Thursday, December 19, 2013

Meet Wally Street. The Reason You're Stupid.

There comes a time when you are writing a book that you have to say that's it. I think I have reached that point. As an author, I don't know if you are ever really satisfied that you have written everything that you wanted to write about. In my case, I think 417 pages is enough. There are a lot of white pages in it and the paragraphs are spaced out to make it easy to read. Further, all chapters start on the right side as I was told that this is a best practice for authors. So, if I had to squeeze it down by eliminating the white space, then it would probably be only about 300 pages.

The reason that I wrote this book, aptly titled, Meet Wally Street. The Reason You're Stupid, is because, well, I think people are stupid to do business with banks, insurance companies and Wall Street firms. You would not believe how often I see the same investments being sold to everyone who deals with these firms. It has gotten to the point that I can almost close my eyes and guess what is in their account based on what firm they are doing business with. You see, these firms that employ our dear friend Wally Street are in business to generate revenue. Unfortunately, they want it from you.

These firms sell the same products. Why? Because that is where the money is my friend.

Most people think they are way too smart to be fooled by the likes of a Wally Street. However, after reading this book, they will realize that they were way too confident. I realize trying to convince people that they are making a huge mistake doing business with Wally Street is not going to be an easy task on my part to accomplish. Nevertheless, I am kind of bull headed and I will give it a shot.

There is a lot of content and stories related to estate planning and elder care planning in the book. In my opinion, the attorneys who help people in these areas are some of the best friends that you will ever have. These professionals can save you thousands, if not millions of dollars with their expertise. As I point out in the book, using online legal document firms can cost you and your family a ton of money. I'm sorry, but do it yourself legal document creation is probably one of the stupidest things you can ever do. There are several stories in my book to prove it, too.

My character, Wally Street is pervasive throughout the book. I point out and contrast the routine advice of Wally Street that all ends up at the same place: Selling you products that generate the most revenue.

What you will discover is that there are parts of the book that will make you laugh, and perhaps, even cry. However, after reading it, I think you will be a convert to my way of thinking. Never again do business with the likes of a Wally Street.

Look for the book on Amazon and Kindle after the first of the year. If you are smart, then you will buy it.

Wednesday, November 20, 2013

Meet Wally Street

Here he is! Wally Street. The Reason You're Stupid. A proof of my book is on its way to me. Nearing final completion. It should be ready just in time for Christmas. It will be available on Amazon, Kindle, Nook and iPad soon.

Wednesday, August 14, 2013

Are Today's CEO's Stupid About Hiring?

Clueless is the first word that comes to mind. A major paradigm shift has occurred in hiring practices over the last decade. HR people are working from their computers instead of seeing people eyeball to eyeball.

Perhaps, I am reminiscing about the good old days. You used to be able to walk into a business and apply for a job. Now, you are told to go to an impersonal web site and apply. Here is the problem in a nutshell. If you never see a person or speak to a potential job candidate in person, then good candidates get needlessly thrown into a huge online dark pool. At this point, your HR person’s job has shifted from finding a good candidate via the interview process to looking at a dark pool on a computer. This is nuts and dare I say it, stupid.

Here is the brutal reality. Your HR people are the ones responsible for looking at online submissions which may total in the hundreds. After a while of perusing these submissions, guess what happens? Their eyes glaze over. Suddenly, every candidate looks the same. Everyday, another 30 candidates submit their online application. At this point, the HR person shuts off the application process.

With this HR hiring practice, the HR person has never seen these people. They do not know about their appearance. They do not know if their resume is a lie. They do not know if their resume was prepared by a professional which may hide the fact that this candidate is disorganized and has poor skills. Nor do they know how they handle themselves in a face to face interview. They are tasked with finding a good candidate, so what do they do? They ask people they know if they are aware of a good candidate for the job opening. Eventually, they blow off the online candidates altogether. 

This whole online hiring rigmarole is a joke and a bad one at that. As the CEO, you are asking your HR person to make a hiring decision from this madness called online application submission! Do you really believe that they want to stick their neck out on a potential hire from an online dark pool versus asking an existing employee if they know someone who might fit the bill? Which choice will they make? If you know the answer to that question, then why have this online cesspool application process in the first place? Oh, I know. Your lawyers told you to do it this way.

Lawyers will tell the CEO’s that they must post these jobs online in order to satisfy the equal opportunity employment regulations and laws. HR people have to look at resumes and try and figure out how old someone is based on their college degree or high school degree that is on their resume. However, they cannot discriminate based on age. Nevertheless, they do it everyday.

They can also discriminate based on race. If a candidate went to an all black college, then it is likely that that candidate is black. If the HR person wants to discriminate based on that fact, then they certainly will.

CEO’s are looking at their talent pool of employees as a way to cut costs. Once someone gets into their 50’s, then their job becomes at risk. The CEO is a business person with a lot of skills. Yea right. They decide, secretly I might add, that “I can hire two young people for what I am paying for this one person who has been here for twenty years.” (I'm on to you CEO's.) The CEO shortly thereafter makes the order to layoff a department of experienced skilled employees and replaces them at a later date with young people. These new employees come in albeit at lower salaries, but without a lick of training or experience. The CEO thinks that he or she is smart making this decision. The reality is that the CEO is an idiot for making this decision. 

It is even worse when the CEO is not involved and is relying on the Head of HR to make these decisions. What is happening is that these companies are dumbing down their talent pool to save money. The problem is that they have now a much less experienced pool of employees who do not have any loyalty to their firm. These new employees will jump ship at the first opportunity for a bigger paycheck that comes along. Now, instead of having loyal employees who are experienced and know what to do in a crisis, they have non-loyal employees who could care less and will not stick around.

Now these so called smart HR people, both inside and outside the company are going to Facebook and LinkedIn to find out about potential job candidates. These HR people think they are being really smart by doing this, too. Well let me tell you how really stupid they can be. 

I routinely get “recruited” because of my background on LinkedIn. I have lots of professional designations, experience and have held a multitude of licenses. I know that I am being arrogant, but I can run circles around most of my peers when it comes to industry knowledge. My secret is that I read and study topics way more than anyone else.

These HR recruiters have no clue anything about me other than what they read on LinkedIn. I’ve been recruited by big name firms that I will not name out of respect. These HR recruiters will contact me about a job that is a stinking joke. By a joke I mean a job where I sell one companies brand only. For example, a financial services company living in dinosaur land thinking that their company is the best and to hell with all the rest. These firms want you to buy investments from their firm based on the standard “let’s stick it to the customer for all we can get”.  Do I even have to respond to these recruiters? In most cases, I am polite. The poor HR recruiter doesn't even know their own stupidity.

I have also been recruited by numerous firms that sells only insurance products. In almost all cases, these jobs are sales jobs with payouts ranging from 30 to maybe (and this is a stretch) 50% of the commissions. Dear HR recruiter without a clue, I can get 100% of the sales commission as an independent, if and that is a big if, I wanted to sell nothing but insurance. The last time I checked, 100% is a whole lot more than 30%.

If these HR recruiters had a clue, they would know that I would never even consider such a piece of junk job, never mind the fact that I OWN MY OWN BUSINESSES! These idiots actually believe that I would leave my own businesses to help their crappy company make money? Just for fun, the last HR person that tried to recruit me, I told him that it would take north of $250,000 plus perks, before I would even discuss it. Of course, they quietly went away. I had fun with that one. I think I will make this my standard answer going forward.

Other recruiters think that I manage Ultra High Net Worth Clients money and have over a billion dollars in assets under management through my firm Rick Johnson Family Office, LLC. These HR recruiters take a cursory scan of my LinkedIn page and or my Facebook page and think they know me. If they only read my full disclosures that are stinking everywhere, then they would know this is not true. Are you getting this picture CEO’s? If they are treating me this way, then the odds are, they are doing the same with other candidates from LinkedIn. Any light bulbs coming on yet?

Now as a CEO, you have put your companies future in the hands of these inside and out HR people who are overwhelmed by the shear number of online web applicants. When people get overwhelmed, they freeze up and do nothing. At this point, they go through the motions until a senior HR person puts pressure on them to fill a position. In the meantime, good candidates are sitting out their losing their homes, their credit, their marriages and everything else. God bless these people. Even if no one else does, I care about your plight and I am making a small, perhaps feeble attempt to do something about it via this blog article.

What I want to know is are there any CEO’s with any leadership skills out there, man or woman, who will make another paradigm shift in their hiring practices? Hire good candidates via an eyeball to eyeball interview process and ditch this online cesspool application process. Anybody? Any takers at all?

