Monthly Archives: November 2012

Where Americans are moving

From Forbes:

If the economy somehow gains strength, it may only serve to further accelerate these trends. The incipient recovery in housing prices seems likely, at least in places like California and the Northeast, to create yet another bubble. This will give people more incentive to move to less expensive areas, particularly those who can cash in by selling a house in a pricier city and moving to a less expensive one. The differential in housing costs between New York and Tampa-St. Petersburg now stands at historic highs, and near peak bubble highs between Los Angeles and Phoenix; the traditional growth states are looking more attractive all the time for people looking to make quick money in an economy with shrinking opportunities elsewhere. This includes the massive wave of aging boomers, many of whom may see selling a house in California or the Northeast as a way to make up for less than adequate IRAs. The combination of low prices and warmer weather in the past has proven an irresistible one for those retiring or simply down-shifting their careers. This appeal is likely to grow as the senior population expands.

  • No. 1: Dallas-Fort Worth Metropolitan Statistical Area
  • No. 2: Miami-Fort Lauderdale-Pompano Beach MSA
  • No. 3: Austin, Texas
  • No. 4: Tampa-St. Petersburg, Fla.
  • No. 5: Houston
  • No. 6: Washington DC-VA-MD
  • No. 7: Denver
  • No. 8 San Antonio, Texas
  • No. 9 Seattle, Tacoma, Washington
  • No. 10 Riverside-San Bernadino, California

Note that the top five places are in states that do not have a state income tax.

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Tools for getting out of debt

Getting out of debt is easy, stop spending and pay off your bills.  The overweight person gets very similar advice: eat less and exercise.  They are both pieces of good advice, but they rarely work all by themselves because we are creatures of habit, whether it’s spending or eating.  So here are my twin tools for helping you with the debt issue (for the dieting part, you’re on your own.)

First, get a copy of Dave Ramsey’s book    “The Total Money Makeover.”  It’s a virtual 12 step process designed to get you debt free and build wealth.  The book costs about $25.00 and is worth every penny.  Dave Ramsey has built a business around personal finance advice that includes books, a radio program and courses that are being offered throughout the country.  The course is offered by many churches and is both entertaining and filled with outstanding information.

Second, if you have a computer, get a copy of “Quicken.”  It is the number 1 selling personal finance software.  If you are in debt you have to know where your money is going before you can fix your problem.  Quicken allows you track every penny that you spend.  In addition it makes balancing your checkbook a snap and has other features that are useful once you begin to accumulate wealth.  The program costs less than $50.

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Keeping your money under your mattress?

Most people think that “putting your money under your mattress” is a metaphor, but not to Israeli “sleep system” (bedding) manufacturer Hollandia International.

They have redefined the term “stashing it under the mattress” with their new $20,400 Executive SAFE-T Bed added to their current luxury line of sleep systems. Rest assured with a heavy-duty safe built right into the bed, consumers can keep their most prized possessions and treasured valuables safe and sound.

Measuring 8″ x 10.6″ and with a depth of 4.3″, the safe is located in the head joint of the bed base, right beneath the mattress. Once the safe’s door is closed, it securely locks with a key. Using Velcro to keep it in place, an additional piece of fabric camouflages the door, and the mattress lies on top of the entire system.

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What is a DRIP?

In the financial world, it’s not  a leaky faucet but a Dividend Re Investment Plan.  Encouraged by many companies, it is designed to automatically reinvest dividends back into a firm’s stock.

There are several cautionary notes about using DRIPs.  First, continual re-investing can lead to over-concentration in a single stock.  Second, because your investment is on autopilot, a change in the fortunes of a company can result in significant losses.  Third, long term investors often lose track of the tax cost basis of the stock they own, causing serious tax problems when it comes time to sell.

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What Women Want

This is not the beginning of an old joke, but a survey conducted by Fidelity Investments of millionaire women.  Accordion to the survey …

  • These women tend to be more conservative [than men] in their overall investment holdings and added more conservative instruments over the previous 12 months.
  • For women, domestic stock mutual funds were the most owned investments (64%), while men invested in domestic individual stocks (84%)
  • Women reported feeling less bullish about the market and less wealthy than men
  • Millionaire women tended to be more interested in holistic financial planning (41%) while men reported a greater focus on investment returns (50%).
  • Forty-four percent [of women] said they needed professional financial advice more than in the past and 49% who didn’t already work with an advisor said they would like to find an advisor they trust to manage their assets.

It has been our experience that women with less than a million dollars share the same objectives and views toward investing as their richer sisters.





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Where Have All of Britain’s Millionaires Gone?

Do you think that raising tax rates will increase revenue to the government?  Here’s some real-world experience that tells you that that assumption may not necessarily be true.  Britain found out that raising taxed actually cos t their treasury billions of pounds.

Where have all the millionaires gone?

That’s a question many Britons are asking now that new data show nearly two-thirds of the country’s million-pound earners have disappeared not even one year after a tax hike on the nation’s highest earners went into effect.

Britain’s Telegraph newspaper reports that just 6,000 Britons declared income over a million pounds ($1.6 million) to the nation’s tax authority, down from more than 16,000 in the 2009-10 tax year.

Former Labour Party Prime Minister Gordon Brown raised the top rate from 40% to 50% in 2010, shortly before losing the general election to Conservative Prime Minister David Cameron.

