Monday, January 27, 2020
The United States of Taxation
The United States of Taxation has become a reality. One of the last engines of growth that launched massive, nearly incomprehensible global trade prosperity and solidified America's internet commerce strength was struck down in South Dakota v. Wayfair, Inc. on 21 June 2018. It was a horrible decision from our U.S. Supreme Court that once again stole liberties from American Citizens. Its lasting effects and reverberations will be felt for decades if not generations to come. When we discuss "days of infamy" in history, 21 June 2018 is one of them.
Closing the last meaningful sales tax loophole cemented the United States into a solid slab of taxation, increasingly WITHOUT representation. President Reagan nailed it when he said "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!"
Taxation is the ultimate government program. President Trump has reset many of the corporate and personal income tax rates, but the future is clearly on the horizon of what political candidates WANT to impose. Take a look at the following chart of proposed rates. These rates would essentially cut the legs off of wage-earning Americans (basically 99% of the population.) The Top 1% can easily move assets around to draw income at will or delay income or take no income and instead borrow thereby writing off the cost of income itself.
Taxation is ultimately a filter which transfers income and wealth from hard work into Government coffers. From these overflowing coffers the Government then finds a way to spend the funds. Please notice that I wrote "finds a way to spend." Not NEEDS TO SPEND. Budgets increase like clockwork because Government agencies know that if they don't spend all the money they were allocated, nigh MORE than allocated, then their next fiscal budget will be less. It is a fundamental breakdown in integrity and the Republic when this happens. And it is happening 24/7/365.
What can you do as part of the R.I.S.E. Movement? As a USA Citizen? Well theoretically you can vote. That's the "long game" if you can build a consensus that is also fiscally responsible with taxpayers' money. About 50% of the population already doesn't agree with this approach. Even though almost 100% of people are fiscally responsible in terms of their own money. (There are hundreds of "Progressive" Liberal billionaires; Bezos, Gates, Buffett, Soros, etc.) With significant social and political ramifications playing the "long game" it is a tough, tough way to win in the short term. And sadly the short term ultimately becomes the "long game."
There are only a handful of pro-growth, libertarian-leaning, fiscally responsible States remaining. In fact, the country is becoming increasingly economically polarized as mass migration from some States to others is occurring. Many people CAN'T move from State to State for various reasons (they're anchored because of a job, family, health, etc.) Others simply WILL NEVER move because they too are anchored; the benefits are just too good...the American Dream is alive and well for many, many millions of people.
But for the "coalition of the willing," there are opportunities to be had in several remaining States. Below is a map of the various opportunities to be found in these remaining States, assuming a citizen has the means, ability, and desire to take advantage of "voting with your feet." It is a biter pill for many whose relatives or friends or business helped build one State to then move to another based solely on economic reasons...a lot of absolutely beautiful coastline has been locked up by political sabotage.
My final commentary is on regulation creep. This is the mortar that binds and seals the fate of many millions of Americans. Via no vote, or in many cases even zero feedback from voters, additional departments, regulations, codes, and enforcers are hired to build the hive of government. Be wary of this fellow citizens, these agencies come at the cost of YOUR freedom. Another famous Reagan euphemism comes to mind: The nine scariest words in the English language..."We're from the government and we're here to help."
Vote, hold your elected officials personally responsible, speak truth to power, champion liberty, and be willing to "vote with your feet" if necessary! America was built as government for the people, by the people. Not the other way around!
Sunday, January 5, 2020
Are you converting deal flow or sales or income from your profession into recurring cash flow? By selecting a basket of dividend-paying stocks which pay quarterly dividends you can stagger dividends into "paychecks" to help supplement your income or build an asset base for retirement.
Here's how it works: Screen for quality dividend-paying stocks you'd like to own. From that master list, which should include a couple dozen stocks, consider picking out handful from various non-correlated industries. For example, from the master list pick a couple from energy, some from consumer, some from tech, some from medical, some from aerospace, etc.
