If you had to characterize the perfect investment, how would you describe its characteristics? You are most likely describing something that does not exist – a financial unicorn that, if it really existed, would eliminate all other financial products. But even if it doesn’t exist as a single product, there are ways to design an ideal product portfolio that encapsulates the functionality you desire; you just have to know what you’re looking for to do it.
Business coach Dan Sullivan has a saying: “Our eyes only see and our ears hear only what our brain seeks.” In other words, to find what you are looking for, it is essential to know what you are looking for.
Simple concept, right? But I see people making mistakes with their money daily in my practice by overlooking options that aren’t the status quo. By default, people do things that aren’t always what they want to accomplish. Here are some examples I’ve seen:
- A 45-year-old business owner storing money in a bank account earning nothing while borrowing money from a bank and paying interest to fund equipment purchases.
- A 35-year-old man contributing to a retirement account at work while trying to figure out how to pay for a child’s school fees.
- A 60-year-old who holds stock market retirement accounts while needing a fixed income for his retirement plans.
- A 55-year-old man who devotes all available resources to paying off a mortgage loan while dearly wishing to retire as soon as possible.
- A 40-year-old man motivated to save and defer taxes in a 401(k) while wanting to retire at age 50.
In each scenario, we see people seeking financial security settling for a generally accepted path out of a desire to do “something,” but that is more often than not what they are looking for. This disconnect is the result of the continued drumbeat of the status quo:
- Defer taxes in a 401(k).
- Storing money in the bank.
- Pay off your mortgage.
This advice is repeated over and over again, causing people to aimlessly follow this ideology simply because of the lack of other obvious options.
However, these three money management concepts can cause more problems and difficulties for people than anything other than debt issues. The simplicity of it makes it appealing and, at first glance, may make reasonable sense, but the results are disappointing and mostly frustrating. Why? Because:
- If you store money in the bank, the bank makes money from your money while paying you next to nothing in return.
- If you borrow money from the bank, you give up control of some of your cash to repay the loan while paying bank interest.
- And when you fund a tax-deferred account, you allow the government to dictate when you can access your money – and they’ll have to let you know later what tax rate you’ll pay them since they don’t know what taxes will be in the future.
- When it comes to accelerating mortgage repayments, it’s a race to zero with no wealth creation and no access to money.
Is this how you would describe your perfect investment? Of course not, and while there is no perfect investment, you have a choice: you can settle for the status quo, or you can think outside the box and do something different.
As I mentioned, what most savers are looking for is financial security. I define financial security as having access to cash when you need it for the rest of your life. That’s easier said than done, of course, but that’s where we have to start.
There are four main categories to consider when looking for products to achieve this goal. Long-term growth, steady income, access to cash, and tax relief.
Long term growth
Besides entrepreneurship and real estate, public equity markets have the highest long-term growth potential. But there are two other aspects of growth that savers often overlook: growth through income and the idea of uninterrupted growth.
Growth through income is centered on an asset creating income to reinvest, and it is best achieved through private markets, such as real estate, private equity and private debt. There is simply too much volatility in the public markets to effectively pursue a growth through income strategy. It can be done but not as efficiently.
Uninterrupted growth has more to do with how money flows. Let me explain. When you spend money, that money is gone and no longer working for you. However, by using a private banking strategy that capitalizes on the unique features of a whole life insurance policy, you can actually have money accumulating in the policy while borrowing money to make your purchases. This leverage strategy allows your money to grow uninterrupted while accessing money through contract-secured loans. In other words, you build wealth on the money you would otherwise spend. It’s one of the most underused strategies because most people (including insurance agents who sell insurance) don’t understand how it works.
Another thing about the design of the insurance…the money grows and is available tax-free with no age limit. This is a big problem as you will see in a moment.
Stacking these three growth strategies broadens your diversification, lowers risk, reduces volatility, and can grow your wealth more efficiently and with more control.
