Everybody loves to learn, especially in classes with titles such as the following:
More Money than You’ll Ever Need—Discover the
Happiest Income in America! Living an Abundant Life While Developing the Tools
of ‘Eternal’ Prosperity: The Financial Path of Choice—Actualizing Your
Financial Goals, Insights, and Creative Energy through the Smartest Choices You
Can Make ( by Scott C. Marsh)
The millionaire never thinks
of themselves as rich or wealthy.
The place where people finally
accept they are rich is at 7 million dollars. (From Fidelity)
Collaboration , mentoring,
innovation, open source, curiosity
Keys from an unexpected
source, concealed and accessible.
(Marsh uses the book The
Millionaires Next Door)
***Millionaires have inconspicuous
lifestyles.
80% of millionaires don’t
drive fancy cars, but buy used cars.
Millionaires have
mentors. (Don’t find someone
who is getting a commission on a product they are selling you.) Have prospective financial advisors show their financial
statements. See how they are
doing. If they won't show, don't hire them.
And find out who they use as mentors.
Millionaires are living in a
modest home, usually the first one they bought. Never refinance unless it is an
emergency. (It is concerning that
60-year-olds are getting 30-year mortgages! Bad!)
Starter home, middle-class neighborhood,
pay off the mortgage as fast as possible.
Lots of advisors don’t
advise this. But ignore them.
Elder Faust had a 4% mortgage
(impossibly low at the time) he was trying to pay it off as fast as possible. Faust ignored the naysayers and
continued to pay it off. “That’s why Faust always has a smile on his face.”
(one apostle to someone else)
97% Millionaires own their own
home. High instance of home-ownership.
Millionaires have higher
education. 80% are well-educated.
They will spend for their
kids' higher education.
President Hinckley
encouraged people to get better education to make more money.
But education doesn’t
necessarily mean you’ll be smart with your money.
More education leads to>>more
income leads to >>less accumulation.
When things are tight, you
know what you can afford and you’re careful.
Physicians are known for being
worst money managers. (Similarly, dentists, CPAs, attorneys, orthodontists,
stock brokers, insurance agents, home builders, actors, artists.)
Providing professional
services for a fee makes it very difficult to accumulate.
Professional athletes tend
to go bankrupt after leaving their sport.
Difference between high net
worth and high income.
Net worth is everything you
have (assets minus liabilities)
Income is what you
earn. It’s only a piece of the
wealth picture. Don’t select your job based on how much can increase your net
worth.
Center your financial goals
around your net worth.
Some people plan their parents’
death into their net worth based on inheritance. (Don’t do this.)
Instead establish good
goals, habits, systems.
Millionaires save at least
15% of their income.
Average millionaires will
save 20% Note that Joseph of Egypt
recommended Pharoah save a 5th, which is 20%
Millionaires are
self-employed. 2/3rds of
them. But it isn’t critical.
85% of millionaires are
first generation millionaires. (1 in 4000 chance)
3.5 households in 100 are Millionaires
Overnight and second-generation
Millionaires are at a disadvantage.
Their plan A is a windfall.
Plan A should be wisdom and discipline (good money-handling systems).
Inheritances.
50% of millionaires never
receive $1 of inheritance.
Majority of inheritances are
gone by the third generation. (People are always trying to figure out how to
make it survive.)
Giving money to adult
children, noticing it wasn’t helping, unable to stop giving them that money –
That is Economic Out-patient Care. (EOC)
Millionaires will pay for
kid’s education, then they stop afterwards.
Millionaires’ favorite
chapter in the book. #2 was on EOC. #1 was Affirmative Action, family style.
Millionaires don’t tell
their kids “I want you have a better life than mine” This feeds the wrong
expectations. Children will spend
to meet the expectation.
Don’t lease a car. Avoid
monthly payments at any cost.
To pay monthly is a curse, but
to receive a monthly payment is a
million-dollar choice (i.e. a decision was made, great effort was expended that led
to a very nice consequence).
Millionaires are fastidious
budgetters. Intense focus on
knowing exactly where the money is going.
Not extensive time and
energy spent on shopping. They are
aware of where to find a good deal. They love not giving away their money.
Frugality is a life choice
for millionaires.