Your final list obviously can have as many stocks as you'd like, but having about a dozen stocks paying four times a year would result in 48 dividend payments per year. If you stagger them both by industry and payment date you could receive a dividend payment ("paycheck") every couple weeks from a diversified base of holdings.
What's nice about setting up a dividend stream is that you can tailor the stocks in the portfolio to the specific industries you enjoy investing in, offset the dividend payment dates to concentrate or separate the dividend stream as you'd like, and also mix-and-match the holdings to include either more value stocks or growth stocks or even form a hybrid of that...plus...many dividend stocks increase their dividends over time.
Done successfully you should be able to establish a recurring dividend stream that gradually increases over in time in terms of both value of the underlying asset base and the value of the income stream.
Friday, January 3, 2020
One of the greatest challenges in creating wealth is sustaining it. A BIG part of that challenge is trying to compress time by leapfrogging traditional linear investing techniques. In reality wealth creation is AT LEAST a 3-dimensional solution.
The traditional compound interest model assumes that there are simply only 2 variables; time and the interest rate on a initial principal amount. Below is a typical example of a fixed initial savings amount of $5,000 compounded monthly at an 8% annual rate for 45 years.
Visually this looks nice, but virtually no one can succeed in a 45-year holding period. Life just throws too many variables, whether opportunities or disasters, to leave capital alone for such a long stretch of time. Not to mention the interest rate will vary. And the instrument itself (whether it is a CD, Bond, common stock, etc.) also has signifiant systemic risk over that period of time.
My argument is this: wealth creation is much more a function of at least a 3-dimensional solution. In addition to time and interest rate applied to capital we need to incorporate chance. Chance is the missing variable that helps explain the implementation of luck, knowledge, experience, struggle, and failure in the wealth equation.
So rather than a linear result, consider modeling your wealth creation as a 3-dimensional reservoir of time, interest, and chance. Life is far too complicated to rely on a linear approach to building a significant store of wealth.
Adding this 3rd dimension of wealth creation allows R.I.S.E. Movement members to leapfrog many years, if not decades, of traditional simple or even low-rate compound interest and compress time. By that I mean by successfully implementing chance you have the ability to progress to the leading edge of the traditional compound interest chart rapidly.
Thursday, January 2, 2020
The story of Carlos Ghosn will hopefully become legendary, it already stands in the annals of history as one of the greatest escapes of all time. From a larger context, it shines a searing spotlight on regulatory overreach, denial of basic humans rights, and the failure of at least one nation-state in providing any semblance of a just trial. It is also emblematic of not only the Japanese government, which obviously needs an entire reboot of its judiciary system from the top down, but also of many, many national and state governments around the world.
The root cause of Ghosn's flight from captivity was a total and utter lack of due process. That basic human right, perhaps the most important, didn't happen from day one. Working backwards, it is logical to assume that a judicial system like this is flawed by its very existence, meaning anything so repressive has at its heart a flawed democracy. Japan doesn't hold the monopoly, however, on government failure.
In the United States with increasing frequency year after year additional laws, rules, codes, regulations, guidance, and such are "passed" without a vote from the citizens. Elected officials appoint bureaucrats who then expand the regulatory environment. The cost of this largess is your freedom my friends.
Freedom is eroded on a daily basis, and it often takes a stark example like Carlos Ghosn fleeing injustice to wake the world up to what it would otherwise ignore for the common citizen. The common citizen would have sat in prison for years and under Japan's legal system the prosecution has upwards of a 100% success rate. But there are plenty of agencies, commissions, local authorities here in the USA that aren't much better for a small business or citizen.
A big part of the R.I.S.E. Movement is identifying threats to your portfolio and asset base. Sadly, your own government is a signifiant threat. Don't pay your real estate taxes and see who owns your house. Or your commercial real estate. Or your savings account. Or your brokerage account. There are numerous abuses of power that can result in forfeiture of your assets without you seeking legal recourse...and legal recourse is expensive and takes precious time. A government or regulatory agency has limitless resources from your tax dollars at their disposal.
