semi-capitalist society. I say that we live in a semi-capitalist society because the government does intervene with stimulus packages, subsidies, and tax breaks.

If the government did all of the employment and housing of the public… Then, by definition, we would live in a communist economic model. History has taught us that the communistic model is not truly equal and is one of the most wasteful and inefficient uses of time and natural resources.

 

Tax-Free

 

 

How to Reduce your Taxes Through Real Estate and Owning Stock

 

 

A Private Residence:

 

 

When you purchase a home, you typically need to take out a loan. This loan is generated by a mortgage lending officer. You probably used the help of a real estate agent, who also gets paid. Then, you purchase furniture for your new home and hire a handyman to make a few improvements. Suddenly, your kitchen faucet springs a leak and you decide that you want to plant an edible organic carbon sequestering garden. This requires you to run to the nearest home improvement store to buy maintenance and gardening tools.

Please note, there is no “income or cash flow” because you are living in the home. Your tax incentive in this situation is that you get to write off the interest that you pay on the mortgage of your home.

The government wants you to own your own home because owners take better care of their properties. This, in turn, increases the curb appeal and boosts the neighborhood appeal. Moreover, homeowners support local handymen, contractors, and electricians.

What’s more is that you likely had to save enough money for a downpayment, meaning that you are making enough money so that the government isn’t having to support or provide you with low-income housing.

 

 

An Investment Property:

 

When you purchase a rental property, you basically help the economy in all of the same ways that you help it by buying a personal residence… You most likely provided income to a lender by taking out a loan and generated revenue for a bank. Used the help of a real estate agent, appraiser, and purchased a home inspection. Except for this time, you are providing housing.

 

Tax Breaks for Rental Properties:

 

You can deduct the following expense…

  • Mortgage interest payments on loans used to acquire or improve rental property
  • Interest on credit cards for goods or services used in rental activity
  • Depreciate a portion of the cost of the property over several years (27.5 years for residential property)
  • The cost to repair the rental property
  • Pass-through tax deduction
  • Travel to check up on your rental or to provide/meet a maintenance person
  • Home office (write off a portion of your primary residence that is used as a home office)
  • Employees and independent contractors
  • Legal and professional services

To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel and other write-off expenses that you deduct.

The Financial Freedom Course will discuss this in greater detail.

 

 

Owning Stock in a Company:

 

Most tax breaks are given to business owners. That being said, you can take advantage of being a business owner while not having to start your own business. The Financial Freedom Course will go into greater detail about the many different tax write-offs you can claim when you own your own company.

By owning stock in a company, you get to pay capital gains tax (15%-20%) on any dividends you receive or on the profits when you sell your shares.

Moreover, should you need to liquidate your shares and happen to lose money from the sale of your stock, you can roll the losses forward to the next tax year. This means that you can offset your gains (up to $3,000), and roll any residual losses to be applied to the following year.

One of my favorite books is by Tom Wheelwright, who is the author of Tax-Free Wealth. In his book, he helps you learn tax planning concepts in simple to understand terms.

He teaches you how to use your country’s tax laws to your benefit. Tom Wheelwright tells you how the tax laws work, and how they are designed to reduce your taxes, not to increase them.

 

 

 

Tax Free Wealth

 

 

This guide has been written and is to be used as general information. This is not professional or financial advice that is specific to you. In other words, I am not A CPA or lawyer and the opinions/representations on this site are my own.

While I have a B.S. in International Business and an MBA with an Emphasis in Renewable Technology, I am not providing financial or legal advice that is specific to any one person.

 

 

The Take Away:

 

 

The government uses incentives to get the free-market (entrepreneurs and investors like you and me) to focus on projects that it wants them to invest in, build, and/or fund. When we do want the government wants, the government rewards us with tax breaks!

By learning the tax code you can make more money, or at the very least, reduce your tax liability.

Think about your financial IQ, your financial report card, and your financial freedom like it is a game. Once you shift your perspective, you will love learning about how to win the Financial Freedom Game of Life.

One of the keys to building massive wealth is by permanently lowering your taxes. Economic policymakers know that the public responds to tax incentives, which is why they have created them. 