Unfortunately, most CEO's just go through the motions never once considering a better way. I think these CEO's like having young, non-loyal employees instead of keeping good employees in their 50's and hiring good candidates via a face to face interview process. I do not want to hear about all the online candidates you have either. You got nothing with that online process except a guarantee to fail. You created that stinking mess by subscribing to that as your firm's hiring practices! When are you going to wake up?

Here is a better idea. When you have a job opening, have a job fair where people come in, you take their picture, you take their resume, and you have a brief chat with them. After that, you call the good candidates back in to your firm and narrow down the choices. The job hiring process will be shorten tremendously. People will have a better chance of keeping their homes, their good credit and their marriages intact. Your firm will actually hire good candidates. Now there is a novel idea!

Ditch that stinking online application process for good! The end result will be that your HR people will be back to doing their job of actually hiring people (imagine that) instead of hiding in a their cubicle looking at a computer screen. Your company will find more success in your new hires and just maybe, you will find some loyal people who want to help your company succeed. Wouldn't that be nice?

By the way, if you want an outside consultant to help you figure all this out, then my fee will be $250,000 plus perks.

Monday, August 5, 2013

Se ha dado cuenta de que todos los jugadores de beisbol suspendido eran Latinos?

This title translates into "Did you notice that all the suspended baseball players were Latino?"

Today was what I would call a conflicted day in Major League Baseball.  A dozen MLB jugadores accepted their punishment without any appeals. One jugador, however, has said he would appeal his 211 game suspension and his name is Alexander Emmanuel Rodriguez.

The nation's sports reporters have talked endlessly about Mr. Rodriguez, but none so far have said anything about the jugadores being all Latinos. I am not being politically incorrect in noticing this fact. Rather, my curiosity is more of . . ."how are all these players tied together?"

I am fascinated by how this happened? Was one player the one who knew every other player on a close enough level to not only tell them about the Biogenesis clinic, but also trust them enough to risk their career by telling them? How did it progress from the very first athlete who decided to use performance enhancing drugs from the Biogenesis clinic? How did the second guy become a Biogenesis client and then the next one and so on? How did this expand to a group of jugadores?

A-Rod was born in New York. He moved with his parents to the Dominican Republic when he was four years old. Later when he was in the fifth grade, his parents had split and Alex moved with his mom to Miami. He would win the state baseball championship for his high school and of course, move on to be one of the best baseball jugadores around.

He lied to Katie Couric in an interview about using PED's, then later admitted to lying about his use. He claimed to have only used then from 2001 - 2003. Which brings us to today.

I have in my Google Drive a copy of the Joint Drug and Enforcement Program between Major League Baseball and the Major League Baseball Players Association. After a review, I question whether the MLB Commisioner's office has a case based on blood samples, or based on witness testimony. The Joint Drug Agreement or JDA talks about blood tests and urine analyses. Was there a blood test that Mr. Rodriguez failed? If not, then how can he be suspended for 211 games as a result?

The JDA says clearly 50 games for a first offense, 100 for a second offense and lifetime ban for a third offense. Although Alex publicly admitted prior steroid use, the MLB Commissioner's office never suspended him for the prior use. Yet now they want to not only jump over the 50 game and 100 game suspensions, but impose a 211 game suspension? Not only does this seem kind of screwy, but where is the failed blood test?

Further, in the JDA there is a confidentiality clause that applies to all people involved. This confidentiality clause was not only violated in Mr. Rodriguez's case, but also the other player's confidentiality was brutally violated. There were a lot of people talking well before the final punishment was handed down. In fact so much so that everyone knew the result, even me, in advance.

Here is what I see from a legal perspective. The JDA shows rampant violations from all sides. If the Commissioner's office does not like the fact that they did not previously suspend A-Rod, but now feel "justified" in the best interest of baseball, then too bad. That was their mistake. They had a failed blood test in 2003, but that was before the JDA went into effect. Whether they like it or not, that doesn't matter. The JDA was agreed to by the Commissioner's office and doesn't expire until 2016.

Secondarily, the JDA says that a first offense is 50 games. Like it or not, this is A-Rod's first offense. The Commissioner's office doesn't have a clause in the JDA that gives them the authority to impose a penalty of 211 games. My detractors will say that they gave Ryan Braun a 65 game suspension and that number was not in the JDA either. However, the critical difference is that Ryan Braun did not appeal his penalty. As a result, the Commissioner's office got away with a clear violation of the JDA. 

The other critical legal issue is where is the blood sample that was administered according to the JDA procedures? This is not a JDA blood process administered case. Instead, this is a case where a clinic operator at Biogenesis was threatened with legal action if he did not cooperate with the Commissioner's office. It doesn't matter whether this guy said, "Yes, I personally injected and supplied A-Rod with banned substances."  It also doesn't matter if he claims to have given him a boatload of these drugs. I would only have to remind you of the guy who claimed he injected Roger Clemens, but to no avail as Clemens was found not guilty of lying to Congress. It doesn't matter that you or I do not believe Roger Clemens. The facts are what they are, in that Clemens was acquitted.

The Commissioner's office was using intimidation by floating out to the press a possible lifetime ban against A-Rod. The truth is they could not jump to the third failed test penalty, because there has not been three test failures, or even one if my suspicions are correct. It was patently obvious now that they were simply trying to put pressure on A-Rod and his legal team to cave. This is typical legal maneuvering. Threaten the worse possible penalty to force an outcome that favors your position. Attorneys use this play book everyday. It appears at this point that A-Rod's attorneys are advising him correctly. They actually read the JDA as did I. Their interpretation as is mine is that A-Rod may be able to get his penalty reduced. 

The Commissioner's office is obviously looking at this like we are going to try to enforce the harshest penalty we can on A-Rod. From their point of view, they will have succeeded in tarnishing A-Rod's reputation and probably nixed his chances for the Hall of Fame. They know full well that nobody likes a cheater.

What I do not like is selective enforcement. Barry Bonds was vilified for his alleged PED use, but he never failed a single test, nor was he ever suspended either. Barry's punishment was to come from the Baseball Writer's of America who are the guys who vote players into the Hall of Fame. Baseball is held in such high regard compared to other sports. We only have to look at this weekend for proof. The NFL enshrined Christopher Carter this weekend. A truly great NFL player, but with a troubled past. The difference is that the NFL players vote other players into the NFL Hall of Fame. In baseball, Bob Costas and newspaper writers vote in the players. Seems a little ironic doesn't it? I think the NFL has it right. The players know each other better than Bob Costas or any other sports writer ever could. Something for the Major League Baseball Players Association to think about, no doubt. 

A-Rod's punishment is already baked in the cake as far as the baseball writers are concerned. However, whether the Commissioner's office is going to win their case based on the JDA is up for arbitration. If the arbitrator follows the JDA, then you should see a reduction in the 211 game penalty to 50 games. The only thing that would change that is an out of arbitration settlement.

It is in the JDA that the arbitrator can reduce the penalty, but to no less than the minimum. The minimum in this case is 50 games. This is my prediction baring a settlement. 

For the record, I do not like unethical people in my field, but I do believe that even those people are entitled to go through the process to defend themselves whether that be arbitration or through the courts. It is not up to you or I to be their judge. 

Monday, July 22, 2013

Buyer Beware with Variable Annuities

Variable Annuities are one of the most broker sold products out there. The reason is that the commissions on these products are very lucrative. Generally, they can range from 6 - 10% in commissions to the brokerage firm.

What is generally glossed over during the sales process are the surrender charges. The surrender charges can get as high as 14% or more in the first year and decline from there over a ten year period or sometimes even longer.

Also, the expenses on these policies are very high and sometimes can be in the 2.5% to 3% per year range. Common sense would tell you that this acts like an anchor on a boat. You are not going anywhere as long as you have that kind of an anchor holding you back.

Further, brokers often tout the 10% free withdrawals, but fail to tell you that this does not start until one year and a day later.

Perhaps, the biggest fallacy in regard to Variable Annuities are these Guaranteed Minimum Withdrawal Benefit Riders. Most of these riders have a 5% guarantee. Here is where it gets confusing. These policies have a 10% free withdrawal already. So, the 5% GMWB Rider is of what benefit? Why do I need to pay 0.50 to 0.75% per year additional for a 5% GMWB Rider if I am already getting a 10% free withdrawal without any rider charges? This will knock my annual expenses up closer to 3% to 3.75% per year!

