High-Risk Investments: Are You a Gambler? Like Rolling the Dice?

In Hawaii, many of our island residents consider Las Vegas their second home. It’s the “9th Island” in the Hawaiian chain. It’s a lot more accessible than Monte Carlo, and they even have ono grinds.

But here’s a message for all investors who like playing with high-risk investments: Math is not money, and money is not math. Imagine you are investing $1,000 in a mutual fund. You have a fantastic first year, earning a 100 percent rate of return, bringing your balance to $2,000. In year two, things go poorly and the investment loses 50 percent. Your balance is now back to $1,000. In year three, the market goes up and you earn 100 percent again, bumping your balance back up to $2,000. The fourth year markets tank again and you lose 50 percent. Your balance has now fallen back to $1,000.

Notice that your beginning and ending balances are exactly the same. Your actual yield is a big fat 0 percent. Here’s the interesting thing. What is your average rate of return? 25 percent. I know any investor would love to get a 25 percent return. A mutual fund with this exact performance could advertise, “Our fund has averaged 25 percent over the last four years.”

It’s a true statement. It is not illegal or blatantly dishonest. It simply fails to illustrate the fact that investors actually ending up with no return.

One of my close friends (and fellow Bruin) is now a major league hedge fund manager. He knows something about high-risk investments. But what does he have in his portfolio, aside from his astute equity choice of index funds? He has a guaranteed contract with Guardian Life Insurance Company of America. As a 150+ year old mutual company, Guardian pays him a respectable RoR on his participating policy. To be sure, Guardian distributes its profits to policyholders as dividends through the insurance policy. Whereas, on the flip-side, a non-participating policy is a policy that does not earn profits from the insurance company. While a dividend-paying whole life policy is not considered an investment, it certainly returns handsomely on an investor’s investment of capital into it.

In fact, to be clear, the primary purpose of life insurance is to provide a death benefit to help replace lost income and protect loved ones from the financial losses that could result from the insured’s death. However, a dividend-paying whole life policy does more. Aside from many other benefits, it offers a number of tax advantages, many of which are unique to life insurance. For brevity, here are just three huge tax benefits of life insurance:

1. You pay no current income tax on interest or other earnings credited to cash value. As the cash value accumulates, it is not subject to current taxation.

2. You pay no income tax if you borrow cash value from the policy through loans. As a general rule, loans are treated as debts, not taxable distributions. This can give you virtually unlimited access to cash value on a tax-advantaged basis.

3. Your beneficiaries pay no income tax on proceeds. Your beneficiaries generally receive death benefits completely free of income taxation.

In my decade-plus professional experience and humble opinion, people are simply unaware of the ways, or let’s just say, the right ways to utilize this most versatile of financial products. It is for this purpose that I strive to educate my clients. People need to realize that taxes will ultimately have the biggest impact on their retirement dollars down the road. Now is the time to address it.

For any conservative, long term investor, a properly structured dividend-paying whole life policy will outperform any tax-deferred option available. To boot, with our new technologies such as the Living Balance Sheet®, we can back it up anytime with real-time mathematical calculations. It’s empirical. However, like everything else, there are caveats. It all depends on one’s circumstances. And please, don’t take my word for it. Think for yourself and do the necessary analytical research. It must be based on your unique set of variables. If you do need any help, please contact my offices and let’s meet. There’s no cost and absolutely no obligation on your part. At minimum, I’ll help you run the numbers and you can decide for yourself. Here’s to your continued success!

Key 2014 Pension/Employee Benefit Numbers and Other Essential Tax Data

Our Business Resource Center (BRC) just sent me these important, Key 2014 Pension/Employee Benefit Numbers for a client-company of mine. I thought that these same numbers might be helpful to others as well. Many of the annual adjustments to the numbers on the attached charts are based on the federal cost-of-living index. Because the federal cost-of-living index for the quarter ended September 30, 2013, is higher than the cost-of-living index for the quarters ended September 30 for the preceding year, most of the limits for 2014 are higher than those for 2013. Unless otherwise indicated, all section references are to the Internal Revenue Code.

