For the last couple of decades, the real estate industryâs focus on improving the home sale experience has centered on speed. Marketing messaging promises faster sales, speedier loan processing, and quicker closings. The emergence of iBuyers and cash-backed offer programs promises to finalize a home…
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Listen to these successful people: They’re trying to share the wealth.
Anyone who expected turbulence amid Elon Musk’s quest to acquire Twitter (TWTR) got precisely what they anticipated Friday morning, when the Tesla (TSLA) CEO tweeted that the Twitter deal was “temporarily on hold.”
TWTR shares plunged roughly 15% in Friday’s premarket trade following Musk’s tweet, which linked to a May 2 Reuters story about Twitter’s recent statement that “the average of false or spam accounts during the first quarter of 2022 represented fewer than 5% of our [monetizable daily active users] during the quarter.”
Musk later tweeted that he is “still committed to acquisition,” which helped cut into the losses somewhat, though another seed of doubt was already sown.Â
“[Musk] is clearly intent in querying the company’s estimate that spam accounts make up less than 5% of active daily users â a key metric given that establishing an accurate number of real tweeters is considered to be key to future revenue streams via advertising or paid for subscriptions on the site,” says Susannah Streeter, senior investment and markets analyst for U.K. firm Hargreaves Lansdown.
But she also raises the possibility of an ulterior motive.
“There will also be questions raised over whether fake accounts are the real reason behind this delaying tactic, given that promoting free speech rather than focusing on wealth creation appeared to be his primary motivation for the takeover,” Streeter says. “The $44 billion price tag [of the Twitter deal] is huge, and it may be a strategy to row back on the amount he is prepared to pay to acquire the platform.”
That price tag might seem like even more of a stretch now than when Musk first got involved with Twitter.
“I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced,” Musk said in April when he declared his bid for the social media platform.
Since then, the S&P 500 and the communication services sector have both declined by double digits, with many high-priced technology and tech-esque shares plunging precipitously.
Twitter, to be fair, is roughly flat since then. But this latest hurdle puts his once seemingly imminent Twitter deal even further in doubt among investors and analysts alike.
YCharts
The market has yet to price TWTR shares at the $54.20 per share Musk offered in April. Not even after Musk revealed earlier this month that backers such as Andreessen Horowitz, Sequoia Capital and Oracle (ORCL) founder Larry Ellison were lined up to help provide more than $7 billion in financing.
As of Thursday’s close, TWTR shares were trading 15% below Musk’s $54.20-per-share bid. In Friday’s premarket trade, that number was nearly 30%.
Wall Street’s pros appear mildly skeptical the Twitter deal closing, too. According to S&P Global Market Intelligence, the 27 analysts who currently cover Twitter have an average price target of $51.50 and collectively consider the stock a Hold.
Imagine youâre standing on the bank of a river. The bank youâre standing on represents your current financial status, and the opposite bank is the amount of wealth you need for retirement. The river itself is the difference between how much wealth you currently have and what must be accumulated to reach your retirement goals.
When we look at bridging this wealth gap, itâs important to factor in anything that could get in the way of reaching our goals. Thatâs why taxes are so important. You canât have an accurate calculation without understanding how taxes impact your wealth gap. You see, taxation plays a significant role in our ability to accumulate wealth. If you went through your whole life without utilizing any of the tax breaks available to you, you would have built substantially less wealth than someone who understood the Internal Revenue Code (IRC) and took advantage of its many tax-saving benefits.
In fact, one of my colleagues often calls the Internal Revenue Code âthe greatest wealth creation tool in the United States.â Heâs not wrong. The IRC is a tool for wealth creation. As such, it can be the difference in whether taxes impact your wealth gap in a negative way. You see, much of the IRC is pages and pages of information on how you can legally minimize taxes.Â
Let me be absolutely clear, I am not offering tax advice. Nor am I advocating for illegal or unethical means of avoiding the payment of taxes. You should always consult a professional before employing any of the strategies found within the IRC to ensure that you are compliant with the law.
The top marginal income tax rate of 37% affects taxpayers with a taxable income of $539,900 or more for single filers. Likewise, it impacts married couples filing jointly, with a taxable income of $647,850 and above. But what does that mean for you? Will taxes increase? Will tax brackets expand, or decrease? The only way to truly opine the answers to these questions is to look back at historical tax brackets.Â
In 1984, the lowest bracket was up to $3,400 for married couples. The highest tax bracket began at $162,400 (the 1984 values are the base upon which inflation indexing began). However, the brackets began to spread in the 1990s. In fact, the highest bracket floor in 1994 rose to $250,000 while the lowest bracket ceiling remained around $38,000. So, there began to be a âspreadâ between the tax rates of high-income earners and those with less income. That spread has become an albatross in the modern era.