The broker's answer is that the Variable Annuity invests in the stock market and in case the broker's advice is horrible and the policy loses money, then you are still guaranteed the 5% withdrawals with the GMWB Rider. Gee thanks. Just what I need, an investment weighted down with expenses that most likely is going to perform poorly, because my broker doesn't have a clue how to diversify it.

Oh by the way, did I mention that there are several insurance companies who are panicking about having these GMWB Riders on their Variable Annuities and are offering to buy their policy holders out with cash payments? Could this be a clue that maybe that cannot guarantee the 5% GMWB Rider like their broker claims?

Another thing. The 10% free withdrawal is a cap, so technically you can pull out only 5% if you wanted. Again, why do you need to pay for the cost of the GMWB Rider every year? I for one am unconvinced.

One final point on Variable Annuities. Did your broker tell you that if you really wanted to buy a Variable Annuity, then you can find them without any commissions or surrender charges? That's what I thought.

I recently tried my hand at producing a short video that shows the broker sales process to unsuspecting buyers. After they buy the variable annuity, then this is when they find out all the sordid details.

Please forgive as I am not a video producer, but I think I get my point across. Click the link below to go to our web site. Enjoy.

Meet Wally Street

Tuesday, July 9, 2013

Flying Solo?

Are you flying solo as a small business person? Do you work for yourself or have your own LLC or S-Corp? Do you have a Solo 401(k)? Ideally it is best if you are the only employee as it makes things a little simpler, but you can have up to five employees with a Solo 401(k). You do not have to be incorporated, but you do want to pay yourself a salary. By paying yourself a salary, you can salary deduct up to $17,000 per year with an over 50 catch up contribution of another $5,500 per year. Theoretically, you can put up to $51,000 into a Solo 401(k) in 2013 with a Profit Sharing contribution to make up the difference. You can put up to 100% of your compensation, or $51,000 into this plan.

Now is the time to get started. If you are okay with traditional investments like mutual funds, ETF's and stocks, then Schwab, Fidelity or TD Ameritrade all have Solo 401(k) plans. However, you probably want an adviser like me to help you.

Here is why it might be a wise decision on your part to consider me as your adviser. Did you know that if you have an old 401(k) that you can re-roll it back into your new Solo 401(k)? That is only if you haven't messed things up by rolling it into an IRA Rollover account and combining it with a different IRA. Assuming that you have either left it at your former employer, or you rolled it over and kept it separate from your other IRA's, then you are good to go. You might have well over $100,000 right out of the gate.

Another reason you might want to hire me is that now that you have re-rolled your old 401(k)/IRA Rollover into your newly created Solo 401(k), you can now by real estate with the funds. Yes, you can buy real estate with your Solo 401(k). For that matter, you can buy real estate in your IRA or Roth IRA, too. Oh by the way, you can have a designated Roth account with your Solo 401(k). This means that your salary deduction amount can all go into this Designated Roth 401(k) which is tax free.

I can literally go on and on with planning ideas. Each case is different, but rest assured, I can provide great solutions for you.

A third reason to hire me is because you can pool Your Solo 401(k), your IRA, your Roth IRA and even combine with other family members accounts to buy real estate. Friends or business partners can combine their accounts, too. 

Think about this example. Suppose you are a two person law firm with a paralegal and a clerical person. You both have old 401(k)'s that you rolled into your new Solo 401(k). Your paralegal and clerical person can buy traditional investments with their accounts. However, you two attorneys can purchase your own office building with your Solo 401(k). Why? Because these Solo 401(k) accounts can hold the real estate until you are ready to sell and hopefully inflate the value of your accounts in the process.

A final reason to hire me is that there are a myriad of IRS rules involving buying real estate in these accounts. I can help keep you on the straight and narrow, help you find properties as a real estate agent, in addition to being an Investment Adviser.

If you are a real estate agent, a real estate agent team, a CPA, an attorney or other self-employed business person, then you really ought to take a look at these options. After all, it's your business and your future.

So, if you want to know more, then give me a call at (904) 547-2913.

Tuesday, June 11, 2013

Unique Planning Opportunity for Successful Real Estate Investors and Agents

With the real estate market rebounding, most real estate agents who thrived during the downturn have built even bigger businesses today. As a result of their success, they have some unique planning opportunities. Real Estate Investors and those who buy and sell it everyday, know the business and are much more comfortable with real property than most people.

What is not well known is that with some very strategic planning, a real estate investor can use the assets in their existing IRA's and Roth IRA's to purchase real estate. Ideally, the process is fairly simple to implement. In addition, to using your IRA's and Roth IRA's to invest in real estate, you can also use funds from a Solo 401(k) with a Designated Roth 401(k) account to purchase a new business, a franchise or an existing business. However, you cannot use any of the funds to buy your own existing business or the existing business of a family member. However, you can use your Solo 401(k) with a Designated Roth 401(k) account to purchase a New business! It has to be an arms length transaction, not a transaction structured merely for the purpose of evading taxes.

Let's look at using your existing IRA to invest in Real Estate first. How does this work?

Real Estate IRA LLC

There are just a few steps involved. You need a tax attorney firm knowledgeable in this area of expertise, not fly-by-night promoters who are here today and gone tomorrow. We can refer you to a top flight tax attorney firm that handles this from start to finish.

The Self Directed IRA LLC involves setting up a new Limited Liability Company (LLC) that is owned by the IRA and managed by you. Alternatively, you can have any third party be the manager. As manager of the LLC, you simply open an LLC account at a bank and obtain check writing privileges. You do not need a custodian to approve every transaction. Since you are the manager of the LLC, this gives you wiring authority and checkbook control. Your IRA purchases your LLC as a security. You fund the LLC with the proceeds of your IRA in any amount that you choose up to 100% of your IRA. The IRA holds a position in the account which is your new LLC. The LLC position is treated as a security in your IRA.

For example, if you had $200,000 in stocks, bonds and cash in your IRA and you use the whole $200,000 to fund your LLC, then your IRA would own a new security, the LLC, which is now worth $200,000. This is a non-taxable transaction because it is done within your IRA.

When you are ready to purchase the real estate property, you simply wire the funds to the escrow agent from the LLC. Since you purchased property with the proceeds of your IRA that are now in your LLC, you now have an accurate valuation for your LLC security in your IRA account. This information can be provided to the bank for whom you have the LLC account and they will list the value of the real estate as the total all in price you paid for it. Of course it is a good idea to have an annual appraisal done for valuation purposes. It is mandatory when a distribution is made.

Growth of the real estate owned by the IRA via the LLC is tax deferred and just like if you were holding any other investments, you are required to start taking a distribution by April 1st of the year following when you turn 70 1/2. Of course, you can take withdrawals any time after your turn 59 1/2, too without the 10% early withdrawal penalty.

There are a few things to understand when purchasing real estate in an IRA. One is that you cannot deduct your real estate taxes from your tax return. Nor can you deduct your home mortgage interest if this is your second home. Further, you cannot take any depreciation on the property either. Lastly, you do not have a cost basis in your IRA when you start to pull things out. Everything that comes out is taxed as ordinary income. However, if you had $200,000 in stocks and bonds today in your IRA and you purchased $200,000 worth of real estate with an LLC Real Estate IRA, then you would be in the same boat from a tax perspective.

If you think of this in terms of holding one stock worth $200,000 in your IRA and selling it and buying another stock worth $200,000, then there is no tax consequences, because it is done within the IRA. It is the same concept with the real estate purchase. All you are doing is selling the stock for $200,000 and buying the LLC inside your IRA for $200,000 to replace it.

Real Estate Roth IRA LLC

You may be thinking... "What about a Self Directed Roth IRA LLC?" You would be thinking correctly. It would be better to buy real estate with the proceeds of your Roth IRA. Of course this is assuming that you have enough funds in your Roth IRA to make such a purchase. However, there are ways to solve this dilemma if you have a larger IRA that you can convert to a Roth IRA. Of course, when you convert your IRA, then you have to pay taxes. Fear not! There are ways to do this without feeling the entire tax bite all at once. Let me explain.

When you convert for example, $200,000 to a Roth IRA, then you add the $200,000 to your AGI and you are taxed on that figure. So, let's assume that you are taxed at the 33% rate. This means that you would owe roughly an additional $66,000 in income taxes. However, if you have a Home Equity Line of Credit (HELOC), you can borrow $66,000 and pay the taxes. This allows the full $200,000 to be used in our now new Roth IRA account. So, instead of having an Roth IRA worth $133,000, you have a Roth IRA worth $200,000 with a Home Equity Line of Credit obligation for $66,000. You can buy more real estate with $200,000 than you can with $133,000.