Question: Do we delay
gratification, or do we actually find a frugal lifestyle appealing?
Millionaires find joy in
prudence, frugality, and resourcefulness.
Be careful with over-doing. No woman wants to be married to a
tightwad.
Are you an underachiever
accumulator, average, or prodigious?
(Current age * current
income) / 10 = what your current net worth should be.
Then add up your actual net
worth. Compare.
If you’re under, you’re
underachiever, if you’re at it, then you’re average, if over it, then you’re
prodigious accumulator.
87% of divorces are caused
by money. Money causes more
problems and all other problems combined.
Millionaires marry the right
person. 84% of millionaires
interviewed in the book felt marrying the right person contributed to their
success.
Divorce rate is half the
national average.
Spouse rarely worked outside
of the home and didn’t have a time-consuming career.
Marsh also cited “Pretty-women-make-men-stupid”
research.
Women with more estrogen
have hour-glass figures. They were not as good at financial decisions and not
as steady as women with more testosterone.
Investment rules: Long term, familiar companies and
industries, dull/normal investments, 12% return, increasing dividend
Purchasing habits: no
expensive brand-name items.
(“I can’t get my wife to spend any money”)
Most profitable businesses
(see list on Marsh’s website?) www.scottmarsh.com
Estate objectives are for
children to have discipline, ambitions, and independence.
Non-beneficiary estate
executors. 7 of 20 millionaires named
a non-beneficiary to be executor because otherwise it causes lots of family war
and court cases.
Millionaires have in-law
conflicts. In-laws alleging unfairness cause estate
distribution problems. Marsh says, “So, all you in-laws, stay out of it! Just don’t say a dang word.”
Live WELL below means. Live
WAY below means. 95% of people
live from month-to-month. Do
everything you can to not be like that.
Life of discipline,
sacrifice, and hard work. Forget
yourself and go to work.
Prophets of our day saw us
and saw the cool things happening in our day and they rejoiced.
D&C 82 multiply your
talents even 100-fold. Help others
do the same thing.
Million-Dollar
Choices—Empowering a Lifetime of Maximum Personal Choice through Small,
Insightful, Daily Choices: Five Compelling Investment Strategies—The Wisdom,
Order, and Discipline of Prosperous Resource Accumulation (by Scott. C. Marsh)
What’s your reaction to
investing today? Class reaction:
--Stock market seems unstable.
--Indexed annuities, is it a
good idea or bad idea right now?
--We’ve had a long rise in
the market so we’re due for a drop…
--Real estate had a long run
so it is time for a term of drops.
What is beating the
street?
Getting better returns than
Wall Street. We peg our success on doing better than everybody else. (Requires
winners and losers)
“Beating the Street” can be
seen as a boxing match.
Try reading:
Beating the Street, Peter Lynch.
One up on Wall Street, Peter Lynch
The Intelligent Investor, Benjamin Graham.
The Essays of Warren Buffet”
See also BYUtv.org
Investments. We can invest in: Equity, Debt,
Derivatives
--Equity (purchasing share
ownership in something, company stock)
--Debt (companies borrow
money from you through a bond. Must pay back or go broke)
Highest yield from stocks
because there is more risk.
--Derivative (a contract to
buy or sell something later.) Ex: Pork belly contracts. (If price goes up, make
money. Or if the price goes down, make money.) (Does not require buying the
asset. Only betting on the price.) (A contract that if the value fluctuates,
there will be loss or profit.)
Diversification.
Don’t have all your eggs in
one basket. If the basket breaks, all your eggs are gone. Invest in more than one company!
Have at least 21 different
companies in your portfolio, according to some people.
Allocation.-- Have your
money invested in more than one investment objective: bonds, large companies,
small companies, health, tech, stocks, etc.
Investment company—Someone
who helps people invest by investing with other people’s money.
Index fund shares. Lots of
different types: mutual fund, index fund, ETF, variable annuities, etc.
Listed from low investment risk
to high risk: Treasury, money
market, corporate bond, high yield funds, large cap growth, real estate,
international stock, hedge funds.
Some wrap several types of
risk together and make a pre-set mix index fund.
Inside our 401K plans today
they have pre-set mix index funds.