Taxes are apart of everyone’s life, and they are here to stay. Instead of complaining about them, use them to your benefit!

Treat the tax law as if it were a treasure map. As you follow the map, your taxes will go down. In turn, your profits and return on investment will increase.

The Financial Freedom Game of Life is exactly that… A Game, so use all of the tools you can to ensure that you have the best chances of winning.

By learning the rules you will start to enjoy the game and the treasure hunt. Especially when you start to see your wealth accumulate. 

 

 

Be a Life-Long Learner: 

 

 

Want to learn about how you can grow your retirement account by investing in commodities and skip paying the 28% capital gains tax legally? Read my prior article called, “Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”

So how can you start saving money today?

Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Eco Economics was created to help you learn more about personal finance while creating a more sustainable future. 

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

Want to learn more about how to reduce your taxes? Know the difference between tax incentives, credits, and deductibles? Interested in knowing how to tax defer indefinitely? 

Sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below!

Sustainable Investing: How to Diversify and Perform Well in Any Market

Sustainable Investing: How to Diversify and Perform Well in Any Market

Both global institutions and individuals alike are taking a sustainable approach to pursuing their investment goals. The thought used to be that you could only accomplish one goal (sustainability or profit) at a time.

Today, statistics reveal that you can achieve diversification through the purchase of ETFs that specialize in Socially Responsible Investing (SRI). Through SRI you can help create a more sustainable future and develop a portfolio that will perform well in any market.

 

A common debate with SRI investing revolves around the idea that incorporating socially responsible factors into the investment process will hurt overall performance.

However, some studies suggest that companies with ESG practices displayed a lower cost of capital, lower volatility, and fewer instances of bribery, corruption, and fraud.

On the other hand, studies show that companies that perform poorly on ESG have a higher associated cost (in the long run). These costs are linked with an increase of capital, higher volatility due to controversies, and other damaging incidences. 

Companies that do not create contingency plans or mitigate risks face massive PR backlash from spills, labor strikes, fraud, accounting, and other governance irregularities.

 

 

 

 

Diversification:

 

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio.

The rationale behind this technique is that a portfolio that contains uncorrelated investments will have a higher return. This is because stocks that are uncorrelated move in different directions during different times of the economic boom/bust cycle.

In laymen’s terms, “not having all of your eggs in one basket”. 

By purchasing stocks that are different from each other (whether by company size, industry, sector, country, etc), you are spreading out your risk.

Diversification)

 

 

 

Making a Positive Impact by Investing in Socially Responsible Funds:

 

 

One way to diversify is to invest in socially responsible companies through ETFs. In the money management world, Socially Responsible Investing (SRI) is also known as ESG (environmental, social, and governance) funds.

You can make an impact today by investing in sustainable companies that help solve the world’s biggest challenges.  It is about putting your dollars to work by buying products from and investing in companies that put the people and the planet first.

In a prior article, called “New Year’s Resolutions to Create a Sustainable 2019“, I write about how UN scientists have recently released a warning. In their statement, the UN gives the world less than 15 years to reduce the carbon output to nearly 0 or else face serious climate change consequences. 

What’s really scary to think about is that three-quarters of the world’s mega-cities are by the ocean. Just imagine the level of geopolitical instability that would occur should billions of people need to relocate due to rising sea levels.

According to the UN, 2.4 billion people (40% of the world’s population) live within 60 miles of the coast. To give you a comparison, the recent instability in Syria has displaced 13 million people.

Ask yourself, what would happen should 1 billion people need to find new homes. I am not an alarmist, I just want you to know the facts.

So what can you do? Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. 

Check out Eco Economic’s Sustainability Shop to find nifty swaps for plastic/disposable items with more sustainable alternatives.

 

 

Sector investing: Using the Business Cycle

 

I am sure you know that the economy goes through economic cycles. These ups and downs in the economy are called boom and bust cycles or bull/bear markets.

So if you know that these cycles exist, then it makes sense to study which sectors of the market do well in each phase of the cycle.

