Do You Know the Distinction Between Financial TRUTH and FACTS?

Do You Know the Distinction Between Financial TRUTH and FACTS?

One of my working theories is that nothing is really ever false, in the real sense of the word. Just think about the last time you had a passionate discussion (a.k.a. an argument) with someone who had an opposing view. Regardless of the subject, both of you claimed to be right – and needless to say, each believed that the other party was terribly mistaken.

Ever heard the sayings, “Beauty lies in the eye of the beholder” or “One man’s meat is another man’s poison”? I believe these truisms to be accurate because each of us has the right (yes, the right) to define our own truths. Stated differently, we may believe whatever we so choose. Does that, however, mean that “our truth” is fact? Of course, not!

When it comes to facts, the rule is exactly the opposite – in that no one gets to define their own facts. This theory is what has kept me sane over the years as a financial professional. I don’t know enough about other areas, but based on the evidence I’ve seen, I’m tempted to say that no other field has so many folks (including some of the very professionals who are supposed to know better) spouting “truths” as if they were absolute facts.

All you need to do to see this in action is simply perform an Internet search on just about any given personal finance subject. More likely than not, you will end up confused – or much more confused – and that’s regardless of your financial IQ.

The great news here is that a fact cannot be defined, redefined, or tweaked in any way, shape, or form. In personal finance, the 12 statements below are not facts (I repeat not fact); nevertheless, they are “true” for millions of folks – including some so-called financial advisors:

1. When you retire you’ll be in a lower tax bracket because your total income will be lower than it was when you were working
2. Aggressively paying off your mortgage debt is savvy and always beneficial to you, financially speaking.
3. If you hear financial advice through the mass media, it is obviously correct and right for you.
4. Investments with high gross returns will automatically generate the most income for you to spend.
5. Investing in a life insurance policy is savvy only for folks who have dependents still in their nests.
6. 401(k)s or qualified plans in general are, hands down, the best way to plan for your retirement.
7. Once you ignore the day-to-day gyrations associated with variable investments, you’ll end up well in the long-run, when it matters most.
8. Term insurance is less expensive than permanent insurance for the same person.
9. When you file your taxes and break even or receive a refund check from the IRS, it means you did not pay any income tax that year. Alternatively, owing $500 means you paid just $500 in income tax that year.
10. Learning that the stock market or a specific variable investment has averaged "x" percent return over a given time period means that if you had owned the same investment over the same time period, you’d have earned that return in reality.
11. Roth IRAs are the best known tax-advantaged vehicles offered in the U.S. Tax Code.
12. If a particular financial product is good, a lot of people should (and would) know about it – and own it, too.

Just to reiterate what I said earlier, these 12 statements may be truths for some, but they are NOT FACTS. In the coming weeks, I’ll cover each of them (not in any particular order or time frame) and debunk the myths with actual, undeniable factual information. 

So the next time you hear and/or see two or more advertisements by competing manufacturers or service providers, each of whom claim to be ranked #1 in the same category, or two opposing politicians going at each passionately claiming to be right, just remember my little working theory. 
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Schedule your complimentary consultation with a financial professional at Laser Financial Group. We'll give you facts so that you can make up your own mind about what is true for YOUR financial situation. 301.949.4449 or LaserFG.com. 

Why Must Tax Rates Increase? Two Words: Social Security

Why Must Tax Rates Increase? Two Words: Social Security

Okay, so does all this rap about tax rates rising because of Social Security make any sense? Social Security? Isn’t that a program into which we have already contributed money so that the only thing left is for those “savings” to be returned to us in retirement? I mean, isn’t that the way just about every other savings program –401(k)s, annuities, and the like – works?  

I wouldn’t fault you for inferring that Social Security works that way. But the rather disappointing thing is that this perception of Social Security is NOT accurate. In fact, it’s not the reality at all. Notice I’m not saying that view, in and of itself, is preposterous. Actually, I think it would be very nice IF that were the reality – but it’s not even close.

The “trust fund” misnomer

The very first thing I’d like to establish is that although we keep hearing the term Social Security “trust funds,” those words, in my opinion, are a deceptive kind of wordplay. Why would I say such a thing? Let me ask you this: What comes to mind when you hear the term, “trust funds”? You probably think of a ginormous war chest with billions or trillions of dollars (all those contributions from the paychecks of every working person), right? No – wrong! There’s no such thing as actual money sitting in any trust fund.

I want to remind you that I’m not revealing any conspiracies of any sort, although it may appear so right about now. And I am NOT telling you anything the Social Security Administration itself hasn’t already revealed.

So what happened to all that money we contributed?