For the vast majority of people, this is the best way to invest without
hassle. (Marsh likes these for
easy investing)
One-year rolling
return--only looked back at the past year. Can choose other periods of time to
analyze.
Different periods of time to
look back to see how investments have performed.
The shorter the period
analyzed, the more the fluctuations seen.
Short-term investments
perform erratically, irrationally. Avoid anyone who predicts returns in the
future.
Over one year, 73% of the
market is up. (The odds are mostly
in your favor with a well-diversified
portfolio) (For S&P 500 % positive
return from 1926-1999)
Over five years, 90% the
market is up.
Over ten years, 97% of the
market is up.
Over 20 years, 100% of the
market is up.
Principle: Long term, the
market is very consistent.
Look at an example portfolio
allocation
50% in large cap stocks, 20%
developed international, 10% large cap, 20% emerging stocks (one year rolling
return)
PERFORMANCE LOOKS VERY
FLUCTUATING AND SCARY.
1997 was very scary. But most of the time, the market was
above a 0% return.
Average annual return was
11% for the portfolio.
Average return since 1930 is
still 11%.
Ten year rolling return.
Even if getting into the
worst period, return is still 6%
2008 took away a decade of
returns.
Is there a way to invest to
not lose money in a down-market?
In a 1) well-diversified, 2)
well-allocated, 3) long-term mindset portfolio, your investment won’t lose
money.
Just don’t look at the
newspaper at how the market is doing every day or you’ll freak out. Never look at your statement, or only
look at it once a year.
Just try to put more into
your investments.
Harry Markowitz, Modern
Portfolio Theory, Nobel prize in 1990 for “Portfolio Selection” 1952..
Shiller, Hanson, Fama,
Markowitz, Sharpe, Miller earned Nobel prize in investing recently. On Asset
valuation.
Eugene F. Fama.
Minimize Investment
Expenses!
There will be some kind of
expense on an annual basis for handling it.
Try to minimize those fees.
3.5% expenses for 401K
3% Annuity ,
1% mutual funds
.25%-1% index funds (These are the best)<---best a="" expense="" for="" low="" rate="" span="">
BrightScope.com Will rate your company’s 401K expenses.
Pre-set mix/index portfolios
Vanguard Lifestrategy Conservative
growth fund has .26% expense or
even half of that. Officially .13%
expenses.
People in the financial
industry don’t like Vanguard because they have made investments the least
expensive in the financial industry.
Don’t worry about class A,
B, C, D : those are mutual funds and indicate how much they are charging you to
get into it.
Marsh doesn’t believe in
target date funds; he thinks we should just put all our money in 45–year funds.
Your funds will be invested
in about 5000 companies.
The worst possible yield we could
have had over 20 years was a yield of 3%.
The 401K is not an
investment; it is a way to invest in a tax-preferred way.
Invest past the company
match of 401K. It is the largest
single investment of your retirement.
Put as much into it as you can.
If retiring before 59 age,
if you elect to withdraw, if you get periodic withdraws for the rest of your
life, then you can get access to it without 10% tax penalty.
Annuities—Marsh says don’t do them. Annuities are vastly overblown. (details why in next class)
A Future of Transformational Developments in Personal
Prosperity: Advanced Investing—Inspirational Insights for Seasoned Multipliers
(by Scott C. Marsh)
Mutual funds versus investor
performance
What to do if you need a
place to invest? Everyone has
access to an IRA unless over-compensated.
Can put up to $35K in
different investments each year of 401K and IRA.
Some people say “Do an
annuity” but Scott Marsh says “In an annuity, each year you’ll earn income.
85%-90% will be dividend stuff that will be capital gains income.
If you’re in 401K, in the
15% tax bracket, 0% of it is taxed. (Taxes are the biggest investment expense)
You’d have to have taxable income over $80K to get taxed. All your capital gain income is
completely free from taxes forever.
But if you’re in an annuity,
you have pay ordinary income taxes on all of it. Annuities turn tax-free income
into abusively taxed income! VERY
BAD!!!”
Moral of the story: Avoid
annuities.
Annuities should never be
sold in a tax-qualified plan. Marsh emphasizes this: “NEVER NEVER NEVER.” Only people who sell
annuities say you should buy them.
Life insurance options: 1) whole life or 2) term.