The photo below, provided by mrshearingeconomics, is a great depiction of how our economy expands and contracts to grow over time.

economic cycles

Early-cycle Phase:

 

Sectors that typically benefit the most are ones that thrive due to a reduction in interest rates.

Interest rates are set by the Federal Reserve, which meets 8 times per year. A reduction in interest rates spurs the economy because it incentivizes companies to borrow/take out loans. 

The industries that benefit first are:

  • Financials
  • Capital goods
  • Transportation
  • Raw materials (aluminum/copper)
  • Consumer discretionary

Mid-cycle Phase: 

 

The mid-cycle phase is characterized by a positive but more moderate growth rate than the early-growth phase. Typically, the mid-cycle phase is the longest phase of the business cycle. 

The industries that benefit the most from this phase are: 

  • Information technology (Nasdaq)
  • Real estate
  • Industrial
  • Raw materials
  • Transportation
  • Manufacturing

Late-cycle phase:

 

In this stage of the business cycle, the economy has “overheated” and will soon slip into a recession. There is a tightening of credit availability and corporate profit margins begin to deteriorate. Unfortunately, consumers and businesses become overleveraged and begin to miss loan payments.  Moreover, company inventory levels become too high, and not enough of their products are selling to continue the growth curve trajectory. 

The industries that benefit the most from this phase are: 

  • Energy 
  • Health care
  • Consumer staples
  • Utilities

The Recession Phase:

 

Often, this phase is marked by a contraction in economic activity. Corporate profits decline and credit is scarce. At this time, the Federal Reserve eases the monetary policy by lowering interest rates to stimulate the economy. Companies offer sales and coupled with a decrease in manufacturing, inventories gradually fall. Consequently, these actions set the stage up for the next recovery.

The industries that benefit the most from this phase are: 

  • Consumer staples
  • Utilities
  • Telecommunication services
  • Health care

Here is a quick video by You Will Love Economics, that explains how the business cycle works.

The Take Away:

 

Diversification is critical to lowering your portfolio’s risk. Simultaneously, by diversifying you can own enough of the market to maximize your gain. Moreover, it gives you the best opportunity to do well no matter what stage the business cycle is in. 

After building an emergency fund, investing for your retirement through a Roth IRA or 401k is the most important financial step you can make to ensuring that you can retire comfortably.

Want to learn how you can grow your retirement account by investing in commodities and skip paying the 28% capital gains tax legally? Read my prior article called, “Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”

Striving toward a more sustainable lifestyle is one goal that has budget, environment, and health benefits. Don’t forget to check out the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

Want to learn more about sector investing? Why each sector benefits from its correlated phase of the business cycle? And how to use the business cycle, and which segments to invest in and when?

The Increase Your Financial IQ Course will take a deeper dive into creating a personalized financial plan that will help you feel confident in your future. This course will cover other wealth building strategies in more detail, but for now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

Like what you see? Stay a while!

 

Be the catalyst that helps create a bright and sustainable future. If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below! What’s your favorite sustainable brand? 

 

Financial Freedom: Investing in Sustainable Companies

Financial Freedom: Investing in Sustainable Companies

How can you make a difference? You can make the biggest impact by investing in sustainable companies that help solve the world’s biggest challenges.  It is about putting your dollars to work by buying products from and investing in companies that put the people and the planet first. Together we can create the momentum to encourage others to step up to the plate too.

 

Invest in sustainable companies

A new and more diverse generation of investors are seeking sustainable solutions for their investment portfolios. The Millenial and Z Generations have greater access to the investment market. Moreover, the cost to enter the market has never been lower.

This lower barrier to entry means that you can invest with tens of dollars, instead of having to set aside thousands just to get started. The result, millions of new stock owners with sustainable ideals that companies cannot afford to ignore.

 

 

 

Socially Responsible Investing:

 

 

Socially responsible investing is known in the investment and ETF world as ESG (environmental, social, and governance) funds. More importantly, new sustainable ESG ETFs are cropping up and industry professionals are taking notice.

This is because investors, like you, are concerned with the future of the planet and the treatment of company employees. The public is beginning to speaking out and companies are having to adapt to their demands.