So how did Carlos Ghosn do it? How did he escape captivity? What can we learn from him? First, he had the means. But, from what I've read his wife probably would have found a way to help him regardless. He had multiple passports and citizenships. He had a vast network of friends. He was/is a successful businessman. This plan seemingly took weeks to implement. The takeaways for the average person faced with a challenging dilemma?
Family fighting for you is vital. Having assets your family or friends can access to pay for your defense is essential. Being in the right helps. Having a network of friends helps. Essentially, Mr. Ghosn did not "dig his well" when he was thirsty...he had a lifetime of building relationships with his family, friends, and government officials. I think this is something we can all aspire to, especially family.
The Ghosn story is troubling for many patriots across the world as it clearly illustrates the abuse of power by government agencies and the lack of accountability. It is just plain scary what happens when unelected officials have the ability to regulate the population without just democratic principles. It should be a warning shot to us all about the danger of complacency; complacency encourages governments to expand their powers and reduce your freedoms.
As Will Rogers once said, "It's a good thing we don't get all the government we pay for." Amen. Let's all make a concerted effort in 2020 to find out what exactly our elected politicians are doing in their respective local, state, and federal positions to eliminate bureaucracy. Our liberty depends on the American voter, not an unelected bureaucracy.
Wednesday, January 1, 2020
Join the R.I.S.E. Movement!
Retirement Income Starts Early (R.I.S.E.)
The R.I.S.E. Movement
New day, new year! Have you joined the R.I.S.E. Movement? Retirement Income Starts Early (R.I.S.E.) is a new movement helping people around the world better understand and prepare for financial security. Although tailored to my readers in the United States, the R.I.S.E. Movement's mathematical and psychological principles are universal.
Depending on where you live, however, there are either some distinct advantages or disadvantages to financial security. The R.I.S.E. Movement is most effective in geographies with established rules of law protecting property rights, the ability to own assets, and the ability to migrate with those assets to other regions. Simply put, the R.I.S.E. Movement works best in democracies because they typically allow for the two great advantages of compounding wealth, namely time and owning the asset.
Let's get right into it. For the vast majority of both young and older readers of this blog I have stressed the importance of "Investing Like A Farmer," and by that there are ample descriptions of the value of buying compounding assets. The R.I.S.E. Movement is an implementation of those writings unified into a financial roadmap. There are several key tenants that I think are essential to both understanding and applying to your financial preparation.
First, happiness in life (at least from a financial perspective) is positive cash flow. What is joyous is passive positive cash flow. The ultimate goal of the R.I.S.E. Movement is to help you construct a portfolio with recurring and increasing passive positive cash flow.
Second, the cavalry is not coming. You're on your own in this life in terms of creating this portfolio. It is a bad assumption to rely on a friend, relative, or (gasp) the government to bail you out in time of need. As Johnny Cash once sang "Son, this world is rough. And if a man's gonna make it, he's gotta be tough."
Third, basket weaving is underrated. College students who take basket weaving to help boost their GPA get a bad rap, because not only is basket weaving quite useful it is also quite educational. From a financial perspective, the basket we're weaving is our portfolio. It is composed of many different reeds and together they will form a strong basket to hold our wealth and generate cash flow.
When is the Best Time to Start Saving?
As most financial companies will tell you, the earlier you start saving the better. This is because one of our greatest resources in life is time. The more time you have the more compounding can occur.
The chart above helps visually illustrate the value of compounding interest, that is interest upon interest upon interest ad infinitum. The real "juice" savers get is from the compounding effect of interest. But that chart, however, only tells part of the story. It is based on a single initial lump sum that isn't touched for 20 years. Let's take a look at a little more of a real world example, in which case we start with some small sum of money and then add to it over the years. (Click to Enlarge.)