Just buy term life insurance
and invest the difference.
Roth IRAs. Why not do Roths?
Marsh says, There’s only one
reason to do Roth—if you’ll pay higher taxes in the future, and if you’re
scared income taxes will go up in the future.
But what if taxes don’t go higher? The IRS isn’t going to give you money
back if you make the wrong bet.
Historically, tax rates have
gone down in the last 20 years. Also, 85% people in the country are at a 15% tax
bracket or less, so odds are they will politically vote to keep taxes down and taxes
are going to go down.
Only one exception—students
who aren’t paying any taxes at all could do a Roth.
Don’t mess things up for
yourself just to help your kids.
(Pretends to spit on the ground to show it is a distasteful idea) Roth might sound good if heirs can get
it out tax-free, but don’t bother about that.
Stock Mutual Funds
Average stock fund return is
8.2%
Average stock fund investor return was 3.5% How so
low? The loss is all because of emotional
reactions when stock drops and investors freak out and sell.
Penalty for not being in the
market is missing the best ten days right after it goes way down. Missing out on $20K.
So your money has a death
wish.. (Stupid things to invest
in)
--Derivatives – weapons of
financial mass destruction, according to Warren Buffett
--Hedge Funds – returns do
not cover investment expenses, according to Harvard research. Average expense is 4% + an extra
percentage (Insane!)
--Precious metals. Gold has
no real value, according to Brigham Young and Warren Buffet. Anthropologists
are going to wonder why people put all that effort into it. Less than 1% of
gold is being used productively.
Fear is the only thing that makes gold grow in value.
--Insurance company
investments – Investment life insurance and annuities – FINRA warning.
--Roth IRA and Roth
Equivalent
--“Qualified” Investor/“Accredited”
Investor Investments (These are offered to you once you’ve got a certain level
of money)--- These are more evidence of pride investing than profitable
investments (It is meant to make you feel special, but won’t make you money)
--12 Daily Pro - This investment offer claimed to give
2% return a day. Do the math. $1 invested would be
$2,973,593,804,833,860,000 at the end of 1 year. It’s larger than the national debt! NOT POSSIBLE >> Fraud.
BYU students reported them.
There is no such thing as an
investment that guarantees a return
of 14% a year.
The Death of Equities.. (supposedly
but not really)
Some people think the market
has been doing too well over the last 10 years.
S&P 500 from 1972 to
2013.. First 10 years was
disappointing. 1982 was called the death of equities. People thought stocks were not where the action was at.
Inflation was awful then.
But then things really went
up for the next 15 years.
An then 1997 to 2012 was
another “Forget about investing in equities!” period.
Moral: There are cyclical markets with long cycles of 15-20 year
stretches of alternating on-or-off modes.
What to do? The smartest guy is putting money in
even when the market isn’t doing very well.
Marsh shoved more money in
during Brexit.
We’re the most prosperous
we’ve ever been. There are so many reasons to have hope.
Negative news gets more
attention and reaction than good news.
Barbell Portfolio
Look at what the consumer
market is doing, not the stock market indicator.
Where is fear today? At its
highest point in history. (People
then sell and get out)
But where are the consumer
markets today? Are we spending in a way that reflects fear? No. We’re spending
at all-time record levels.
Baby boomers and Millennials
are two largest consumer markets in American history. Anticipate companies that will benefit the most from those
consumer markets. That will beat
the index. Average extra year is
5.29%
Moral: 1) Don’t get caught
up in the fear, and 2) analyze consumer markets.
Analyze demographics.
We’ll have 100 million new
workers by 2050 and we’ll be at the peak of prosperity.
Be a good American and start
having babies (like those Mormons in Utah!)
First kid makes happiness go
down, according to studies. (challenge)
After the fifth kid, you
start getting more happy. Greater happiness after having 8th child.
Marsh makes a statement he
knows will be controversial: American immigration things happening right now
are silly about sending people away.
Reality is: People are
markets. Overall, immigrants are more resourceful, saving, engaged, sacrificing
than Americans.
Examining immigration
financially (without considering the legality or morality of it), it is smart
to allow immigration.
Tax Analytics – Proactive
Strategies. TAPS
Largest expense is taxes on
investments.
Find a good tax
advisor. Ask them if they give
advise for tax strategies.