How can you join this movement? By supporting companies through the purchase of ESG stocks.

One of the greatest benefits of investing through an ETF is that you are able to diversify and own a wide range of EGS company stocks.

Both global institutions and individuals alike are taking a sustainable approach to pursuing their investment goals.

The thought used to be that you could only accomplish one goal (sustainability or profit) at a time. Today, statistics reveal that you can achieve both.

 

Benefits of Investing in Sustainable/Socially Responsible Companies:

 

According to investopedia.com, here are a few statistics on investing in socially responsible companies:

  • In 2016, ESG made up over 20% of the $40 trillion money management market
  • Companies that deploy ESG strategies tend to show higher return potential and are valued at a premium when compared to their peers
  • Companies with higher ESG ratings tend to show higher profitability and dividend yield
  • Most corporate executives believe that a sustainable strategy is needed to remain competitive

These statistics show that you can have “your cake and eat it”. There is a way to support socially responsible companies while growing your net worth.

 

 

ETF’s Create A Low Barrier to Entry: 

 

 

Millennials are attracted to ETFs because of their price. For an annual fee, some as low as 0.04%, you can invest in hundreds of the top companies through an ETF.

The average ETF has an expense ratio of 0.44%. While the expense ratio for a mutual fund is falling, some actively managed funds can charge fees as high as 2.5%.   

Millennial investors’ love of doing their own research. Likely, this means that you want to be actively involved with the investment process.

There are a number of ways to incorporate sustainable investing into your portfolio.

 

Environmentally Friendly Socially Responsible ETF’s:

 

 

Vanguard:

 

Jack C Bogle, the father of the ETF and creator of Vanguard, created a company that is arguably the king of low-fee fund offerings. Estimates for fees of U.S. funds are 87% lower than other funds with similar holdings. Likewise,  estimates for international fund fees are 85% lower than traditional mutual fund offerings.

Vanguard recently launched two ESG ETFs. If you own a retirement account with Vanguard, like a Roth IRA, you can trade an unlimited number of their funds without paying a commission.

Typically, brokerages charge a flat dollar amount per trade e.g. Etrade charges $6.95 per trade (price checked on the day of this writing).

Vanguard’s ESG US Stock ETF ticker symbol is ESGV,  while its ESG International Stock ETF ticker is VSGX.  The expense ratio fees are 0.12% and 0.15%, respectively.

The funds incorporate elements of Socially Responsible Investing (“SRI”) by excluding certain “sin stocks”. Companies, such as those in the adult entertainment, alcohol, tobacco, fossil-fuel, and weapons industries are not included in the fund’s holdings.

From there, the funds apply an ESG overlay to the stock portfolios. The fund also attempts to maximize the United Nations Sustainable Development Goals in its investment decisions.

 

 

iShares:

 

Another company that is offering ESG  ETFs is called ishares.

This company evaluates and selects companies based on their commitments to positive environmental, social, and governance business practices. All iShares ESG funds screen out stocks involved in firearms, controversial weapons, and tobacco.

ishares has Thematic portfolios that focus on a particular E, S, or G issue. For example, clean energy or the diversity of a company’s workforce.

A few funds are specifically focused on investing in companies that have a low carbon impact. For example:

 

 

The iShares MSCI Global Impact ETF (MPCT) tracks an index of companies that “derive a majority of their revenue from products and services that address at least one of the world’s major social and environmental challenges as identified by the United Nations Sustainable Development Goals.”

 

 

 

The Take Away:

 

 

Today, investors have few excuses to avoid the inclusion of responsible investment holdings in their portfolios.

Evolving government policies are prompting large institutions around the world to put capital towards sustainable investments.

Moreover, investors like you are seeking sustainable investment solutions. The need for sustainable growth and investor’s desires to fund ethical companies has caused businesses to evolve for the better.

You can create an impact on how companies operate, by owning their shares. So get out there and be the change that you want to see in the world.

Want to learn more about how to save money by going green? Creating a diversified ESG portfolio?