The interest on the Home Equity Line of Credit is typically interest only, so you only pay the interest on the $66,000. Suppose this interest was 5%, then you would owe $3,300 in annual interest. The strategy is to pay the HELOC interest for 5 years, then pay it off from the growth of the real estate in your Roth IRA LLC.

You see, once you converted the $200,000 IRA to a Roth IRA for $200,000, then the entire $200,000 is considered your Roth IRA cost basis. You can withdraw cost basis from a Roth IRA without penalty. After 5 years, with a wise real estate purchase or purchases, you can sell the property for a profit and use some of the proceeds to pay off the HELOC without any penalty or taxes due. The choice is to pay $66,000 in taxes in the beginning all at once, or use the growth of your Roth IRA to pay off the $66,000, thus only costing you the annual HELOC interest of $3,300 for 5 years.

You are using the bank's HELOC money instead of your IRA money!

Instead of paying $66,000 and kicking you up into a higher tax bracket, you leverage the HELOC and pay $16,500 ($3,300 x's 5 years.) You would stay in your current tax bracket which may be 28% or 25% which will save you in taxes if you do this instead of paying the taxes all at once on a conversion to the Roth IRA.

It doesn't take a smart person to figure out that $16,500 is much better than $66,000. Plus, do not forget to factor in the savings in taxes which could be another 8% on your current income that you had to pay because you paid for the IRA to Roth IRA conversion in one lick.

Does you financial advisor or for that matter, your real estate agent know this stuff?

This obviously works better if you are successful at flipping houses during that five years. See the next section on that subject.

House Flipping

You may be thinking..."What if I wanted to flip houses?" Not a problem. If you are successful at flipping houses, then you should be able to pay off the HELOC even quicker than 5 years. You would simply buy a property, flip it, receive the proceeds, then buy your next flip property. Each time you do a successful flip, the profit stays in your IRA or Roth IRA and gives you more money to flip with and pay off your HELOC sooner via a perfectly legal cost basis withdrawal.

There are some rules around contributing your own personal labor to the flip that can cause problems, so it is best to fully understand the rules around flipping houses and contributing yourself as "free labor" or the free labor of a disqualified person. The IRS could look at it as a business and not a security in your IRA or Roth IRA. If they do that, then you risk the whole account being disqualified. The best way to do flips is to hire out all labor and contractors and keep good records, then you will be fine.

Buying Real Estate with both an LLC IRA and an LLC Roth IRA

You may also be thinking... "What if I wanted my IRA and my Roth IRA to both own the real estate?" Not a problem, either. You would simply have two LLC members. The IRA would own a percentage of the real estate property and the Roth IRA would own the balance of the property. This is especially advantageous when you have a large IRA (and you do not want to convert it) and a smaller Roth IRA. However, when you add the total of the two, then you have enough to purchase the real estate in question.

Special Allocations with two LLC members

You can actually have special allocations built into your LLC operating agreements. For example, the IRA LLC member could get the Applicable Federal Rates (AFR) 130% of Mid-term rate which today is 1.44% interest for the entire time the property was held, then the smaller Roth IRA LLC member would get to split the balance with the larger IRA LLC member 50/50 after that. Wow! Wait a minute. Please explain more.

Suppose your IRA LLC was a member who contributed 75% of the funds to purchase the real estate and the Roth IRA LLC member who contributed 25% of the funds to purchase the real estate. Since the IRA LLC member contributed the most, they get a 1.44% interest contribution for the entire time the property was held before the Roth IRA LLC member gets a dime. However, once the 1.44% interest is paid to the IRA LLC member, then the Special Allocation says that everything is split 50/50.

Let's look at an example. The property purchased by the two member LLC's is worth $200,000. The IRA LLC member contributes $150,000 and the Roth IRA LLC member contributes $50,000. The property appreciates to $300,000 five years later and is sold. The IRA LLC member gets their original principal back plus the 1.44% interest on his $150,000 contribution for those 5 years, or $11,115.55 in interest, before the Roth IRA LLC member gets a dime. This operating agreement stipulates that the LLC members share 50/50 after that. So, for a $300,000 sales price, minus the 1.44% figure of $11,115.55 paid to the IRA LLC member, this leaves $88,884.45 to be split 50/50. So, an additional $44.442.23 goes to the IRA LLC member and then the remaining 50% share of $44,442.23 plus their original $50,000 goes to the Roth IRA LLC member.

Now let's look at how this benefits the each member. The IRA LLC member gets their original principal of $150,000 plus the 1.44% ($11,115.55) plus the 50% special allocation share of $44,442.23 for a grand total of $205,557.78. This is a 5.33% annualized return. Not bad!

The Roth IRA LLC member gets their original investment back of $50,000, plus the 50/50 split amount of $44,442.23 for a grand total of $94,442.23. This is a 13.56% return!

Without the special allocations wording in the LLC operating agreement, this would not have been possible. The ratio for future purchases between the two LLC members is now 69% to the IRA LLC member and 31% to the Roth IRA LLC member. The special allocation has allowed the Roth IRA LLC member a slight advantage.

Of course this is all contingent on good real estate purchases, but I think you can see the idea of how special allocations can allow you to leverage up your Roth IRA to get a little extra kick as opposed to a straight 75/25 split where the Roth IRA LLC member would have only gotten $75,000 instead of the $94,442.23 they could get with a properly drafted special allocation clause in the LLC operating agreement. The special allocations allowed an extra $19,442.23 to go to the Roth IRA LLC member.

This is why I recommend these experienced tax attorneys who know how to properly draft LLC operating agreements taking into account special allocations.

LLC with a Solo 401(k) for the Self Employed (Real Estate Agents)

You may be further thinking..."What if I wanted to buy a new business, a franchise or an existing business?" This is also permissible as long as you were not buying it from yourself or a disqualified person. It has to be an arms length transaction with an unaffiliated party. However, when you want to buy a business, a franchise or an existing business, then will want to have an existing LLC business, or new one where you establish a Solo 401(k) with a Designated Roth 401(k) account. Further, you want to be self employed with less than 5 employees, preferably however, it is much easier if it is just one, like a real estate agent!

You have to have both a pre-tax 401(k) and an after tax Roth 401(k) account in the plan documents, but our tax attorney firm will prepare all this for you. You have to have both the pre-tax and after tax feature, but you can allocate 100% of the contributions to one or the other, or split the contributions any way you like.

Once you fund your Solo 401(k), then you do something similar to above and establish an LLC that the Solo 401(k) owns. You fund the LLC with proceeds from your Solo 401(k) and Designated Roth 401(k) account, then purchase the new business, franchise or existing business.

Funding your Solo 401(k) in a hurry

You may be thinking... "What if I do not have that much in my Solo 401(k) at first?" If you rolled over a previous 401(k) to a Rollover IRA, then you can re-roll it right back into your new Solo 401(k). Depending on your eligibility, this can get you there in a hurry. Secondarily, you can make up to 100% of your income and put it in a Solo 401(k) up to about $56,500 for 2013. In other words, if your business paid you a salary of $60,000, then you could contribute $56,500 of that and put it in your Solo 401(k). You income would be reduced to $3,500 and you would owe no taxes and probably get a refund with deductions and exemptions.

Creditor and Bankruptcy Protection

Another benefit of the Solo 401(k) is that it has creditor protection in Florida. Further, it qualifies for full bankruptcy protection.

What's my angle in this?

I am a licensed real estate agent and can earn either normal real estate commissions for property purchased within an Real Estate IRA LLC or Real Estate Roth IRA LLC or a Solo 401(k) used to buy real estate. Further, if you prefer to use your own real estate agent, then I would charge a flat fee for each transaction, typically $1,000 or less either as a real estate referral fee or an investment advisory fee, one or the other.

Obviously, there is a lot more to these topics and I am sure that you might have some questions. Please feel free to contact me at 904-547-2913. I am here to help.

Wednesday, May 29, 2013

New Logos for My Firms

I recently had my logos re-done by Cheryl Mayo of Mayo Media. Their web site is Please visit their web site and contact Cheryl if you need any great graphic design work done. She is awesome!