The government has “borrowed” it, all of it, every last cent. In return, Washington, D.C. has issued the “trust fund” IOUs – which are basically paper saying that the government has borrowed the money.

So how is Social Security able to pay current recipients, then?

You may have heard that Social Security is a “pay-as-you-go” system. That’s how the government defines it. What does that mean? Simply put, since there’s absolutely nothing sitting in any trust fund anywhere on this planet, what happens in reality is that the Social Security system uses the payments they receive from those currently paying into it to fund the benefits for those who are due to receive them now. In other words, the money from those paying today is given to those who are presently retired, and so forth. I don’t think it’s a scam, but I wonder – really wonder – who else could run a system like that and get away with it. But hey, that’s “pay-as-you-go.”

How is this going to lead to a tax hike?

Social Security is more than 75 years old, and this “pay-as-you-go” format has worked thus far. You see, about 65 years ago, for every single American retiree, there were 45 workers paying into the system. So of course, that was simple. Who can’t collect from 45 people and settle up with one person? You’d even have plenty of extra money, wouldn’t you?

The reality and huge problem is that demographics do change. Today we have only about 3 workers paying IN per every recipient. You can tell “pay-as-you-go” is getting pretty tight, can’t you? On top of it all, add in the fact that since the stroke of midnight on January 1, 2011, an estimated 10,000 baby boomers PER DAY are scheduled to turn age 65 – brace yourself – every single day for the next 19 years straight! Now that’s a lot of people moving over from the paying IN side to the receiving end of the deal. This, coupled with “trust funds” with no actual money in them, spells only one word: TROUBLE. In my view, no matter how you massage the numbers, the system cannot continue to function “as is”!

If you are stunned by this, you shouldn’t be, because the Trustees of the Social Security program have been saying this for as far back as I am able to see in their annual reports.

It all comes down to this: the program takes in money and pays out benefits. But the government has “borrowed” all the excess contributions, so there’s nothing there now. And the government needs to pay it back! The challenge is that this is the same government that is in debt to the tune of $14 trillion+ (with a “T”) and can barely pay just the interest on that debt.

So where’s this IOU cash going to come from?

Honestly, I don’t have the slightest idea. My guess is that no politician is dumb enough to try to mess with the benefits promised to those who’ve paid into the system. That wouldn’t even be fair – to borrow my daughter’s vocabulary. In order to make things work, those currently paying into the system will somehow have to foot that bill – in the form of increased taxes. Got it now? That’s the only logical step.

What will happen to your retirement lifestyle if tax rates hike?

Of course, you’ll have less money to live on. But did you know there are things you can begin doing today (even if you’re already retired), that’ll legally insulate you completely from future tax hikes? You are welcome to join us at our next public workshop on Saturday, July 23. Reserve your seats here or call 301.949.4449. Of course you may always schedule a private consultation to talk with a professional at one of our offices.

Warren Buffett’s Two Rules of Investing (and How You Can Nail Them)

Warren Buffett’s Two Rules of Investing (and How You Can Nail Them)

Unarguably one of the greatest and most successful investors the world has ever seen, Warren Buffet’s views  on investing are considered golden, and rightly so. Mr. Buffet has laid out two basic rules:

Rule One: Never Lose Money.

Rule Two: Never Forget Rule One.

A quick Internet search would return volumes about these rules, but ninety-nine percent of those commentators claim that investors are not supposed to take these rules at face value – because that was obviously not Mr. Buffett’s intention? Their central theme seems to be that someone as smart as Warren Buffett knows better: it simply is not possible to never lose money.

While I have never met Mr. Buffett, so I cannot speak, clarify, or try to gauge his intentions with those rules, I’d like to point out two quick things.

First and foremost, if (and only if) you assume that investors must invest their money directly in the stock market by using individual stocks, mutual funds of some sort, or any other traditional variable investment that goes up and down directly with the markets, then Mr. Buffett’s rules are indeed not to be taken seriously. In that case, I’d say they don’t even make sense. I believe we can all agree that the world’s most novice investor would understand that, in that instance, those two rules are a complete joke!

Having said that, secondly, if you look (you don’t have to examine, just look) at the rules again, you’ll probably agree with me that they are pretty cut and dried, right? It seems to me that there’s no meaning to them other than exactly what they say. Question: Why would a shrewd investor of the caliber of Warren Buffett (and this is the legendary Warren Buffett we’re talking about here) present rules that are backwards, require F.B.I training to decode, and above all seem impossible to follow?