The Increase Your Financial IQ Course will take a deeper dive into creating a personalized financial plan that will help you feel confident in your future. This course will cover other wealth building strategies in more detail, but for now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

Like what you see? Stay a while!

 

 

Be a part of the catalyst toward creating a bright and sustainable future. If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below.

Financial Planning: Tax-Free Benefits from a Life Insurance Policy

Financial Planning: Tax-Free Benefits from a Life Insurance Policy

No one wants to think about when “crap happens”, but the universe isn’t fair. It is better to be prepared than to get caught like a deer-in-the-headlights. This topic is a bit morbid, but one that should be contemplated. The purpose of life insurance is to replace your income for the people who depend on it, in the event of your death.

Financial Planning_ Tax-Free Benefits from a Life Insurance Policy

Basically, you are betting that you will die and the insurance company is betting that you will live. You’re gambling with an insurance company about whether or not you’ll die before a certain age.

In fact, most insurance companies send a nurse to examine your health prior to providing a quote.

The result is that If you lose the bet, you will be out thousands of dollars. If you “win,” your spouse and heirs get a handsome 6- or 7-figure payout upon your death.

Additionally, death benefits from all types of life insurance are generally income tax-free. This is one reason some people use it to pass on wealth (read on to learn how).

Life insurance proceeds can be used to replace lost potential income during the deceased’s working years.

The goal of life insurance is to provide a safety net for your beneficiaries (typically your spouse/children). The payout (known as the death benefit) helps to achieve the family’s financial goals. A few examples might be paying the monthly bills, helping with the mortgage balance, supplying support for college tuition, wedding costs, etc.

Typically, the amount of life insurance is based on the needs and goals of the owner. Meaning that the amount of coverage you will need depends on your specific situation.

The more children or out-standing debts (mortgages, car payments, credit card debts, number of kids wanting to go to college, etc.) the more your survivors will need.

 

 

Two Types of Life Insurance

 

 

Permanent (whole and universal) life insurance is generally more expensive than term life insurance.

 

Term Life Insurance:

 

Term life insurance provides protection for a specific period of time. You pay premiums for a specified term (usually 10, 20, or 30 years), and if you die within that term, the insurer pays your survivors a benefit.

The premium payment amount stays the same for the coverage period you select. After that period, you may be able to continue coverage but usually at a substantially higher premium payment rate.

Term insurance is similar to car insurance… If you stop paying the premiums, you will lose the insurance.

Beware, once you have stopped payments and are no longer covered, you may need to take another medical exam. Moreover, your premiums may change because you are now older and your health may have changed from when you first applied.

 

Whole and Universal Life Insurance:

 

Both whole and universal life insurance provide lifetime coverage. Moreover, you earn a guaranteed cash value in exchange or your premium payments. So what is the difference you ask? Read on…

 

 

Using Life Insurance to Transfer Wealth Tax-Free:

 

Universal life insurance is often used as part of an estate planning strategy to help preserve wealth to be transferred to beneficiaries.

This is because universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime.

Should you need to transfer more tax-free wealth upon your death, you ask your life insurance company to increase your coverage amount. This means that your premium will likely increase as well.

 

 

A Comparison of Life Insurance Policy Types:

 

Here is a great comparison table of how life insurance plans work, provided by Fidelity.

 

Life insurance table comparison

 

 

Term life Insurance to Pay-off Student Debt

 

Over 44 million Americans collectively hold $1.5 trillion in student debt. Nearly 70% of college students graduate with a significant amount in loans. Shockingly, the average student loan borrower has $37,172 in student loans, which is a $20,000 increase from 13 years ago.

If you have graduated with big student loan debts, that a parent cosigned for, you or your parent may want to get a life insurance policy on you to cover the balance of the loans.

A co-signing parent may have helped you take out loans, with the intent that you will be the one to pay them off. Your parents cosigned the loan with your best interest at heart because they wanted you to get an education.

Losing a child is supposed to be one of the worst events a person can live through. To make matters worse, being left with a huge outstanding loan on top of the loss of a child would be tragic.

To prevent this from happening, you can purchase just enough term life insurance to cover the outstanding debt. In your early 20s, this policy should be dirt cheap.