To better put into context how taxes impact your wealth gap, letâs look at some of these numbers through a tax rate calculator. Using this calculator, if you were making $50,000 (in todayâs dollars) in 1913 you would have paid around 1% in taxes. However, that same $50,000 earnings in 1942 would have landed you in a 20% tax bracket. So, what happened? Well, that would have been about the time that the government needed to fund the war effort for WWII. Since that time, there hasnât really been a whole lot of movement. If youâre a single filer earning $50K today, youâre going to be taxed at about 22%.
However, most of the clients I work with earn much more taxable income than $50K. So, letâs go with a more realistic figure. We will enter $500K into the calculator. Keep in mind, the effective tax rate made a considerable change between 1937 and 1942. In 1944, a person earning $500K (in todayâs dollars) would be taxed at the bracket rate of 51%. That number rose to as high as 58.9% in the early 1980s.
Famed historian and co-documentarian of the PBS series Prohibition, Lynn Novick attributes the creation of the federal income tax to Prohibition in the United States. Novick states, âI had no idea how important liquor was to the federal government. It started in the Civil War with the levy on beer and whiskey to help fund the war, and it never really went away. Some 30% to 40% of the governmentâs income came from the tax on alcohol. So, Prohibitionists realized that the only way theyâre going to have a ban was through income tax, which was a progressive cause and was really supposed to distribute wealth and to make things equitable during the robber baron era, where the wealth was being accumulated in a very small segment of the population.â
In 1913, the top tax bracket was 7% on any income over $500,000 ($11 million in todayâs dollars). The lowest tax bracket was 1%. But so much has happened since then. Weâve experienced WWI, WWII, the Great Depression and so much more. Each of these events has played a major role in how we are taxed. For instance, the New Deal carried an inflation-adjusted price tag of $856.1 billion in 1933. Then from 1943 to 1982, the average tax bracket for the taxpayer earning $500,000 jumped from 14% to an average of 50% +/-.
Similarly, the Great Recession saw an economic stimulus that totaled $1.8 trillion. As a result, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained the 35% tax rate through 2012. And recently, we saw the largest stimulus package in our nationâs history, with the CARES Act, which checked in at a staggering $3.6 trillion. As we have seen in the past, we could reasonably anticipate another increase in federal income taxes because of this.
According to the old adage, there are two certainties in this life: death and taxes. With that in mind, I wanted to get you thinking about how taxes will likely impact your wealth gap. I want you to be confident in your personal plans and direction. You know what you want out of retirement and how long you have to build the wealth that will fund it. Donât let something like taxes throw off your calculation.Â
To ensure that youâre not overpaying on taxes, you should have a CPA helping with your annual tax filings. But thatâs not all. You should also be meeting with your CPA and CFP® about proactive strategies to mitigate your tax burden. The less you pay in taxes, the more you can save for retirement. Both will help you to close your retirement wealth gap sooner than later.
If you were to characterize the perfect investment, how would you describe its features? You most likely are describing something that doesnât exist â a financial unicorn that, if it actually did exist, would do away with all other financial products. But even though it doesnât exist as a single product, there are ways to design an ideal portfolio of products that encapsulates the features you desire; you just have to know what youâre looking for to do it.
Business coach Dan Sullivan has a saying, “Our eyes only see and our ears only hear what our brain is looking for.â In other words, to find what youâre looking for, it is essential to know what youâre looking for.
Simple concept, right? But I see people making mistakes with their money on a daily basis in my practice by overlooking options that arenât the status quo. People default to doing things that donât always align with what they want to achieve. Here are a few examples Iâve seen:
In each scenario we see people looking for financial security settling for a typically accepted path out of a desire to do âsomething,â but itâs most often not what they are looking for. This disconnect is a result of the continuous drumbeat of the status quo:
 This advice is repeated over and over, leading people to aimlessly follow this ideology simply due to the absence of any other obvious options.Â
However, these three concepts for handling money can cause more problems and difficultly for people than anything else other than debt issues. The simplicity of it makes it appealing and, on the surface, can make reasonable sense, but the results are underwhelming and mostly frustrating. Why? Because:
Is this how you would describe your perfect investment? Of course not, and while there is no perfect investment, you do have a choice: You can settle for the status quo, or you can think outside the box and do something different.