Here’s the thing, though: I can tell you with 100 percent certainty that it is possible to pursue an investing strategy that will allow you to make decent stock-market-based gains during those years when the stock market is up and guarantee (yes, guarantee) that you’ll never lose money when the market plummets.

The approach is simple. It just links your investment dollars to the stock market, so to speak – as opposed to putting the money directly into the market. This ensures that your principal or capital is guaranteed. Then, you will receive a minimum guaranteed interest rate which will be added to your principal if the market dips or gains less than that minimum. There is a cap on the maximum gains your account can earn, but it’s as simple as that.

By way of a quick hypothetical example, let’s say that your minimum guaranteed rate is 2 percent, while the cap is 15 percent and it’s linked or tied to the performance of the S&P 500 index. You invest $100,000. All things being equal, in the worst case scenario of the S&P 500 index losing money that year, your $100,000 principal would grow by the 2 percent minimum ($2,000) to $102,000. Yes!

If you use this approach, you’ll never lose money when the market dips. In fact, in this given scenario, you’ll make money by picking up the minimum guaranteed rate. On the other hand, if the S&P 500 index were to gain say 10 percent, your $100,000 would grow by 10 percent or ($10,000) in this example, because the upside cap is 15 percent.

The bottom line is that I don’t claim to know what Mr. Buffett intended when he shared those two rules. But I’m telling you that as an investor you can make those rules a reality. After all, if you keep taking dips here and there, isn’t there a very real possibility that you could wind up losing the very principal you began with in the first place?

As for the “experts” who are still trying to explain and convince investors that these rules are not meant to be taken literally I’d suggest they get real and climb out of the traditional boxes. We are living in a new economy and new age where the challenges investors face are not the same as those of yesteryear, when almost everyone could count on a pension, and therefore count their own savings as just gravy money. Your retirement is certain and real – isn’t it time you invested that way?

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Contact a financial professional at Laser Financial Group to schedule your complimentary appointment TODAY. Learn how you, too, can create a strategy that will enable you to make Warren Buffett's rules a reality for YOU. 301.949.4449 or LaserFG.com.

Is This Supposed Investing “Golden Rule” Inconsistent or What?

Is This Supposed Investing “Golden Rule” Inconsistent or What?

When perilous stock market days like those of this past week occur, we are reminded of this investing golden rule: “Keep your focus on the long-term.” Which is simply another way of saying, “Don’t pay much attention to the here and now.”

Everyone – investors and financial advisors alike – know for a fact that at the end of every single trading day, the stock market could end up higher or lower than it was at the beginning, period! Or so you would think – since there is no other option in between.

Say a financial advisor were to suggest to you that the stock market would always go up, or vice-versa. Wouldn’t you be wise to stay as far away as you could from such a completely delusional guy or gal? Of course you would! If you’ve invested your retirement nest egg in the stock market for a fair amount of time, I’m almost certain there has been at least one occasion when you got a little bit nervous – or perhaps freaked out a whole lot? And I’m guessing that occasion had to do with a time when the market took a huge dip, right? In fact, I’m thinking I would have the same reaction if my nest egg were invested that way.

But the thing that has had me scratching my head for all this time is why this “long-term focus” gets invoked only when things look bleak? I mean, you’ll never hear this explanation on those days when the stock market post huge gains. On those days, you tend to hear something to the effect of, “You’re really missing out if you are not in the market right now – so make a decision to hop in ASAP,” based on the short-term gain, so to speak.

So, on the one hand, don’t get nervous when the stock market dips (because in the long term, whenever that is, you’ll do just fine), but on the other end of the same continuum, get giddy and make a move because, hey, things look good today?

Expectations, Expectations, Expectations 

• If every investor had a candid discussion with their advisors at the outset, with all the puzzle pieces available, wouldn’t everyone know exactly what they signed up for, and therefore what to expect on any given day?

• Are investors being presented with all of their available options so that they can choose what they could stomach, in the event of either a huge rally or a giant dip in the market?

•  Or are their so-called advisors behaving like dictators, offering them only what they (the dictators) think the investors should own?

Only you know the answers to these questions for your situation. However, the plain and simple fact is that it does not have to be that complex at all – because it’s not! Those who know what to expect prepare for it, one way or the other, unless they prefer to leave things up to chance, in which case they still know what to expect and therefore should not act surprised because the one sure thing about the stock market is its unpredictability. 

By the way, isn’t “long term” a mere summation of what happens over the short term? So, if the market keeps taking dips here and there, guess what has to happen when the long term finally rolls around? 

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Call today to schedule your complimentary appointment with a strategist at Laser Financial Group so you can have a conversation about the full range of your financial options - both short and long term. 301.949.4449 or LaserFG.com.