For Marian Financial Services, Inc., I felt like the name of the firm was not allowing our firm to stand out among other firms. After all, what does "financial services" mean to most people? It means lots of different things and to me, causes confusion. So, instead of changing our name, I decided to promote our slogan instead of the name of our firm. The slogan speaks more to the issue at hand. We are The Right Answer. The Right Financial Adviser.®

I think this format for our logo makes much more sense for our firm. We are making a strong statement that we have the answers that people are looking for and also, we are the correct choice in seeking a financial adviser. I spelled Adviser with a "e" instead of an "o" because we are a Registered Investment Adviser with an "e".

Please visit our web site with our newly designed logo.

My other logo that Cheryl did for me was for my insurance agency, Rick Johnson Family Office, LLC. I get bombarded with calls all the time from other investment management firms who think that I have a billion dollars in assets. I wish I did, but unfortunately, as of today, I do not.

I wanted to clear the air, so to speak, and put to bed once and for all what is it that I do with Rick Johnson Family Office, LLC. So, working along the same theme as above, I wanted to highlight my trademarked slogan, Keep Your Assets. Take My Advice® and minimize the company name in the design.

In addition, I wanted to add "A Licensed Insurance Agency" so there would be no doubt about what this firm is all about. I sell Life Insurance, Health Insurance and Long Term Care insurance. If someone begs me, I might sell an Annuity, but it is not a major focus of this firm. I prefer selling the insurance products that protect families from financial devastation and or insure that their families can continue their current lifestyle.

Please visit my insurance firm web site at:

Thank you.

Friday, May 17, 2013

I must be really stupid

I must be really stupid or something. You see, I have done several things that would make me engaged in the future of my family. Most people are not engaged in thinking about their family and their future. Instead they want to focus on doing nothing and saving their money so they can spend it on themselves. They must be the really smart people. I have to be the stupidest idiot on the planet.

You see, I must be stupid because I have a pour over will and a living trust. Not only have I taken the time to have a will prepared, but also a living trust. In addition, I have amended my living trust as needed. Further, my wife and I have sat down and made the choices related to our health care, in case we become incapacitated. We have power of attorney documents for both financial and health care decisions. I must be stupid, because I paid an attorney to perform these services for my family. I am an idiot for not using an online service or software company to provide me a template and prepare these documents myself. I am even dumber for doing this while I was legally competent.

The smart people must be the ones who do not hire attorneys and pay them their fees. The really smart people must use online services or software companies and prepare their own legal documents. Or better yet, the really, really smart people must be the ones who do not have a will at all. These really, really smart people must be the ones who do not have a living trust, nor do they have living wills or powers of attorney documents, either. Boy I wish I was as smart as the really, really smart people.

You see, paying 3% in probate fees because you do not have a will must be a really smart strategy. Also, these really smart people know that if they go through probate, then everyone will know how smart they are, because everything about them becomes public knowledge.

Having to go to court and have a legal guardian declared to take care of your minor children must be a smart strategy, too. Instead of paying the attorney while you are alive, you pay the attorney and court costs when you are dead! The attorney has to file court papers for every year of your minor children's life until they turn 18 years of age. In fact, I know of a guy who remarried and had passed away without a will. He had remarried and had two minor children. He was so smart. A guardianship had to be established through the courts. He got to pay the attorney and court costs after he was dead.

The state law for those dying without a will in his state was that his two minor children got two thirds of his estate. The other third was fought out in court. His new wife sued the mother of his children. The new wife, you see wasn't in the will because there was no will, so she decided to hire an attorney to sue his estate in probate court so everyone could keep up with what was going on. It was all public knowledge by this time. This new wife even wanted to control the money for the minor kids that were not even her kids. You see this guy was real smart. He didn't have a will. He was so smart. He was even a doctor! Doctors are way smarter than I am. They go to college and medical school. That makes them way smarter than me.

You see, the really smart people do not want to have to make that "pulling the plug" decision with a living will. They have no need to worry about the future hospital costs, since they will be "veggin out" anyway. These smart people know that putting the "pull the plug" decision on the shoulders of their family members is no sweat off of their back. It doesn't matter that their family member may have regrets for the rest of their lives for having to make that decision. What's important is that the really smart person saved those darn attorneys fees. That trumps everything else. Nothing else matters when it comes to saving money for smart people.

You see, I must be really stupid, because I have life insurance and my wife has life insurance. This insurance is in place to help the surviving spouse in case one of us were to die prematurely. Yet, I must be stupid, because the smart people do not have any life insurance. How could I have been so stupid to buy life insurance when I was still healthy. If I would have only waited until I was uninsurable, then I could have saved all those life insurance premiums. Boy was I dumb.

I know of one guy who had two dads. One of his dad's, his biological father had little to no life insurance, even though he had four kids. The other dad, who was this guy's step dad, also had four kids, including his step son, but he must have been stupid. He bought $1,000,000 worth of life insurance. Both dads died prematurely. However, the step dad had to be stupid to buy $1,000,000 of life insurance. Are you kidding me? The sacrifice for the life insurance premiums must have been enormous. What kind of idiot would care enough about their four kids, even when one of them wasn't even his own, would spend money on life insurance? That step dad must have been really stupid. Just like me.

I know for a fact that I am really, really stupid, because me and my wife have a Long Term Care insurance policy. The really smart people must be the ones who do not have Long Term Care insurance. These smart people know that Long Term Care insurance is expensive, therefore they are smart enough not to buy any of it. They are smart enough to know precisely when they are going to die. They know for certain that they are just going to keel over one day and they will never need it. Either that, or they believe that their adult kids will not mind dropping everything in their own lives to care for them. This is obviously the smart way to take care of  Long Term Care issues. Put it all on the shoulders of their adult kids. Boy these people are so smart. I must be stupid, because I am paying for Long Term Care insurance. I am such an idiot. I could have saved that money and let my kids take care of me.

My conclusions for being stupid beyond a shadow of a doubt are that I paid for attorney fees to plan for me or my wife's early demise. I paid what most people would consider to be too much in attorney's fees. I paid for and continue to pay for life insurance and Long Term Care insurance. Pure stupidity. I could have saved all that money and the money that I have to continue to pay in the future. I am not selfish and self centered like all the smart people. That is a bad character flaw that I have...that is not being selfish and self-centered. I need to work on being more selfish and self-centered, then I might be one of those really smart people.

You see, smart people will read this blog post and receive confirmation on how really smart they are compared to me. I must be really stupid.

If you want  to discuss how hiring an attorney and paying Life and Long Term Care insurance premiums has made me so stupid, then feel free to give me a call.

Monday, May 6, 2013

Inightful Intuition or Luck

Often when I write about a particular subject, whether it be via a tweet or on this blog, there is often confirmation of my views in major publications that follow. For example, I have been harping against Non-Traded Publc REIT's for years. These so-called investments are sold to individual investors who in most cases are not sophisticated enough to understand what they are buying. The other day, I read an article in the Wall Street Journal where the Financial Industry Regulatory Authority (FINRA) was tightening their oversight of these investments. Apparently brokers have not been accurately disclosing the risks. Here are the risks:

  1. You can lose a significant portion of your principal.
  2. The General Managers take 11 to 13% right off the top on day one.
  3. Your income is a return of capital. (This is why they tout them as tax efficient.)
  4. Your broker can earn 8.5% in sales commission upfront upon your purchase.
  5. You have no liquidity after you buy it.
  6. You have to hold the investment for 10 to 12 years and sometimes longer.
  7. Your investment can be rolled into another poor performing portfolio.
  8. Your dividend can be lowered, temporarily stopped or discontinued altogether.
The odds are that if you ever bought a Non-Publicly Traded REIT, then you had no idea of these eight items above. Why? Because, brokers do not have any duty to do things in your best interest. They do not have to tell you much of anything, except "sign here".

I see this often where I write about it and later on, I read an article basically repeating some of the issues that I have already raised. To me, this is insightful intuition based on my dedication to learning. It certainly is not luck, because it happens way too often.

Common Sense

In my last blog article I wrote about how insurance companies were having troubles with their annuity products. Lo and behold, in today's Wall Street Journal, there is an article on insurance companies having trouble with these annuity products. Specifically, these insurance companies are having to withdraw their guarantees. In addition, they are now refusing to accept new deposits into these once lucrative contracts. As my dad would say, "That was the old deal. This is the new deal."

To me, this is all just plain old common sense. How in the world can an insurance company guarantee to pay you 7% per year on an annuity, year after year for life? Guaranteed? As they say on ESPN, "Come on man!" Common sense would tell you that they cannot guarantee that, yet people bought these in droves from insurance agents. Now they are finding out that was the old deal. This is the new deal.

