REAL WEALTH.

I Am Interested in Creating Wealth.
But lately I have been thinking more and more about real wealth. The picture on the right illustrates the kind of wealth we can all enjoy whether we have money or not. Our world is filled with so many wonders, everything from trees and flowers to little miracles like the one in the picture. Like so many others, I have spent so much time trying to create financial wealth that I have not taken enough time to enjoy the non-material kind. I plan to remedy that situation in the time I have left.

Re-Distributing The Wealth. To quote the president, " When you spread wealth around, everyone benefits." Many of us disliked that statement but it is true. Even the most conservative among us wouldn't want to live in a country where most of the residents live in poverty while a small percentage live in luxury. The question is, how far should we pursue the objective of spreading the wealth? Viewed from another angle, it appears obvious that if we tax high earners and give their earnings to the low earners, we may reach the point where it becomes less beneficial to work hard and produce more, and more beneficial to enjoy the fruits of the labor of others. Where do we stand in this process? You decide.

Our Tax Code Has Always Spread The Wealth. Since the beginning of the income tax, high earners have paid more than low earners. Not just on an absolute basis but on a percentage basis as well. We labeled the Bush tax cuts as "tax cuts for the rich" but is this really true? I was blown away by recent data that showed 47% of Americans will pay no income tax in 2009. It was also astounding that a family of 4 can earn $50,000 and pay no taxes. In fact, they will receive tax credits that exceed the tax they pay. Many of my readers will not believe this, so here are the cold hard facts. 1. The standard deduction is equal to to $11,400. 2. Personal deductions are 4x$3650 or $14,600. 3. This leaves $26,000 in taxable income and a preliminary tax obligation of $2,640. 4. Tax credits are $1,000 per child or $2,000. 5. The stimulus package allows $800 in credits, leaving the "taxpayer" receiving a check for $160. Granted, a family of four earning $50,000 per year isn't getting rich, they aren't reduced to eating dog food either. They receive the benefits of an educational system, public safety, infra structure, and national defense. All paid for by someone else. Looking at the top 10% of wage earners, they earn an average of $$366,400 per year and pay 73% of all income tax. If this isn't spreading the wealth, I don't know what is. I believe that one factor that allowed our country to surpass others in economic growth is the fact that it is possible for us to work hard and keep enough what we earn to enjoy a high living standard. If we keep an excessive burden on the high earner group, they may decide that they aren't being adequately compensated for their efforts and join the pay no tax group. When we reach that tipping point we can say goodbye to job formation and economic growth. We can also expect a lower living standard for everyone.

YOUR MORTGAGE AND YOUR RETIREMENT

Magnolia Blossom Symbol of The South.

I walked out of my front door on a sunny morning and came face to face with a beautiful, fragrant, magnolia blossom. I love magnolia trees and have 15 on my main lot. This makes me different than most of my neighbors who often think of these trees as a nuisance because they shed leaves all year and its harder to keep your lawn neat. I would rather have the glossy green leaves and large white flowers than a neat lawn anytime.

Your Mortgage and Your Retirement. Over the years, my main specialty has been advising clients on how to select the right mortgage product for their particular financial situation. One of the main points to consider about your mortgage and your retirement is whether or not you want to pay off your house before you retire. In my initial financial training, I was taught that funds necessary for retirement should include the amount necessary to pay off your mortgage. Initially, I bought into this issue; however, over the years I have been open to more possibilities. The bottom line is that the answer will depend on a number of factors. Some of these are as follows:

1, Where will you Get The Funds For Repayment? If you have to cash in funds from a 100% taxable retirement plan, be sure you consider the tax implications first. If you are in the 25% tax bracket, you will have to withdraw more than $265,000 to pay off the mortgage. Not a good idea for most folks. Tax implications of retirement plans aren't the only ones you have to worry about. If you are holding stocks in which you have a large capital gain, be sure to determine how much you will net on an after-tax basis before making the move. If you have enough cash sitting around in bank deposits to pay off the mortgage, you will certainly get a higher return from paying off the mortgage than you will get on those deposits. Another possibility for older borrowers is a reverse mortgage. While you don't exactly get rid of the mortgage, the reverse mortgage will allow you to get rid of the payments. I don't know about you, but its the payments that bother me, not the mortgage.