Note that you only need this insurance if your loans have cosigners. If you are the only signer on your loans, your parents cannot legally be held responsible for those debts.

 

 

A Word of Caution: 

 

It’s important to note that: Although life insurance can be used to replace lost potential income, the benefit is paid at the time of death in a lump-sum payment.

Therefore, it is important that the beneficiary carefully reinvest and pay off debts in a strategic way.

A portion of the money should go toward paying off debt that has a higher than 5% interest rate (like credit card debt) and the rest should be reinvested.

The thought behind this method is that the stock market returns an average of 7% per year over any 40 year period, while the average inflation rate is around 2% per year.

In sum, the money would be better off being reinvested in the stock market than paying down any debts with an interest rate of lower than 5%. To create a safety buffer, you may consider paying off any debt with an interest rate of over 4%.

Remember to always set aside 6-12 months in an emergency fund prior to allocating the rest to reinvestment. There are many investment vehicles that produce income, such as dividend stocks, investing in private equity real estate companies, and REITs.

 

 

How Much Life Insurance Do You Need?

 

Here is a great video that explains how much life insurance you should consider purchasing by Investopedia.

 

 

Want to learn more about what you should do to prepare for the life insurance medical exam, how to streamline the process of getting several quotes on insurance to get the best bang for your buck, and how to calculate how much coverage you will need?

The Increase Your Financial IQ Course will take a deeper dive into and explain more about how life insurance plans work.

Additionally, this course will cover other wealth building strategies in more detail. For now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

Diversification is one of the most important aspects when deciding how to allocate your investment portfolio. Spreading out your risk amongst many different asset classes will help you weather the many inevitable storms to come. Your investment portfolio should include stocks, ETFs, fixed income assets, real estate, and other investment vehicles.

 

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome! Is there a wealth building strategy that you would like to learn more about? If so, let me know in the comments section.

Financial Planning: Why You Need Long Term Care

Financial Planning: Why You Need Long Term Care

Most people aren’t even thinking about it, but the numbers say that you should be. Ask yourself, “Am I saving enough to take care of myself so that I do not become a burden on my children or left dependent on the government?”. Long term care is one expense that can put your mind at ease.

Financial Planning_ Why You Need Long Term Care

 

While the costs to pay for long-term care can be daunting to think about, the earlier you start paying into a program the cheaper the rates will be. This article will help explain what long term care is, why it is important to think about your future needs, and tips on how you can prepare now.

 

Today, Millennials must constantly make difficult trade-off decisions. Our generation has to think about caring for our aging parents, paying for the needs of our children, and saving enough for our retirement. 

According to the U.S. Department of Health and Human Services (HHS), around 70% of people turning age 65 will need long term care services at some point in their lives.

 

 

Why You Should Purchase Long Term Care: The Facts

 

As parents, the last thing you want to do is become a burden on your children. 

According to a 2015 study by AARP and the National Alliance on Caregiving, around 43.5 million people in the US have provided unpaid care in the last 12 months. Typically, an unpaid caregiver is a family member.

On average, caregivers spend 20 hours a week giving care. In relative terms, that is a part-time job! Around 58%  of those caregivers perform intensive personal care activities, such as bathing and feeding.

The average American life expectancy is 78 years. Moreover, the Population Reference Bureau projects that in 2060 nearly 100 million Americans will be 65 or older.

According to the CDC, if you reach the age of 80, you’ll likely live another 8-10 years.

By purchasing long term care, you can feel better knowing that you have taken the proper steps to ensure that your health will be cared for and that you will not run out of finances to do so.

So what is long term care?

 

Long Term Care:

 

Long term care is care that you need if you can no longer perform everyday tasks due to a chronic illness, injury, disability or the inevitable aging process.

We all age, and the statistics show that with modern medicine we are likely to live well into our 80’s. Long term care includes the supervision you might need due to common cognitive impairments such as Alzheimer’s or dementia.

Long term care is not intended to cure you. It is chronic care that you will need for the rest of your life. You can receive long term care in your own home, a nursing home, or an assisted living facility.