The Truth

Ask yourself this question whenever you invest your hard earned money. "Is it true? Is it true that this Non-Publicly Traded REIT is a good investment compared to a Vanguard REIT ETF that has none of the negatives described above?" The truth will answer the question for you. Always ask yourself, is it true? If you do not know, then do your due diligence or research on it. If you do, then you will make better decisions.

If you are not subscribing to my blog, then perhaps you should.

Thursday, April 25, 2013

Insurance Agents and Companies Facing Tough Times

In my humble opinion, I believe that insurance agents and companies that sell annuities primarily, are having a rough go of things. There are four main types of annuities that are sold by insurance agents. There are also other types such as hybrid policies, but we will save that discussion for another blog article. The four main types are as follows:

  1. Fixed Annuities
  2. Indexed Annuities
  3. Variable Annuities
  4. Single Premium Immediate Annuities
Fixed annuities are where the insurance company declares a rate of interest based on current market rates and agrees to pay the annuity policyholders that rate. The problem right now is that these rates are 2% and less, so they are pretty much unappealing to consumers. The agents who normally sell these annuities are finding it very difficult to sell these, so they have gravitated to Indexed annuities.

Indexed annuities, when rates were higher, were real popular. A quick refresher on Indexed annuities is in order here. Indexed annuities, like their name implies, is based on an index such as the S&P 500® index. My dad was an insurance agent and was full of quips and jokes about insurance companies. One of my favorites of his related to when an insurance company changed the terms of their products. For example, Indexed annuities. When my dad found out that the old policies were not as favorable for his clients, he would quip..."that was the old deal. This is the new deal." You see, insurance companies have a routine. They come out with great products and push their agents to sell, sell, and sell some more. Then, after they get the policies on the books, they basically screw these customers.

For example, when Indexed annuities first came out, you could get cap rates around 10%. This means that if the S&P 500 made 10% or more, then your annuity would be credited with 10%. Sounds great, doesn't it? What the agent did not tell you was the insurance company has the right to change the cap rate anytime they please. So, after these customers bought these Indexed annuities with 10% cap rates, a scant few years later find out that their cap rates have been lowered to around 2.75%. This means that if the S&P 500 makes 15%, then you get 2.75%. As my dad would say..."that was the old deal. This is the new deal."

Of course, then we have another annuity type, the Variable annuity. Insurance companies made a major mistake with these products, too. They put all these Guaranteed Benefit riders on them and now they find themselves not being able to live up to the guaranteed part. In fact, several companies have even gone so far as to try and buy the guarantees back from their policyholders. If these insurance companies have resorted to this measure, then perhaps it might be time to take notice. Especially, if you have one of their Variable annuities.

Never mind the fact that most insurance agents have no clue how to invest these Variable annuities on your behalf. Nor never mind the fact that the expenses on these can run easily close to 3% a year, not even counting the commission that you have to pay.

Finally, we have the Single Premium Immediate Annuities. This is where you give the insurance company your money, let's say $100,000, and then they agree to pay you an income stream for life,  or one of their other payout options. In the past, when market interest rates were 6 or 7%, these were good options to consider. However, today with current interest rates so low, the SPIA's, as they are called, are only crediting you about 0.25% over the life of you annuity. Instead of getting 6% in interest on the income stream that you receive, you will only get the paltry 0.25%.

Insurance agents using a bucket approach have found themselves in a quandary. The bucket approach does not work with SPIA's right now. When rates go back up, then these will probably come back into vogue, but not right now. The bucket approach is a split annuity approach where you use a SPIA and also a deferred annuity. You combine the two to grow back to your original investment in 5 years. The problem is that the numbers do not work very well unless interest rates are high.

When you look at all of these products, it is apparent that insurance companies and their agents are running out of viable options to sell to clients. Here is why:

  1. Do you want to buy a Fixed annuity that pays 1% and you are locked into it for 10 years?
  2. Do you want to buy an Indexed annuity that while the stock market is going up over 10%, you are only getting 2.75%? Plus you would be stuck in it for 10 years?
  3. Do you want to buy a Variable annuity with guarantees only to find out that the insurance company is in financial trouble and they want to buy the guarantee away from you? Plus you would be stuck in it for 10 years knowing they might not be able to pay you at all?
  4. Do you want to put your money into a SPIA where you cannot get your money back with most payout options? A SPIA where they only give you your own money back plus a smidge in interest? Does that sound good to you?
Tough times are happening for insurance companies and their agents who sell these annuity products. These agents are crying in their beer right now. The old process of running a seminar doesn't work. These agents were okay spending $6,000 to put on a seminar when they had high interest rates, because they were selling annuities like beer on a troop train. Now however, they do not have appealing annuities to sell. They have been losing money on these seminars, because no one is buying these four products like they used to when rates were higher. Some old guard agents are trying radio and TV with ads like..."we have never lost a penny of our client's money." Sad fact is they are not making much money for their clients either and the guarantees are at risk.

If you own any of these annuities, then you may want to obtain a second opinion from an unbiased source. You may not be getting what you thought you were getting when you bought it.

Remember what my dad said. That was the old deal. This is the new deal.

A second opinion is always in order.

Monday, April 15, 2013

Look into the Future of Gold with Options

Okay. Today gold is dropping like a hot rock, but there may be a silver lining. No pun intended. I took a look at the January 17, 2015 calls for GLD and was not too surprised to see that the calls are still priced very high.

A quick refresher on Call options is appropriate here. There are two sides to options. One person is betting on the price to go up when you Buy a Call. The other side is a person who thinks the price will go down which is where you Buy a Put or Sell a Call for the income stream. Most options are 3 calendar months in duration. However, longer dated options are available that mature in January of each year.

Normally, when a security drops in price, the call options also drop in price precipitously. However, with GLD, this is not happening with longer term options. The price of Buying a 161 GLD Call maturing o January 17, 2015 is 6.00 per 100 shares.  In other words, if you thought GLD was going to hit the price of $161 per share, (it is priced at 6.00 per 100 share contract as of right now,) then you would load up on these call options. However, you would have to risk the premium of $600 that 100 shares of GLD will be over $161 per share on January 17, 2015. You only make money by what it exceeds the $161 price. Imagine if you bought 10 options at this price. You would have to put up $6,000 to get the $161 strike price. Yikes! That's expensive.

Think about this for a minute. If people really believed that GLD was going to tank and continue to go down, then the price of this 161 Call option would be cheap, cheap, cheap. The reason for this would be because investors would have to believe that there would no chance of it hitting 161 by January of 2015. If they believed there is no chance of it hitting the 161 strike price, then instead of the Call option being priced at $6.00 per 100 shares, it would be priced at less than $1.00.

So, now look at the reverse. If the price of this January 17, 2015 GLD Call option with a strike price of 161 is priced at $6.00 per 100 share contract, then this would translate into a lot of investors believe it is a good possibility that it will exceed that strike price at expiration.

If you are a long term investor who is properly diversified, then it appears that option investors believe that GLD will come back in less than two years.

In the short term, however, there is a lot of volatility for options that expire in 2013. What is going on is investors who sold Calls instead of buying calls are closing out their positions. In other words, if you SOLD a 161 GLD call and the market moved in your favor, then you close out your position by buying the 161 GLD call. This locks in the difference in price of the call.

For example, assume an investor BOUGHT a 161 GLD call that expired on April 20, 2013 for $6.00 per 100 share contract when they originally purchased it. Now, it is priced a 0.03 per 100 share contract. By closing out the position, the investor who SOLD the call would net a difference of $5.97 per 100 share contract. The investor who BOUGHT it could only get back the $0.03 per 100 share contract. Some investors win and some investors lose. In this example, the investor who bet that there was no way GLD was going to exceed 161 by April 20, 2013 was the winner.

So, now take this short term option example and notice that the price of the 100 share contract option had dropped to only $0.03. This is what happens when the market goes against the BUY side. So, to interpret this a little further, you would assume that if GLD was such a terrible investment going forward, then the January 17, 2015 Call option would also be priced really low like $0.03, but it is not. This means that there are enough investors who believe GLD will come back that the longer term premium prices for the 2015 options warrant a higher price. This further means that there is a lot of investors who believe that there is a strong "put your money where you mouth is" position for GLD coming back up in price by January 17, 2015.

I hope this makes sense.

It is never a good idea to sell on a day like today. Especially when you look into the future with options and see where the money is flowing. It is flowing to GLD coming back up in price longer term.