2. What Are Your Liquidity Needs? If most of your retirement income is from relatively stable sources like annuity payments, company or military pensions, and social security ( maybe not as stable in the future as you think), you have less need for liquidity than those who must rely on investment income. Some retirees have excellent income but few assets. I have certainly seen more borrowers in trouble from lack of liquidity than I have from a mortgage that is too high. One way to pay off a small first mortgage is to utilize a home equity line of credit as a liquidity source. You pay off the loan with the funds you already have and replace your liquidity reserve with the home equity loan. If you use this strategy, make sure you only draw on the line for genuine emergencies. All too often, I have seen borrowers who use this strategy only to wind up with a large home equity line because they used the funds to purchase consumer items or pay for home improvements.

3. What Is Your Risk Tolerance. A well known financial talk show host says that, "the paid-for house has replaced the BMW in the driveway as a status symbol." While this is true for many borrowers with low risk tolerance, it is possible that you may be able to get a higher return on your investments than the mortgage rate. If you insist on a high degree of safety, you will not be able to do this; however, if you are willing to take moderate risks, history shows that a diversified investment portfolio will outperform the rate you are paying on your mortgage. There are many who would argue with this statement and give examples of recent performance of the markets to support their argument. I agree, but from a strictly statistical point of view my statement is true.

4. The Main Issue is Cash Flow. I'm sure you expected to hear this from a writer of a blog entitled Cash Flow Garden, but cash flow is still a big issue in this decision. You may reach retirement age with a small loan, a great interest rate and a short time remaining. The problem is that the short term requires high principal payments for a substantial period after you retire. For example, $90,000 at 4% with 10 years remaining requires a payment of $911 per month. In order to make these payments with income from a 5% after-tax investment, you would have to have $218,640 in investment capital. Keeping this mortgage represents a serious drain on your cash flow in the earliest years of your retirement, a time when you have the energy to make good use of your new freedom. If you keep the loan and repay it at the current rate, you will be 75 before it is paid off. Trust me, your ability to enjoy leisure time diminishes as you pass 70. You need the cash flow now and, if you can't find the money to pay it off, you should consider a new loan for a longer repayment period even if the interest rate is higher. For example, if 30-year rates are at 4.75%, a new 90,000 first mortgage would cost you 469 per month giving you an extra $442 a month to increase your retirement enjoyment. Increased tax benefits will increase this cash flow.

There Are Many Other Issues. None of these arguments may make sense to you and I would caution that there are no "one size fits all" recommendations. Hopefully, my comments will encourage you to take some time to study your situation thoroughly before utilizing some rule-of-thumb to make a decision that deserves a thorough analysis. To quote a long-time colleague of mine, Ray Benton, "Rules of thumb apply only to thumbs.

SUNSET AT THE LAKE.

The Picture Speaks for Itself. This is one of the most beautiful sunsets I have seen. It appears to be the result of a combination of water vapor, clouds, and light, having occurred right after a moderate rain storm. Of course, you might want to say that God created it and sent it to us.

Hedging Your Bet With Options. I know I have talked a lot about options; however,I doubt that many of my readers have tried to apply them to their investment philosophy. Some don't want to bother, while others stay with the notion that options are too risky. The best way to demonstrate the conservative nature of an option strategy known as covered calls is to give you an example of my own experience. I little less than two years ago I bought 1000 Shares of AT&T. A year later, I bought another thousand shares. Unfortunately, my timing wasn't the greatest and the shares are now worth only 25.05 for a paper loss (since I haven't sold) of $6,100. To lose $6,100 from my investment portfolio would be a disaster for me; however, there is more to the story. Over this ownership period, I sold numerous calls (which give the purchaser the right to buy my stock at a pre-specified price). For this, I received call premiums of just over $7900. Subtracting that from my loss gives a profit of $1,800. Looked at another way, I started with 2000 shares and I still have 2000 shares but I received $7,900 cash flow in the interim. I also received $3,700 in dividends for a total cash flow of $11,600 that I could re-invest or pay my utility bills if I choose. This illustration demonstrates 2 things: 1. The conservative nature of some option strategies and 2. The importance buying investments that produce cash flow rather than depending on buying at a low price and selling higher.

Who Is A Racist. In a way, we all are are racist to a certain degree but many of us have made considerable progress in overcoming bigotry and judging people as individuals rather than as members of a racial or religious group. Still, we receive virtually no credit for the progress we have made since I was a 10-year old at Fruitdale School. That's why I feel insulted when backers of the current president accuse me of being a racist when I disagree with his policies. Likewise, I resent those who would call me a racist because I want to control who is allowed to come into our country. Jessie Jackson views LeBron James as a runaway slave. I view him as a young man of many talents who used his freedom to move to a position more suited to accomplishing his goals. Which one of us is a racist?