As I mentioned, what most savers are looking for is financial security. I define financial security as having access to cash when you need it for the rest of your life. This is easier said than done, of course, but it is where we need to begin.
There are four broad categories to consider when looking for products to accomplish this goal. Long-term growth, consistent income, access to cash and tax mitigation.Â
Aside from entrepreneurship and real estate, public stock markets have the highest growth potential over the long term. But there are two other aspects to growth that savers often overlook: growth through income and the idea of uninterrupted growth.
Growth through income centers around an asset creating income to reinvest, and it is best achieved through private markets, such as real estate, private equity and private debt. There is simply too much volatility in public markets to effectively pursue a growth through income strategy. It can be done but not as effectively.
Uninterrupted growth has more to do with how money is flowing. Let me explain. When you spend money, that money is gone and no longer working for you. However, using a private banking strategy that capitalizes on the unique features of a whole life insurance policy, you can actually have money accumulating in the contract while borrowing money to make your purchases. This leveraging strategy keeps your money growing uninterrupted while accessing money through loans collateralized by the contract. In other words, youâre building wealth on money you would otherwise spend. This is one of the most underutilized strategies because most people (including insurance agents who sell insurance) donât understand how it works.Â
One other thing about the insurance design ⦠the money grows and is accessible tax-free without age restrictions. This is a big deal as you will see in a moment.
Stacking these three growth strategies together expands your diversification, reduces risk, reduces volatility and can increase your wealth more efficiently and with more control.
Having consistent income ranks highest on the list of things needed to have financial security and is the primary reason traditional investments in the public stock market held inside or outside of traditional retirement accounts are less likely to be used for this purpose.Â
Without consistent income flowing into your checking account, you cannot effectively manage your cash flow, and if the source of that income is at risk of losing value, you add another layer of insecurity about the longevity of your income. This is a huge revelation for people, considering that the public stock market is the status quo default in retirement plans and is the least manageable of all ideas being discussed.
You cannot control the markets and therefore cannot predict the income, account value or its longevity. Itâs all hypothetical to assume what stock markets will do, but supporting your cash flow needs for 30 years in retirement is not hypothetical ⦠itâs real, and there is little margin for error.
Annuities and private market investments are best suited for income and should be the primary source for fulfilling the goal of having consistent income. You just need to know how to solve for this effectively.
Having access to cash is also high on the list for financial security and is another reason traditional investment in the public stock market held inside or outside of traditional retirement accounts is not the best option for holding cash. Age restrictions, market volatility and tax liabilities are all downsides of these products, making them problematic for storing cash.
Bank accounts are another default option for storing cash, but these accounts earn close to nothing and are taxable. Those two reasons alone are motivation to find an alternative.Â
Again, public markets are best suited for long-term growth, and banks are best used for moving money around to pay your bills and conduct business. They are not best suited for holding cash.Â
A specially designed whole life insurance contract as previously mentioned is much better suited for storing cash with tax-free growth, tax-free access, consistent growth and no government age restrictions.
Everyone desires tax mitigation, but it is mostly heard about and seldom seen in real life. The reason is simple: These strategies fall outside the status quo. People mistakenly think tax deferral is a tax mitigation method, but in actuality it is the primary source of tax problems in retirement.
It is a paradox that people who defer taxes with 401(k)s, IRAs and other similar retirement accounts think they are saving on taxes â because they are actually causing a larger tax problem for themselves. True tax savings is not tax deferral. Tax deferral just kicks the can down the road.
If you are already in a situation where you have a large amount of money in tax-deferred accounts and are looking for strategies to convert taxable assets to tax-free, then you will want to work with a team of experts who can help guide you through what is being discussed in this article.
The process for this is situational and has no magic formula for the masses, but I do want to state that this isnât simply advice for a Roth conversion. A Roth conversion can certainly be part of a tax-mitigation strategy to prevent the problem from expanding into the future, but we must first attempt to minimize the taxes of the conversion.
The status quo will have you believe that there is nothing more to learn and that trusting banks and the government is in your best interest. As ridiculous as this may sound to you, deferring taxes in a 401(k), storing money in the bank, and accelerating the payoff of your mortgage is exactly what defines status quo.
The biggest challenge is to remain open-minded and consider the fact that there is a better way. There is a saying that goes, your brain is like a parachute; it only works when it is open.
If you wish to learn whether what the ua-wealthy are doing can work for you, complete the Family Office Quiz at TakeBriansQuiz.com to see if you qualify.
When folks think of the worst stocks of the past 30 years, Lehman Brothers, Enron or Arthur Andersen are but three among legions of notorious names that might immediately come to mind.
