Investment Newsletter for the end of October, 2017

The market continues to go up. This month’s results were great. Obviously, the market will at some point turn back down. No telling when that will be. I am watching.

My topic today is sudden money. Sudden money is inheritances, life insurance proceeds, divorce settlements, legal settlements, sales of property or businesses, etc. The common element is a large amount of cash that you did not previously have.

Everyone wants a piece of that money. You put that money into the bank. The teller then asks you if you want to speak to the bank’s financial planners. The teller IS ON COMMISSION. I have seen an insurance agent testify at an open casket funeral about how the deceased was his best friend (which was false. They only met two weeks before) and then sell an annuity to the widow. There is a big incentive to grabbing the money when it is fresh.

  1. Everyone wants to manage the money and most are on commission.
  2. Annuities are extremely high commission. Most of the time, they are the wrong choice. They convert capital gain to ordinary income (bad tax planning). They lock up your money for years unless you pay a big surrender charge.
  3. Do not make financial decisions while your head is cloudy. The insurance agent above sold the grieving widow with words similar to “I am sorry to bring this up now but this deal is too good to wait.”
  4. Resist the temptation to pay off your mortgage. I have seen widows take the entire life insurance proceeds and pay off most of the mortgage and then have nothing to live on. First, make sure you have enough money to live, then pay off credit cards, then cars, then mortgages.
  5. Sit down and plan out your situation. How much do you have? What is still to come in (wages, social security, future sudden cash, etc.)? What are your expected expenses? Think about how much risk you want. Start with a disciplined process and you will get a better result. I can help you put together a plan.
  6. Do not assume the stock market will always go up. Likewise, do not assume real estate prices will always go up. Every asset class has an up and down cycle. Real estate will go back down and has many times in the past. The stock market also can and will go down. There is no such thing as a sure investment. There is always risk.
  7. Be careful about sudden big spending. The money has to last your life. The market will go up and down. Real estate will go up and down. Your expenses will only go up.
  8. Sometimes, this money is taxable at ordinary rates (expensive tax). Sometimes it is taxable at capital gains rates (cheap tax). Sometimes, it is not taxable at all (my favorite kind). It depends on the situation. Rather than guess, call me and ask.
  9. If you know ahead of time that the money is coming, you can plan in advance. Sometimes, we might be able to change the terms so that it is better for you tax wise.

Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

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