Secrets of How the Economy Works from the Billionaire Founder of the World’s Largest Hedge Fund

A few days ago, Ray Dalio, founder of Bridgewater Associates (the world’s largest hedge fund) was interviewed by Charlie Rose on, “CBS This Morning”. In September 2013, Dalio put out his video entitled, “How the Economic Machine Works,” narrating and explaining how he thinks the economy works. Dalio is personally worth over $10 billion; so to say he understands the economy is a gross understatement. When asked by Rose to summarize the video, Dalio said: “It’s in 30 minutes a description of how I believe the economic machine works, in other words I believe the economy works like a machine.  I believe most things work like a machine. I’m a market participant.  I’m a global macro-economic investor.  And so it’s from–I think—a very practical perspective.”

Stunned, Rose went on to ask Dalio, “Some would say the following. ‘If I had made billions of dollars, because I had a unique understanding of the way the economy works, I’m going to keep it to myself’.” To that Dalio replied, “Well, that’s why I say when I’m 64 years old.  I’m going to — you know, in the stage of my life where I think this is valuable. I think that people take 30 minutes, watch it, and understand it.” 

Over the years, I have watched, and been a follower of Dalio’s work. He runs his renowned firm on a distinct set of transferable principles, which encourage extreme transparency, and at it’s core, requires one to challenge their beliefs. I learned of his operating doctrines a while back after reading his 123-page treatise he put out in 2011 simply called, “Principles by Ray Dalio”. Is it a little ego driven? Sure, of course, would do you expect? But make no mistake about it, Dalio’s views are well-respected for good reason. Aside from running the world’s largest hedge fund, he has a tremendous track record. And like E. F. Hutton in the 1970s and 80s, today, “When Dalio talks, people listen”.

Do You Believe in the Value of What You Do?


I recently read an interesting article in an industry publication. Its purpose was to serve as a reminder for those of us who are in the financial services profession. It said that we need to truly believe in what we’re doing as professionals—that is, doing good in the world by serving our clients.

The article went on and stated that it’s too bad we can’t all read our obituaries and determine how other people view our life. There is at least one exception to this and that is Alfred Nobel.

Nobel was the wealthy Swedish businessman who established the Nobel Prize. He had invented dynamite and became one of the world’s largest producers of explosives. When his brother died in a test of explosives, a newspaper mistakenly printed Alfred’s obituary instead of his brother’s. It read:

“The Merchant of Death is dead . . . Dr. Alfred Nobel, who became rich by finding ways to kill more people faster than ever before, died yesterday.”

When Alfred read it and saw that his life amounted to so much destruction and killing, he was devastated. He decided to do something to benefit humanity, and he used his fortune to establish the Nobel Prize for people who do good in the world. Do you believe in the value of what you do?

States You Shouldn’t Be Caught Dead In

WSJ logoA colleague of mine, Gregory Gassert, who is in our Minneapolis affiliate at Guardian Wealth Strategies, was recently featured in a WSJ article entitled, States You Shouldn’t Be Caught Dead In. In this piece, Hawaii is featured as one of two states that track the U.S.’s $5 million-plus exemption. However, as Gassert shares, “most state exemptions aren’t indexed for inflation, extending the tax’s reach over time.”

So what can be done to minimize or avoid potential problems? As with most financial planning issues, experts say, “careful planning is required to avoid traps—especially for taxpayers who move to another state.” And to be clear, there are a host of strategies to mitigate federal and/or state estate taxes. For one, consider section 529 of the Internal Revenue Code which provides for an often overlooked estate planning vehicle designed to protect assets away from estate taxes over multiple generations and can act like an education endowment. For more applicable details as it relates to your situation, you will want to have a more in-depth discussion with your estate planning attorney or CPA. http://online.wsj.com/news/articles/SB10001424052702304682504579155510034634716

2014 Tax Data You Should Know

Many limitations and thresholds which are related to taxation change from year to year; some do not. From Estate, Gift, and Generation-Skipping Transfer (GST) Taxes, to Qualified Retirement Plan Limits, and Income Tax Rates, as well as Tax Exemptions, Standard Deductions and more. Below is a listing of the 2014 numbers for some key tax matters. Hope it can help you to be better prepared.
2014 Tax Data You Should Know

As always: The foregoing information regarding estate, charitable and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only. We do not provide tax or legal advice. You should consult with your tax and legal advisor regarding your individual situation.