According to a Georgetown University study called, “Long-Term Care Financing Policy Options for the Future,” nearly 41% of long term care is provided to people under the age of 65.

This means that a large percentage of people who use long term care have not even reached the age of retirement!

How can this be?

Long term care assists those who need help taking care of themselves due to:

  • Accidents (from a car crash or a sports injury)
  • Diseases (such as multiple sclerosis and Parkinson’s)
  • Disabling events (such as strokes, brain tumors, and spinal cord injuries)
  • Disabling chronic conditions
  • Developmental disabilities
  • Severe mental illnesses

These are examples of injuries and ailments that can happen to anyone, at any age.

Recently, the National Council on Aging has found that 75% of seniors have at least one chronic health condition and that most have two or more. Conditions range from mild arthritis to advanced Alzheimer’s disease.

The National Investment Center (in their 2010 Investment Guide) cited that the average length of stay in an assisted living facility was 29 months.

The point is, it’s not a question of whether you are likely to need assisted care in your life… But will you be financially prepared for when it happens?

 

How Much Will You Need?

 

Below are some of the national average costs for long-term care in the United States (from 2016).

  • $225 a day or $6,844 per month for a semi-private room in a nursing home
  • $253 a day or $7,698 per month for a private room in a nursing home
  • $119 a day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit)

 

You can check the average costs for specific states here.

Daily health care is expensive, so properly planning for the future is critical.

 

Ask Yourself:
  • Can my retirement nest egg afford $80,000-$90,000 for 2.5 years?
  • Can my children pay for this additional cost?

 

Why Waiting Doesn’t Pay:

 

According to the American Association for Long Term Carethe best time to apply is in your 40’s-50’s.

Note, the younger you apply the cheaper the rates. This is because insurers offer discounts to applicants who are in good health. These discounts are locked in, meaning that you won’t lose them if your health changes.

 

 

Government Assistance and Programs:

 

Relying on the government should never be your first choice. Due to strict standards, you may not end up qualifying for government assistance. You could get stuck in a position where you don’t have enough to adequately care for your health, yet make too much to qualify for government assistance.

Medicare does not pay for non-skilled assistance with Activities of Daily Living (which make up the majority of long-term care services).

Approximately 47 million seniors live in the United States, and the senior population will soon double.

What’s more, women are having fewer children. This means that there will be fewer working-age people to provide for each elderly person.

Social security, Medicaid, and Medicare are already strained as it is. With the aging population and low birth rate trends, there will be fewer dollars to go around.

The question is, do you want to leave your health care up to chance? Many people get stuck in the middle where they have too much income to qualify for benefits, but not enough income to pay for adequate assistance.

In sum, you must plan for your own future because relying on the government will leave you under cared for.

Here is a quick video that summarizes what we have talked about (provided by Life Happens).

 

 

The Take Away:

 

Different kinds of insurance help you have confidence in your future and mitigate the risk that is sure to come.

Putting money aside, automatically, through a workplace or individual insurance plan is one of the simplest ways to make sure you’re continuously adding to your nest egg. What may seem like a nagging expense now, may cost you more later.

Having the proper amounts of insurance and planning for your retirement are two key components of creating a financially secure future.

Interested in learning more about when a long term plan will kick in? The Increase Your Financial IQ Course will take a deeper dive into and explain more about how long term care plans work.

Additionally, this course will cover other wealth building strategies in more detail. For now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

Diversification is one of the most important aspects when deciding how to allocate your investment portfolio. Spreading out your risk amongst many different asset classes will help you weather the many inevitable storms to come. Your investment portfolio should include stocks, ETFs, fixed income assets, real estate, and other investment vehicles.

 

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome! Is there a wealth building strategy that you would like to learn more about? If so, let me know in the comments section.

 

Tax Free Money: What is an Opportunity Zone?

Tax Free Money: What is an Opportunity Zone?

Who doesn’t love tax-free money? I know I do! If you are looking for an investment vehicle that has great tax advantages, look no further. The creation of Opportunity Zones is one of the greatest ways to generate wealth and shelter your income from taxes ever created. In this article, I will explain what an Opportunity Zone Fund is and how it works. I will break down some of the details so you can decide if it’s a good investment opportunity for your current financial situation.

opportunity zone

 

What is an Opportunity Zone?