Having a consistent income tops the list of things needed for financial security and is the main reason why traditional public stock market investments held inside or outside of traditional retirement accounts are less likely to be used for this purpose.
Without consistent income flowing into your checking account, you cannot effectively manage your cash flow, and if the source of that income is at risk of losing value, you add another layer of insecurity about the longevity of your income. This is a huge eye-opener for people, given that the public stock market is the default status quo in pension plans and is the least manageable of all the ideas discussed.
You cannot control the markets and therefore cannot predict income, account value or longevity. It’s entirely hypothetical to assume what the stock markets will do, but supporting your cash flow needs for 30 years in retirement isn’t hypothetical…it’s real and there’s little margin for error.
Annuities and private market investments are best suited for income and should be the primary source for achieving the goal of consistent income. You just need to know how to fix this problem effectively.
Access to money
Access to cash also ranks high on the list of financial security and is another reason why traditional investing in the public stock market held inside or outside of traditional retirement accounts is not an option. is not the best option for holding cash. Age restrictions, market volatility, and tax obligations are all downsides to these products, making them problematic for storing money.
Bank accounts are another default option for storing money, but these accounts pay next to nothing and are taxable. These two reasons alone are the motivation to find an alternative.
Again, public markets are best suited for long-term growth, and banks are best used to move money around to pay your bills and do business. They are not best suited for holding cash.
A purpose-built whole life policy, as mentioned earlier, is much better suited to store money with tax-free growth, tax-free access, consistent growth, and no age restrictions. governmental.
Everyone wants a tax cut, but we mostly hear about it and rarely see it in real life. The reason is simple: these strategies break the status quo. People mistakenly think of tax deferral as a method of tax mitigation, but in reality, it is the main source of tax problems in retirement.
It’s a paradox that people who defer taxes with 401(k), IRAs, and other similar retirement accounts think they’re saving on taxes — because they’re actually causing themselves a bigger tax problem. important. A real tax saving is not a tax deferral. Tax deferral just kicks the box.
If you’re already in a situation where you have a large amount of money in tax-deferred accounts and you’re looking for strategies to convert taxable assets into tax-free assets, then you’ll want to work with a team of experts. who can guide you. through what is discussed in this article.
The process for this is situational and has no magic formula for the masses, but I want to clarify that this is not just advice for a Roth conversion. A Roth conversion can certainly be part of a tax mitigation strategy to prevent the problem from spreading in the future, but first we must attempt to minimize the taxes of the conversion.
Conclusion for designing your ideal investment portfolio
The status quo will make you believe that there is nothing more to learn and that trusting the banks and the government is in your best interest. As ridiculous as it may sound, deferring taxes in a 401(k), storing money in the bank, and accelerating your mortgage repayment is exactly what defines the status quo.
The biggest challenge is staying open-minded and considering that there is a better solution. There is a saying that your brain is like a parachute; it only works when open.
If you want to know if what the ultra-rich do can work for you, take the Family Office quiz at TakeBriansQuiz.com to see if you qualify.
Securities offered by Kalos Capital Inc., member FINRA/SIPC/MSRB and investment advisory services offered by Kalos Management Inc., an SEC registered investment adviser, both located at 11525 Park Wood Circle, Alpharetta, GA 30005 Kalos Capital Inc. and Kalos Management Inc. does not provide tax or legal advice. Skrobonja Financial Group LLC and Skrobonja Insurance Services LLC are not an affiliate or subsidiary of Kalos Capital Inc. or Kalos Management Inc.
Founder and Chairman, Skrobonja Financial Group LLC
Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of the St. Louis-based wealth management firm Mo. Financial Group Skrobonja LLC. Her goal is to help her audience uncover the root of their beliefs about money and challenge them to think differently. Brian is the author of three books, and his Common Sense Podcast was named in the Top 10 by Forbes. In 2017, 2019, 2020, 2021 and 2022, Brian received the Best Wealth Manager award, in 2021 received the Best in business award and the Future 50 in 2018 from St. Louis Small Business.