If the January 17, 2013 Call option was priced at $0.03, then we would have something to worry about. However, this is far from the case as of today.

Stay diversified and focused on the long term.

By the way, I am not a gold bug. I believe in prudent investment management based on a diversified strategy of passive index, low cost ETF's.

Monday, April 1, 2013

USPS Customer Service

This a rant and if you do not want to read it, then that's okay.

I ordered a package and chose the free delivery option. Little did I know that the package was being shipped by the USPS Priority Mail. If I had known that, then I would have paid for the package to be shipped. As it turns out, the package has yet to be put into my hands.

The USPS has a tracking site similar to FedEx and UPS where you put in the tracking number on their web site and it tells you the status. What this web site told me was that the package was delivered March 25th to Saint Johns, Florida. It doesn't say the street address. It doesn't say who signed for it, either. All it says is Saint Johns, FL.

Eureka moment for the USPS: Perhaps it would be a good idea to put the address and name of the person who signed for the Priority Mail package on your tracking web site!

Naturally, I dug around on the USPS's customer service web site trying to find a phone number to call. The first number that I called was an automated answering system where I put in the tracking number and it told me that the package was delivered to Saint Johns, FL on March 25th. There was no option to say..."No it was not!"

After going through all the phone prompts, I realized that I was on an endless loop where there was no options to speak with a live person. So, I hung up and tried another number.

At this new number, I finally found a live person. He asked for my tracking number and promptly went to the same web site that I did and told me that the package was delivered on March 25th, to Saint Johns, FL. I politely told him that I did not receive it. He transferred my call to some other person and this person wanted my tracking number. This person did the exact same thing. They went to their own web site and told me that the package was delivered on March 25th, to Saint Johns, FL.

By now, smoke is coming from my ears. This person told me that I needed a claim number. He got me a claim number and told me someone would call me by Monday at 5 pm. Someone did call me and left a message and I called them back first thing Monday morning.

Now, I was talking to someone in the Jacksonville post office that delivers my mail. He asked for my tracking number. I gave it to him and guess what he told me? The package was delivered on March 25th to Saint Johns, FL. I told him that I did not receive it. Do these people think that I am stupid I thought to myself? Ignoring the obvious, I told the man that I think I know why I have not received the package.

At my office, we have one of those letter boxes for the whole building where you need a key to get your mail. If you happen to get a package that is larger than your letter box, then there are some big boxes below that the postal carrier will put your package into. However, when they do this, they are supposed to put the key to the big box in your letter box. No key has been in my letter box all week and it does appear that one of the big boxes is locked. So, I told the man this is what I suspect had happened.

I was put on hold and then finally, the postal carrier for my building got on the line. She said the package was a small package and she put it in my letter box. I told her that I did not receive it. Then, she said, "you do not pick up your mail very often." I thought to myself that I pick up my mail no later than the next day and I fail to see how that is relevant. Nevertheless, I told the lady that I did not have it and I thought it was in one of the big boxes below. She said she would look for it when she comes by later today and if she finds it, then she will bring it to me.

Just for the fun of it, I went to the USPS site to see what happens when a package is lost. They have a online claim form and a process that they say takes a few weeks. The problem in my case is the package according to the USPS was delivered. It was not delivered. I cannot file a claim on a package that they say was delivered. The postal carrier is adamant that she delivered it to my letter box. This is of course, before she double checks it.

As luck would have it, I saw her drive up and she opened up the letter boxes and there it was in someone else's box. She handed it to me and apologized. I told her no problem. Not to worry.

I sure did have to go through a lot just to get my package.

Thursday, March 28, 2013

Itemized Deductions for Medical Expenses

Did you know that, not only are our health insurance costs going up, but also, the threshold for itemizing deductions related to medical expenses is going up to 10%. It has been 7.5% in prior tax years, but for tax years beginning in 2013, the threshold moves up to 10% of adjusted gross income.

Here are some example calculations for $10,000 in medical expenses:

Adjusted                                                     Amount that       Tax
Gross Income          10% Threshold        exceeds 10%       Deduction

$  50,000                   $  5,000                     $  5,000                $ 750
$  75,000                   $  7,500                     $  2,500                $ 625
$100,000                   $10,000                     $         0                $     0

Depending on your zip code, a typical health insurance policy for a family can be around $10,000 per year or more. My first question is how can a family making $50,000 a year pay for that? Assuming they can pay the $10,000, then they would be able to add $5,000 onto Schedule A. In a 15% tax bracket, this means that they would only knock off $750 from their tax due. In this example, this makes their health insurance costs $9,250 instead of $10,000. They still cannot afford this insurance, in my opinion.

If you have $100,000 in adjusted gross income, then you will not be able to meet the 10% threshold requirement since the cost of the health insurance is $10,000. No tax reduction for anyone over $100,000 in AGI basically.

The people over age 65 will not get this 10% threshold until 2017. They get a break for now. I would say the AARP was successful in their lobbying effort in getting this loophole. Remember, the AARP came out in support of the Affordable Care Act. I suppose that it would not take a smart person to figure out that this was one of the things they lobbied for during the legislative process.

The end result is the medical costs are increasing and tax deductions are disappearing. This is why I said, be prepared for changes to the Affordable Care Act.

My advice is instead of funding your IRA or Roth IRA, fund your Health Savings Account and get as high of a deductible as you can on your health insurance policy.

Tuesday, March 19, 2013


Starting January 1st of this year, Internal Revenue Code Section 1411 went into effect. This is the Net Investment Income Tax or as I call it, the NIIT-WIT tax. As a result of Section 1411, there is a 3.8% tax on Married Couples filing jointly if their adjusted gross income is over $250,000. For single tax payers, the adjusted gross income must be under $200,000 to avoid the NIIT-WIT tax.

I believe it is more important than ever to have an investment adviser who is also a real estate agent.

Here are some examples as to why.

Let's look at some planning situations whereby you might inadvertently fall into the NIIT-WIT trap.

1) Suppose you are single and go to your stockbroker and he tells you that the income limits for converting your IRA account to a Roth IRA are no longer in place. As a result, your stockbroker advises you to convert your IRA to a Roth IRA. In addition, your stockbroker tells you to use your Home Equity Line of Credit to pay the taxes. Once the Roth grows for about 5 years, then you take a cost basis withdrawal from your Roth IRA to pay off the Home Equity Line of Credit. In past tax years, this was a good strategy, but one that now needs to be well thought out.

Assume that you have $400,000 in your IRA account. Your adjusted gross income before the Roth Conversion is $100,000. Therefore, your total AGI is now $500,000. You are now $300,000 over the NIIT-WIT threshold.

But, wait, your real estate agent has found a buyer for your real estate investment property and the buyer is willing to pay your sell price. The cost basis on your investment property was only $120,000 and the sell price is $320,000. Another $200,000 is now added to your gross income for a total of $500,000 over the NIIT-WIT threshold. The total NIIT-WIT tax due is $19,000.

Odds are that your stockbroker and your real estate agent do not even know each other and neither knew what the other one was doing.

2) Suppose you are married and file jointly with the IRS. Your insurance agent has sold you a Non-Qualified Variable Annuity several years ago with 10% free withdrawals. Your Non-Qualified Variable Annuity has grown to $700,000 and you are starting to take the 10% free withdrawals from it, or $70,000 for this tax year. Your total adjusted gross income from other sources is $300,000, plus the $70,000 free withdrawal. At $370,000 AGI, this puts you in the 33% tax bracket. The 3.8% tax applies to the amount over $250,000, so in this example that would equate to $120,000. This puts an extra $4,560 NIIT-WIT tax burden upon you.

If you sell your real estate investment property in the same year with another $100,000 net profit, then that profit is added on top of the $120,000 amount making it $220,000 over the NIIT-WIT threshold. So, you could end up paying an extra $8,360 in NIIT-WIT taxes.

Odds are that your insurance agent and your real estate agent do not know each other either and they do not have any idea what the other is recommending.

3) Suppose you use an investment adviser who is also a licensed real estate agent. In example one above, the investment adviser knows your investments and knows your real estate properties. Because he knows that you have real estate for sale, he would never advise you to also convert your IRA to a Roth IRA in the same year.

4) Suppose you use an investment adviser who is also a licensed real estate agent. In example two above, the investment adviser knows that you bought the Variable Annuity from an insurance agent and that your income is already above the NIIT-WIT threshold. He would advise you NOT to take any withdrawals from the Variable Annuity when you are selling real estate in the same year, because all that is going to do is increase the NIIT-WIT tax. In addition, he would make you aware that by selling the real estate, then you are going to be increasing your exposure to the NIIT-WIT tax.