Does LTCi Make Economic Sense? You Decide.


Consider my clients who are friendly neighbors of mine at Yacht Harbor Towers in Honolulu. After sitting down together and reviewing their unique personal situation, they bought long-term care insurance (LTCi) policies that would help pay what was then the going rate for this type of care here in the islands. But, to be sure, it wasn’t a “snap” decision. It never is with LTCi. Every LTCi client I deal with, no matter how wealthy they may happen to be, always wants to know, “what will it cost us?”, “what if we never use it?”, etc.

[Hopefully after viewing the featured, “Vernon Duckett – Peace of Mind for the Long Term” video, viewers will have a paradigm shift and their focus will be on the unequivocal, vast potential benefits.]

Long story short, this fine couple started with me in 2009 with a $250 daily benefit and a four-year benefit period with 5% simple inflation (vs. preferred “compound” inflation variable which I advise), which means the benefits increase at 5% of the original amount each year until they double in 20 years (he’ll be 83, she 82). Their daily benefit would have been growing at $12.50 each year so their benefit pool is now worth $425 x four years = $730,000. She and her husband bought the same policy so together they have $1.4 million in benefits. There is a 30-day elimination period so they are responsible for the first 30 days in charges.

He and his wife were 62 and 63 when they bought their policies in 2009, and their combined premium is $5,828 annually. They have now paid about $30,000 in premium for the $1.4 million in benefits in 20 years. If one of them had a claim today and used the entire daily benefit of $312.50, they would get their entire premium back in less than four months. A measly four (4) months! On top of that, the premium would stop for the one on who is on claim.

So what do you think? Does LTCi make sound economic sense? You Decide: It’s Your Life. But in my professional estimation, LTCi doesn’t just make good economic sense, it is actually a BARGAIN. So did my neighbors make a good economic decision? I definitely think so.

The Elusive Concept of Happiness

Amazing how there’s entire websites devoted to the elusive concept of, “happiness”. At Successories, one of our bestsellers was an Abraham Lincoln quote which for me personally has always summed it up succinctly:  

“People are just as happy as they make up their minds to be.”

Then earlier today I read this one by Ralph Waldo Emerson:

“Finish each day and be done with it. You have done what you could. Some blunders and absurdities no doubt crept in; forget them as soon as you can. Tomorrow is a new day. You shall begin it serenely and with too high a spirit to be encumbered with your old nonsense.”

Rough Rider & Bull Moose

ImageGrowing up we all learned about Theodore “T.R.” Roosevelt, Jr. fighting as a “Rough Rider” in the Spanish-American War. But I was clueless to his true character. Of course, he was highly educated (Harvard) and well read, but more than that, he was a hard-nosed, rugged man’s man and tough as nails. The more I read about our 26th American President, the more I respected this great man and the admirable life he lead. He was much more than I had ever imagined.

First of all, as an example, let’s talk about my favorite motivational topic—perseverance. TR truly exemplified it. He did not achieve great political success from day one. In fact, in 1886, TR ran as the Republican candidate for mayor of New York City; he came in third. But he pushed on, persevered and ultimately became commander-in-chief.

ImageWhile TR was campaigning in 1912—in a lost race—a Wisconsin saloonkeeper shot him. But the bullet was lodged in his rib cage after being slowed by his steel eyeglass case and thick, 50-page speech he was carrying(see adjacent images). Instead of going to the hospital immediately, instead he chose to deliver his planned speech with blood still dripping from his shirt. He went on to speak for 1½ hours. His told the crowd of 10,000: “Ladies and gentlemen, I don’t know whether you fully understand that I have just been shot; but it takes more than that to kill a Bull Moose.”

To be clear, Col. Theodore “Teddy” Roosevelt walked the talk, and definitely personified and lived the values he espoused. Finally, I’ll leave you with what I believe to be the most notable portion of this great President’s speech, “The Man in the Arena.”

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.