The closely watched wealth tax was a disappointment from the beginning, with the first monthly receipts last January bringing a half a billion pounds less than the same month in 2011.

The Telegraph reports the tax increase has so far cost the U.K. Treasury 7 billion pounds.

How is this possible?  Well, people who earn a million pounds (or dollars) can move to a place that has lower taxes.  That’s easier under European tax law than the US tax law, but it’s possible.  The second reason is that many very high income earners have the option of adjusting their income to escape punitive taxes.  The may well own their own businesses and set their own salaries.  Britain’s experiment in taxes proves that people react to tax rates in ways that lawmakers don’t take into consideration when they try to raise taxes.

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Estate Planning Lessons from the Rich and Famous


Very few people“plan” to die, yet death comes to us all.  Here ares some examples of famous estate disasters and drag-down fights of heirs that have become infamous.

  • President Lincoln, a practicing attorney before taking office, left a financial estate that was in such disarray it took two years to settle.
  • Sonny Bono, the iconic pop star and U.S. Congressman from California, left his third wife to manage claims from, among others, his second wife Cher, and an alleged love child.  Without a trust or a will set up before the celebrity-turned-politician’s untimely death after a skiing accident, widow Mary Bono needed to settle down to the task of opening a probate estate and securing permission from a probate judge to exercise authority over Sonny’s music rights, which contributed to an estate worth an estimated $1.7 million.
  • Howard Hughes, the famous business magnate, aviator, and later in life, recluse, was deemed to have died intestate, after a handwritten will found on the desk of a church official was determined to be forged.  One of the richest people in the world, his $2.5 billion estate was eventually split among 22 cousins, but not before much grousing and litigation.  In fact, even though Hughes died in 1976, his estate wasn’t finally settled and closed until 2010–34 years after his death.
  • James Brown apparently tried to leave the world a better place by leaving his fortune of $100 million to a special trust set up to benefit poor and needy children.  His lack of discussion with his family regarding his wishes, however, coupled with the fact that he never updated his will during the time that he was married to his fourth wife and fathered his alleged tenth (and newest) son, left his money in limbo, benefiting no one but legal teams.

Is there anyone who did it right?

  • If there’s one celebrity “model” to look to when it comes to estate planning think of the king … of rock ‘n’ roll, that is.  Although he didn’t always live his life in a manner to be emulated, Elvis Presley not only had a will, but also included the very forward-thinking tools of testamentary trusts to provide for his family long after his passing.  Even though his estate was victim to extortion-like measures from unscrupulous business partners interested in exploiting Elvis’s fame and fortune, tools were in place (thanks in large part to his naming then nine-year-old Lisa Maria as a beneficiary) to ensure that the finances could eventually be handled appropriately.

Capital Gains Tax Increases

Based on current law taxpayers will be required to pay more taxes on their capital gains beginning in 2013.

Here are the tax rate changes for single filers with incomes over $200,000 per year.

  Current January 2013
Conventional Short-Term 35.0% 43.4%
Conventional Long-Term 15.0% 23.8%
AMT Short-Term 28.0% 31.8%
AMT Long-Term 15.0% 23.8%

For people with incomes under $200,000 per year, deduct 3.8% from the 2013 rate.  The added 3.8% is a surtax created by the new health care law.



Investment Habits of Affluent Versus Non-affluent Investors

What is the main difference between affluent and non-affluent investors?  Surprisingly it’s not high income.

  • Most affluent investors are not high wage earners; rather, they are very methodical planners. They set a plan with a high savings rate and set an asset allocation for their savings, and then make minor tweaks to those allocations over time.

They have a plan and they stick to it.

  • There’s a big difference in the investment habits of the affluent versus the non-affluent: More than 50% of affluent investors utilize equities as a large portion of their asset allocation, while just 35% of the non-affluent prefer stocks and would rather invest in cash, CDs, fixed income, etc.

Summary: the major differences between the affluent and the non-affluent is planning and the willingness to take a well defined risk.  The big question is why the non-affluent don’t plan or have a larger part of their assets in equities.


Nervous energy is a great destroyer of wealth.

Nervous energy is a great destroyer of wealth.—-Fayez Sarofim

One of the ways to become rich is to emulate rich people.  Fayez Sarofim is one of the world’s richest people so it is useful to hear what he has to say on the subject of building wealth.

Many people jump in and out of the market trying to avoid the inevitable down moves, but they fail to catch many of the up moves, thereby under-performing the market and making less than if they had just left things alone.

The average investor is far from contrarian. I remember  vividly when a strategist from a top-tier investment firm in the mid-1990’s  told me that while the S&P 500 had grown at 13% per year over the prior 10  years, the realized equity returns of his firm’s retail client base, on  average, had compounded at only 5% per year. The S&P would have turned  $100,000 into $339,000 during that period, but their average investor ended  with $163,000.

This is one of the major reasons to hire a wealth manager such as an RIA.

There are a couple of points relevant to portfolio management.

  1. Think about a reasonable asset allocation for your situation, one you can stick with.
  2. Have a systematic process for making portfolio adjustments, not one that is undisciplined and responsive to the news environment.

The problem with this advice is that most individuals do not have the discipline to follow it.  They know that the advice is good on an intellectual level, but the “nervous energy” that Fayez Sarofim spoke of gets in the way.  One of the reasons to hire a wealth manager is to tell you to sit down and do nothing when the temptation to act becomes irresistible

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