72 different Proactive
Strategies
IF home is paid off, you can
prepay charitable deductions in one year, then get standard deduction the next
year.
DO IT Yourself
Don’t go crazy because of
flat returns. Good returns will follow.
Try to figure out how to
minimize taxes.
Estate Planning and Asset Protection: Estate Planning
in the 21st century (by Robert Bolick, attorney)
Everybody has a will. The
state will write one up for you, but it’s better if you plan it yourself.
--Providing for an orderly
distribution of assets when we die.
--Avoiding civil war among
descendents.
--Avoiding probate. Probate
is going to court.
--Protecting beneficiaries.
Trusts versus wills
Will drawbacks:
-Beneficiaries have to go
through probate if your estate is over a certain amount. (over 50,000 for AZ)
--Assets open to public
scrutiny.,
--Children from prior marriage
aren’t protected,
--Previous marriages
involved
Living trusts.
--Created while you are
alive.
--Trustor, creates it,
Trustee in charge.
--Beneficiary benefits
--Trust is revocable.
--No tax consequences for
going in or out.
--No annual maintenance
fees,
--no register. 100% private,
No one knows it exists unless you tell them.
--No one gets to see a copy
unless you show it.
--Real estate owned in
trust., you maintain 100% control throughout your life.
--Trusts give no asset
protection. Doesn’t protect a house.
LLCs help, but don’t put houses there.
Irrevocable trusts can be
gotten out of, they keep out the bad guys.
Purpose of trusts
--Make sure kids don’t
fight,
--Protect kids from
themselves,
--Avoid probate; trust acts
as a will substitute,
It’s still the best choice
for disposing of assets.
Probate is that bad.
--It is costly. 5% of
estate.
--It’s pubic record
(everyone knows what’s in it).
--It takes 1 year,
--It is a hassle because you
have to go to court to administer the estate.
Requirements for probate.
--Assets held in decedents
name only, not in trust, joint tenancy or beneficiary designation.
--Assets exceed a certain
amount.
--You’re dead.
Do I really need a trust?
What about joint tenancy?
It never works that way in
life.
It still needs to be
probated.
There are always problems.
Not a good idea.
Joint tenancy: Whoever lives
the longest gets it all.
Requirements:
Two or more humans, cannot
be with an entity. (entity doesn’t die)
Defers probate until death of
the second person
Doesn’t help when there are
simultaneous deaths,
Always messy with multiple
marriages. Children of the surviving spouse end up with it all, and previous
spouse’s children gets nothing.
Even wills with joint
tenancy can get ignored.
What about IRAs and 401Ks
that can’t be joint tenancy?
They can’t be held in a
trust.
They are for individuals.
They are considered a
taxable event.
Name the individuals
beneficiaries , not a trust. Name
spouse as beneficiaries (or next the kids)
If the trusts are the
beneficiaries, the payouts come in 5 years and trigger taxes.
Spouse doesn’t have to
withdraw yearly, and no taxes.
Joint tenancy loses tax
benefits of community property states.. It separate property that isn’t
community property.
Arizona is a community
property state. (Illinois isn’t a community property state)
Several states allow for
real estate to be held as community property with right of survivorship.
With children on title, the
creditors of a child can attach mom’s interest—divorce, car wreck, business
failure, liability. If a
child dies before mom, his children are disinherited. Can’t have asset
protection.
True story of daughters who
disinherited their siblings who weren’t in the joint tenancy.
Summary – joint tenancy
loses tax benefits, creditors of others can attach property.
Stuff with beneficiaries
don’t go into probate.
Family trust makes stuff
avoid probate and costs nothing, goes fast, no pubic record, no forum to
contest. Much easier. In the
trust, the trust would name beneficiaries. Contingent beneficiaries added.
Some states have a uniform
probate code that makes it faster and easier. But if you can avoid court, use a trust.
There is an advantage to
naming life insurance beneficiaries as trust. Helpful when there is simultaneous deaths. Life insurance is tax free.
If you have property in multiple
states, then putting property in a trust will help you avoid probate in each of
those states.
Trusts can have incentives.
Having a trust matching
earned income can encourage working.
This can be a bit of a
burden to administer when too many conditions are put in.