 

The Opportunity Zone investment vehicle was created by the Tax Cuts and Jobs Act (passed on December 22, 2017). An Opportunity Zone is an economically-distressed community where new investments may be eligible for preferential tax treatment.

Essentially, the government wants people, like you, to invest in low-income areas. The government uses tax-incentives to push its social agenda. The goal is to get people to save money, reinvest it, and rebuild dilapidated communities.

Moreover, the Opportunity Zone is a tool which spurs economic development by providing tax benefits to investors who rebuild and create jobs in distressed communities.

In total, there are 8,700 qualified Opportunity Zone tracts in the US and within its territories.

What Tax Benefits Do Opportunity Zones Provide?

 

Investors can defer taxes on any prior gains when they roll the invested amount into a Qualified Opportunity Fund (QOF). If you hold on to a property within a QOF for 10 years, you will receive a step-up in value.

This means that the cost basis will become equal to its fair market value on the date that the qualified opportunity fund investment is sold or exchanged. You can learn about how a step-up in value works by reading How to Defer Taxes Forever with a 1031 Exchange.

Therefore, if you sell a property after owning it for 10 years within a QOF, you won’t owe any taxes!!!

Should you decide to sell the property before the 10-year mark:
  • If the investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain
  • more than 7 years, the 10% becomes 15%

 

What Qualifies as Eligible Capital Gains for Investment into an Opportunity Zone?

 

Capital Gains coming from any of the following investments can be contributed to an Opportunity Zone Fund and receive tax-benefits:

  • The sale of stocks or bonds
  • Income from the sale of a property
  • The sale of an interest in a partnership

 

An added benefit is that you and other investors can pool funds to invest in multiple assets.

 

 

Where Are These Opportunity Zones Located?

 

The U.S. Treasury Secretary certifies certain zones that qualify for Opportunity Zone investment. For an area to qualify, the poverty rate must be > 20%. In fact, many of the zones have an average poverty rate of nearly 31%.

A list of Opportunity Zones can be found on the US Department of the Treasury’s website (CDFI Fund page).

Here is a quick visual of where Opportunity Zones can be found.

Opportunity zone map

Photo credit: impactalpha.com

 

The Qualifications:

 

In order to qualify, the fund must intend to engage in ground-up development. Meaning that you have to “substantially improve” an existing property.

Equity over Debt: Capital gains that are invested in a Qualified Opportunity Fund must be equity and not debt. What this means is that you cannot use loans or leverage.

Additionally, you will need to invest your capital gains into a Qualified Opportunity Fund within 180 days of realizing your capital gains from a prior investment. Remember to coordinate with your accountant because you are solely responsible for ensuring your eligibility.

 

 

How to Tackle Low-Income Tenant Problems Before they Occur: 

 

One cautionary mention is that you should be familiar with how to rehab properties (work with contractors) and manage rental properties.  One way to reduce late or missed rent payments is to become a section 8 landlord.

Section 8 tenants get assistance from the government, meaning that a portion of their rent will always get paid. What’s more, is that if a tenant fails to pay their rent on time or is consistently late on payments it will jeopardize their status to continue to receive a Section 8 voucher.

Here is a quick video provided by Shelter Press on how to become a Section 8 landlord.

 

 

The Take Away: 

 

Diversification is one of the most important aspects when deciding how to allocate your investment portfolio. Spreading out your risk amongst many different asset classes will help you weather the many inevitable storms to come. Your investment portfolio should include stocks, ETFs, fixed income assets, real estate, and other investment vehicles.

To learn more about Ray Dalio’s All Season’s stock portfolio, read Stocks: A Diversified Portfolio.

Want to know more about the 1031 exchange and how to create your own opportunity zone fund?

The Increase Your Financial IQ Course will take a deeper dive and explain these and other wealth building strategies in more detail. For now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome! Do you know any tax-free tips that you use or want to share? Please comment below!