Obviously the take-away from contributing regularly over time is that a decent chunk of change can be generated assuming we get a modest rate of return and do not touch the funds thus allowing them to grow.
A HUGE challenge of course is NOT touching the growing asset base. It is virtually impossible, however, for most R.I.S.E. Movement members to accomplish this goal because life, especially over a (hopefully) very, very long time will throw significant challenges at all of us; it could be health problems, education costs, vehicle breakdowns, children, parents, taxation, etc. There are literally thousands of challenges that arise over time which require utilization of our assets. That's the major flaw in most financial roadmaps, there is zero accounting for life itself.
This brings us back to the initial question posed, when is the best time to start saving? The best time to start saving is before you are born.
Weaving the Basket
Starting to save before you are born is difficult, because you don't have many of the educational tools yet to land a job. Obviously I'm writing to all the parents out there. And grandparents. The R.I.S.E. Movement champions independence, but there are significant advantages provided to those starting out in life who are able to leapfrog twenty years into the future. And what I mean by that is nearly every wealthy family has resources put aside for their heirs; whether it is cash, gold, real estate, the family business, etc. in either a Trust Account, 529 plan, life insurance, or other mechanism. The path to creating a solid asset base that can generate cash flow starts early.
Now for those of you who weren't able to choose your parents or the country you were born in, well there is good news. If you're reading this then you probably have a vested interest in improving your lot in life, possibly to a significant degree. Read on.
As we've already discussed, time is one of the greatest commodities in life. Another one is education. Education allows people to transcend from their existing condition. This can result in a better job. A better job typically means more salary. That's a good beginning. With a decent salary excess income can be applied to building your asset base. Depending on how good of a salary, you can then start compressing time.
Wait, did he just say "compressing time?" Yes. The more excess income (income that exceeds your cost of living expenses) you have the more assets you can purchase. What is an asset anyway? An asset is something that pays you to own it. The world is full of assets just waiting to be purchased! There are dividend paying stocks, small businesses, real estate, mining claims, etc. The list goes on and on and on.
Whether young or old, there are certain tips I'd like to share in regards to "weaving your basket." Just as a little can be turned into a lot over time, the inverse is also true...namely a lot can be turned into a little quickly. The construction of your basket is going to be unique for almost all of us, but there are common elements to success.
Create moats. By that I mean have different types of assets which are not correlated, not held in the same place, and are secure. For example, "diversification" isn't just having an Index Fund. Consider owning dividend paying stocks, bonds, real estate, gold, and a small business. Together they form a sturdy basket to hold the totality of your asset base, yet are not held in the same place.
No single event should (or could) destroy your basket. Barring a meteorite or health pandemic of Biblical proportions, your basket should be able to withstand the test of time and what life has in store for you. See the paragraph directly above regarding creating moats. Chain reactions can be very, very nasty. Having liquidity on hand is a good thing (think cash money.)
Building a castle or a spaceship or a robot starts with one Lego. Remember that. Young or old we all have a certain amount of time left, act accordingly. Buy assets. Live. Add to your assets. Live. Buy more assets. Live. Use income from assets to buy more assets. Live. Get more education. Live. Use excess income to buy more assets. Live. Teach others. Live.
Your Future Starts Today
In the preamble of this post I mentioned that the R.I.S.E. Movement was tailored to my readers in the USA, but applicable to readers around the world. Each country will have its advantages and disadvantages in terms of educational opportunities, health care, and freedoms.
Generally speaking, the greater the educational opportunity, better the health care, and more freedom one has the greater your ability to harness all the facets of the R.I.S.E. Movement will be over time. Luck and hard work, however, can and often do trump many of the advantages of living in a democratic country with wealthy parents, opportunities for education, health care, and fundamental freedoms. If you have the self-discipline and motivation to harness the power of time you can compound opportunities.