Yet somehow, those corporate catastrophes don’t come near cracking the top 20 stocks that destroyed the most shareholder wealth in recent history.Â
That’s partly due to the depressing fact that there’s simply too much competition.
The respective popping of the tech and real estate bubbles in the U.S. and Japan; an appalling catalog of corporate malfeasance, malpractice and fraud; and the Great Financial Crisis make for a crowded field when it comes to the wholesale destruction of shareholder wealth since 1990.
But before we get to these all-time drags on shareholder performance, let’s start by defining our terms for wealth creation and destruction.
Hendrik Bessembinder, a finance professor at Arizona State University’s W.P Carey School of Business, takes a different tack when it comes to studying the best and worst performing equities.Â
The idea isn’t to figure out stocks’ straight-up returns, be they positive or negative, over some defined time period. Rather, as Dr. Bessembinder writes in his research:
“We measure for each stock the dollar amount by which the wealth of shareholders in aggregate was enhanced by their decision to take on the risk of stock investing rather than investing in low risk U.S. Treasury bills.”
Put another way, Bessembinder measures long-term shareholder outcomes both in terms of compound returns and relative improvement to shareholders’ wealth.
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To oversimplify a bit: Imagine an investor back in 1990. Rather than buy shares in, say, Apple (AAPL), what if he or she instead sunk their capital into risk-free one-month U.S. Treasury bills?Â
Think of Apple’s “return” in this case as essentially the change in market capitalization adjusted for things such as dividends, share repurchases or new equity issuance, when compared against the compound return of risk-free one-month U.S. Treasury bills over the same time period.
The T-bills are a kind of stand-in for opportunity cost. And the difference over time between the two investment choices, when positive, is wealth creation. It’s the enhancement.
In Apple’s case, the enhancement happens to be tops among the 30 best stocks of the past 30 years. Apple created $2.67 trillion in shareholder wealth, or 23.5% annualized, from 1990 to 2020, according to Bessembinder’s research.
But what happens when the enhancement is negative? That’s when you get wealth destruction.Â
“Wealth destruction is not simply a decline in market cap, though in many instances this will be the largest contributor,” Bessembinder says. “My calculations all take the one-month Treasury bill rate as the opportunity cost.”
A firm that generated a zero return would be destroying wealth, at least in those months where T-bill rates are positive, Bessembinder adds. His calculations also implicitly account for any share repurchases or new equity issuances.
“If a firm’s market capitalization falls, but the reason is a share repurchase, then no wealth is destroyed,” Bessembinder says.
Have a look at the top 20 stocks of the past 30 years in terms of how much shareholder wealth they destroyed:
“Long-term shareholder returns: Evidence from 64,000 global stocks” by Hendrik Bessembinder, W.P. Carey School of Business, Arizona State University, et al.
Note that 12 of the wealth destroyers in the table above are Japanese firms â and 10 of those names are banks. Japan’s banking crisis, which ran from 1991 to 2005 following a collapse in stock, real estate and other asset prices, is to blame.
The U.S. has the dubious distinction of making four contributions to the list. Wachovia, which fell apart amid the GFC, is today part of Wells Fargo (WFC). WorldCom, among the most infamous accounting scandals of its day, emerged from bankruptcy in 2003 under the name MCI. Parts of that business survive today within Verizon’s (VZ) Verizon Business division.Â
However, the greatest wealth destroyer of the past three decades by far is PetroChina (PTR). The Chinese oil-and-gas company is the listed arm of state-owned China National Petroleum Corporation. From June 2000 through December 2020, its Shanghai- and Hong Kong-listed shares destroyed more than a half-trillion U.S. dollars in shareholder wealth, Bessembinder found.
Perhaps the most salient aspect of Bessembinder’s research is that the vast majority of stocks are duds. Indeed, all of the $76 trillion in net global stock market wealth created over the past 30 years was generated solely by the top-performing 2.4% of stocks.
Investors were highly unlikely to buy and hold a concentrated portfolio of the market’s vanishingly small handful of outsized wealth creators. At the same time, the market’s biggest wealth destroyers were out there helping to crush investors’ long-term plans and goals.
If the lists of greatest wealth creators and wealth destroyers tell us anything, it’s the supreme importance of having a diversified portfolio.
With the hustle and bustle of the holidays, itâs easy for any working professional to set aside their personal financial plans. But taking a few minutes now to review some key items may turn into long-term savings.
Speaking to aging parents about money isnât easy. Here are nine important questions to ask.