An investment adviser has a fiduciary duty to work in your best interests, even if they are also a real estate agent. Stockbrokers, insurance agents and real estate agents by themselves, do not have to offer their services in your best interests. The fact is that most of them are just looking to close a sale without regard to taxes. I doubt most of them even know about Section 1411 and its impact on the advice transactions that they recommend. This is why I call it the NIIT-WIT tax.

Personally, I believe in the team approach. At the very least, all of your financial professionals need to be involved in any and all of your major financial decisions that can potential increase your adjusted gross income.

Perhaps, an investment adviser who is also a real estate is a good place to go for advice.


I agree with the protesters in the streets of Nicosia, Cyprus. "No. Don't do it!"

It sets an awful precedence if banks are allowed to make bad decisions that make them insolvent, then get bailed out by the EU, IMF or their own government by confiscating their depositor's money.

Imagine if a big global bank made some horrible decisions that for all practical purposes made them insolvent. However, they knew that they could simple petition the EU, IMF or their government to bail them out for their poor decisions. What would stop them from continuing the activity? You are in effect letting them get away with the poor decisions without any real repercussions.

Think about this. The people who make the horrible decisions are still running the bank after they get bailed out! History tends to repeat itself. The likelihood of these same bankers making more mistakes in the future is very high. Why on earth would you bail out these executives at the banks when they have proven their ineptness?

Socialists believe they are entitled to everyone else's money in order to facilitate the greater good of society in general. If these socialists get this done, then "Katy bar the door". Others may follow suit. I suspect that we will see a run on banks in the EU if this happens. These people better think long and hard about what they are doing, because the repercussions can be global.

There is apparently about 30% of the Cyprus bank depositors who are Russians. Vladamir Putin is a little upset that he was not consulted about this idea. I can assure you that these smaller countries will see deposits dry up completely if they pass this idea. Those people who are affected will yank their money out and those banks will have less money on deposit in the end. In addition, they will be in worse shape, not better shape after it is done. I believe that they are going to yank their money out at the very first opportunity anyway. Watch as it happens.

It blows my mind how these people can even think of doing something like this, in order to pay for the mistakes of some inept banking executives. Bankruptcy is a better option. Let some other global bank buy the deposits. Write off the loan losses and move on. It is not that complicated. They have made things worse already. I doubt that they can put the genie back in the bottle now.

Let's hope they come to their senses.

Wednesday, March 13, 2013

Were you touched today?

As I watched and waited for the new Pope to appear to the Vatican City crowd below, I could not help but shed a few tears. After all, this is the Church of Jesus Christ who installed the very first Pope, St. Peter, who is well known as Simon Peter in the New Testament's Book of St. Matthew.

As the camera panned across the faces of the faithful people who were there to watch, my thoughts turned to the words of Our Lord Jesus Christ. In the Catholic Douay-Rheims Bible, Matthew 16:18, Jesus says "Thou art Peter; and upon this rock I will build my church, and gates of hell will not prevail against it." It is a remarkable site to witness the work of Christ continue on and in my view stronger than ever.

Jesus is the founder of the Catholic Church. The Pope is the one chosen to continue the legacy of Our Lord. Even when it is a historic fact and there are records of every Pope that ever lived, there are still those who doubt. It is no different today than it was during the time of Christ. There were plenty of non-believers back then, just as there is today. However, here we are some two thousand plus years later and Christ's Catholic Church is still standing. This is not a surprise to the believers and followers.

As much as the naysayers like to criticize the Catholic Church for it's recent scandals, they should first stop and think that they are criticizing the Church of Our Lord. They should have more reverence and respect.

God Bless Pope Francis.

Wednesday, March 6, 2013

Did I call that correctly, or what?

With my last blog post on February 19th, I said "Once people realize that nothing really happened by the Sequester cuts, the stock market will continue its path of slow growth." Well, I hate to pat myself on the back, but I was correct.

Now for my next prediction.

Investment returns are off to a great start this year, but we are liable to see a little dip between the 3rd week of March through April 15th. Why? People have to pay their taxes! In order to do so, they generally will sell some investment positions to free up cash. Historically, this is what we have seen during this time period for several prior years. Once we get past April 15th, I believe that we will continue our slow growth forward. So, do not be overly concerned during this time period if the stock market pulls back.

Stay diversified and stay invested.

Tuesday, February 19, 2013

It's Not As Bad As It Seems

First of all, the Sequester cuts are not going to have an earth shattering effect as some politicians would have you believe. The people in Washington, D.C. want to scare people into believing that the world is coming to an end if the Sequester cuts go through. This is pure rubbish.

I heard that poor teachers, firefighters and police officers will lose their jobs. The last time I checked, the Federal government does not pay these people their salaries. I fail to see how these people would be affected at all. It couldn't be that the politicians are lying to the American people, could it? Surely not. No politician would ever lie to the American people.

These politicians have been kicking the can down the road so long that they now think this is standard operating procedure. It would not surprise me if they did it once again. They do not want to cut even a lousy $80,000,000,000, which in the grand scheme of things, ($16,500,000,000,000 debt) is a pimple on an elephant's rear end.

I hope the Sequester cuts go through, because it will be the first real cuts by these politicians. Up until now, they have not cut one red cent. We have to start somewhere folks.

Even if the stock market pulls back as a result of the Sequester cuts going through, this will only be a temporary phenomenon. Once people realize that nothing really happened by the Sequester cuts, the stock market will continue its path of slow growth.

Remember, there is always a disconnect between what you hear from a politician's mouth, what you watch on TV and the reality of what will actually happen.

Thursday, January 24, 2013

Interesting Elder Care Planning Thought

Not too long a go, I know a lady who got married in her late 60's. She never thought that her husband would come down with dementia a few years later. Of course, she was the one with the assets. Suddenly, she feared that her assets were at risk. There is a five year look back, before you can qualify for Medicaid. Further, your spouse can only keep a little over $100,000. The problem was that this lady had several hundred thousand dollars.

Of course, they had no Long Term Care Insurance, because like most people, they did not think they would need it. Long Term Care Insurance is better to have than not have. It is kind of like car insurance. You pay for it year after year in the hope that you never need it. If you have ever had an auto accident, I would suspect that you are glad you had auto insurance. The same goes for Long Term Care Insurance. You should buy it, especially if you have assets of any amount that you do not want to have spend on Long Term Care expenses.

A lot of people think they would know what to do on their own, without the help of an Elder Care Attorney. Fat chance. At first thought, a divorce was recommended by their friends. The problem with this is that it is too emotional of a decision and may be against the person's religion. Unfortunately, the lady looked to be on the hook for her husband's long term care. The government was not going to pay anything for at least five years. By then, he would probably have passed away.

They went to the Elder Care Attorney for counsel. He did his diligent research and found out something very interesting.

In this case, the best Elder Care decision was made for this couple by the minister that married them. He was a legally authorized minister and could marry people. That wasn't the issue. What he did was actually a good Elder Care Planning Strategy. Instead of filing the marriage certificate, he gave it to the couple to file. When they went to the recommended Elder Care Attorney, he discovered that they were not legally married. This allowed the lady to keep her assets and take care of her ailing husband, without having to divorce him. She was able to take care of him at home until the last few weeks of his life, when he went to Hospice care. He never had to qualify for Medicaid. She was able to be her own Florence Nightingale.

The moral of the story, for those contemplating marriage later in life, may be to tell the person marrying you to let you file the marriage certificate. It could come in handy.

Saturday, January 19, 2013

Getting with the program

I have no idea what the beef was that the late Steve Jobs had with Adobe, but he had some reason for not adding Flash to anything Apple. Unfortunately for me, we had an Adobe flash web site at our firm. If we wanted to get with the program and allow people with tablets and mobile phones to see our web site, then it meant me getting advanced HTML5 skills.

I'm one of those people who believes that there is nothing that I cannot do. I already had HTML skills, but had no knowledge of how to do responsive web sites that resize automatically no matter what screen is viewing it. Why not learn about it?

Once in got into this, I quickly realized why web designers charge what the charge. There is a lot of time spent on testing each function of the web site. Also, there is a lot of trial and error. This work is tedious and takes a lot time.

However with a lot of late nights and weekends, I got the new web site up and going. There are some other things, like video that I may add later. For now though, I am satisfied enough to go live.

I hope you enjoy.