I Will No Longer Avoid Controversy. There is considerable controversy in our society. Both right and left leaning voters have strong negative opinions about the other. Both are entitled to their opinions and I plan to use this forum to state mine. Readers can feel free to comment. I reserve the right to eliminate those who exhibit excessive hostility in response.

G. W. BUSH: THE MAN AND THE MYTH

I’ve Tried To Stay Away From Politics. Politics is an integral part of our lives. Perhaps it shouldn’t be but it is. I know there are many readers who will disagree with my view point on a lot of things and what I am about to write about will be the most controversial post I have made. I am no great fan of any government official and George W. Bush made his share of mistakes while he was in office. Despite the fact that he won two elections, he ended up being one of our most unpopular presidents. I can agree with many of those who criticized some of his policy decisions but there is little doubt in my mind that many of these critics carried things too far, to the detriment of our country. Here are some of the criticisms I disagree with.

George Bush Is An Intellectual Lightweight. I wonder how many intellectual lightweights got an undergraduate degree from Yale with a Harvard MBA. Granted, family connections could have got him in to these institutions but, once admitted, he had to face liberal professors who probably resented his family connections. Many of these would have been more than happy to give him failing grades and end his academic career. He also learned to fly jet airplanes. Most people on the low end of the intelligence scale would probably have washed out as a pilot. People often mistake poor communication skills for lack of intelligence. I believe this was the case with George Bush. The bottom line is that it takes considerable effort and data analysis to assess the intelligence of an individual. None of us has sufficient data to judge the intelligence of the President.

George Bush Stole The First Election. Take your choice. Is he stupid or is he smart enough to engineer the greatest election fraud in the nation’s history? There is no creditable evidence that the Florida recounts would have resulted in a victory for his opponent. I agree that there were many errors in the Florida voting process. Some would have given him more votes and others would have given him less, but if his detractors had their way, they would still be holding ballots up to the light looking for hanging chads. One of the most important factors here is the fact that several media sources paid for more thorough recounts and Bush won all of them. Others make much of his loss in the popular vote. That is a dead issue. For the past 200 years we have used electoral votes to select our presidents. Until the constitution is amended, the popular vote means very little in the election process.

George Bush Turned Bill Clinton’s Surplus Into A Deficit. Certainly, the surplus we enjoyed when Clinton was president turned into a deficit. When you give Clinton all the credit for the surplus and Bush all the blame for a deficit, you are giving both men responsibility for economic factors that were beyond their control. Clinton benefited from reduced tensions that resulted in dissolution of the Soviet bloc. He also benefited from Alan Greenspan’s keeping interest rates at unrealistic levels. Consumers went on a spending spree and the resulting boom brought huge revenues for the government. There was also the “wealth effect” that was a result of an optimistic investor population driving the price of tech stocks to levels totally unjustified by the ability of these companies to produce revenue. This bubble burst shortly before Bush took office and consumers who lost their shirts in the market became less active. Regarding George Bush, he was much too willing to spend borrowed money and he followed the spending practices of previous administrations who spent money whether the revenue was there or not. He also had to deal with the 9/11 disaster and was forced to increase defense budgets to protect us from further attacks. He accomplished this very well. While all of our elected officials are guilty of huge spending indiscretions, the president is but a small factor in whether we have budget deficits or surpluses.

Bush Lied. Thousands Died. This is a clever rhyme useful in campaign ads but it is not necessarily a fact. Much depends on your definition of a lie. I believe a lie is a statement that the speaker knows is contrary to the facts. I don’t believe that George Bush knew there were few WMDs in Iraq. Saddam Hussien had agreed to destroy all WMDs, provide evidence that he had done so, and allow inspectors to verify this compliance. He failed to do this and made himself subject to the consequences. The Bush Team aggressively sold reasons to justify the invasion and convinced a large majority of congress to agree with them. Colin Powell’s speech to the UN was a great example of a well constructed argument designed to convince other nations to join in the fight. It was not necessary to lie and the Bush Team was justified in using good salesmanship to convince others that their approach was valid. You can argue that the invasion of Iraq was a mistake and I might agree with you. You can also argue that the salesmanship of the Bush team caused congress to reinforce this decision. But the hate speech that accuses Bush of lying is not supported by the facts.

These are The Main Reasons Why I Disagree With the Bush Haters. There are others; however, this post is too long already. The Bush haters have convinced me of one thing: I will criticize the practices of those who hold powerful government positions but I will not engage in personal attacks. Those who disagree with the points made in this post can feel free to contact me by fax, phone, or e-mail. I will post well constructed arguments on this site.