Wealth Formula by Buck Joffrey

In this weekly update, Buck and Zulfe discuss liability insurance, the economy, and money market funds. They highlight the importance of reviewing and updating insurance policies, the impact of consumer confidence on the economy, and the rising prices in the residential home market. They also explain the difference between money market funds and money market accounts, and the potential risks and returns associated with each.

Oh man…we are getting really sexy with topics on this show! On this week’s episode of Wealth Formula Podcast, we are going to talk about liability insurance: malpractice insurance, property insurance—all that kind of stuff. I know this doesn’t sound exciting, but do you know the five different parts of an insurance policy and what part is generally the one that will screw you over? I didn’t think so. Here’s my suggestion. Grab your property insurance policy and follow along with the show. I haven’t read mine and you probably haven’t read yours either. But this is stuff you need to know a little bit about because if you have to change something or get a new policy, now’s the time to do it. Liability insurance is your first line of asset protection so make sure you have a grasp on it. This show will give you a nice place to start and it’s actually pretty interesting. 04:06 Insurance 101 05:22 The 5 Main Parts of Insurance 10:29 How to Look for the Right Insurance Policy 13:19 How to Deal with Claim Adjuster 17:35 What Should You Be Asking When Buying Insurance 20:27 Why Property Insurance is Skyrocketing

This week’s guest on Wealth Formula Podcast is Mark Skousen. He is the producer of FreedomFest which has become an extremely popular annual gathering every year that deals with not only money but other lifestyle topics as well. What is freedom anyway? To me, It’s the ability to choose what you want to do with your life. Indeed, freedom is the ultimate prize in life and can only be achieved through financial independence. That is not to say that you can’t be happy without being rich. You absolutely can. Maybe you have a job that you love and a life that you don’t want to change. If that’s the case, congratulations. But happy does not mean free. What if someday you start hating your job and want to make a big change in your life? Could you afford to follow a dream without being concerned about money? Most professionals can’t. That’s why high-paid W2 jobs are often called “golden handcuffs”.  How do you break free from the golden handcuffs? Well, one of the key variables of the mathematical Wealth Formula is that you deploy capital quickly so that you can start changing the balance of power between you and your money. Eventually, you want your money to work for you more than you work for it. But achieving financial freedom isn’t easy. It involves not following the herd and not giving up. You see, no one has ever gotten rich from a simple portfolio of stocks, bonds and mutual funds.  Sure they may grow your money a bit and provide some security in the future. But you simply cannot change your socioeconomic status this way. Getting rich involves taking bigger risks. I have made my money through business ownership and real estate. Have I lost money along the way? You bet I have. But have I made more money investing in real estate and business over the last 15 years than I would have following the herd? Yes…by a mile. To be clear, I am not giving you financial advice. Personal finance is personal. I just want to open your eyes and see the trajectory you are on and recognize whether or not it will get you where you want to be. In the immortal words of former NFL coach Bruce Aryans, “No risk it, no biscuit. Now, make sure you tune into this week’s podcast with FreedomFest producer and “America’s economist”, Mark Skousen. Show Notes: 08:07 Why are the Numbers not Matching Our Anxiety? 09:54 GDP vs Growth Output 14:32 10% Inflation? 18:00 Implications of the Presidential Election 26:12 The Indicators to Look Out For 30:55 FreedomFest

Thoughts on Sunday podcast on internet business investing: Seems like a platform really suited for people with e-commerce expertise I wouldn’t know how to evaluate or run an Internet business Investing under a manager who knows what they’re doing might make sense, but we’d need to see the track record I tend to think this is an area where you need to have operating expertise to be successful, even as a passive investor Latest on the economy and markets: When we spoke last week, we had just received the latest job openings report which showed some continued slowdown in the job market with decreasing (but still positive) job openings. Since then, another labor market statistic, came in a bit hotter than expected in terms of payrolls added in the month of May So we’re seeing some mixed data on the labor front as well as mixed data on various inflation measures Generally speaking the economy, inflation and labor markets are cooling. But it’s not a necessarily smooth ride; there’s volatility as can be expected Implications: Chairman Powell will do a press conference Wednesday The focus will all be on his messaging related to outlook as we head into the 2nd half of 2024 Most economists have been assuming 2 or 3 rate cuts in 2024; so there will be a focus on Powell’s messaging The FED is likely to keep steady on the Fed Funds Rate in the months ahead The FED is currently in its two-day FOMC meeting which is being held over Tues and Wed of this week Overall, the trading markets have been stable over the past week: Equity markets are up 1%-2% since last week depending on which indices you look at, S&P, Nasdaq, Dow… The 10-year bond yield ticked up about 10 basis points in that time Gold and Bitcoin are down a bit off their highs One thing to note about the performance of the stock market this year is that strong positive performance has been very narrow But if we look at which type of companies have fueled that gain, it’s all based on the very large cap stocks like Apple, Alphabet, Microsoft, Amazon, NVIDIA, META-  the companies with market capitalization in excess of $1 Trillion In fact, those companies have gained about 40% in price YTD, while all other companies together (that are below $1 trillion market cap) have pretty much traded flat on the year.  The real end game with AI is unleashing productivity for companies and therefore driving profitability For example, the S&P 500 is up about 13% year to date in 2024 On the one hand, this is not reassuring since it’s so concentrated and it seems most companies are not doing all that well On the other hand, it could be the case that the $1 Trillion companies are benefiting most right now from AI-driven earnings growth and that will spread across a much broader universe of companies in the coming months and years What I continue to like in this investment environment is real estate Buyers are able to negotiate better purchase prices, especially in situations where the seller is distressed If inflation gets to a point where the Fed starts cutting rates, real estate prices will go up If inflation remains an issue, well you want to own hard assets with leverage I am optimistic about the equity markets over the longer term, because I think the US economy will continue to grow and we have the potential for AI to drive profitability over the next several years In the short term, with rates uncertainty and elections upcoming, it will probably be somewhat volatile in the public markets New product to discuss: Mutual Funds versus ETF (Exchange Traded Funds) Both are investment fund structures available to investors Most EFTs are passive and pegged to the performance of a particular index Most Mutual Funds are actively managed by fund managers; can also be passive, indexed funds Passive versus active management is a strategic choice.  If you’ve ever heard of the theory of a monkey throwing darts having a good chance of beating the stock picks of a professional stock fund manager, there is good evidence to support this… David Swenson, the guy who is responsible for the Yale Endowment’s consistent and stellar performance for multiple decades, is passionate about his view that investors avoid active management strategies for the public stock market.  He has done tons of research showing how active management does not beat passive investing in any consisted manner. Trading: ETFs trade like stocks in the secondary market.  You can buy and sell them throughout the day and their price changes constantly reflecting the immediate market price. Mutual funds can only be bought and sold at the end of each trading day.   Fees: ETFs usually have materially lower fees to investors Mutual funds have larger fees and can include upfront fees when you buy, ongoing management fees when you own the mutual fund, and exit fees when you sell.  Often these vary depending on what class of mutual fund shares you purchase and how big your investment amount is.  Minimum investments ETFs don’t have minimum investment amounts.  Like stocks of companies Mutual funds typically require a minimum investment of $3k or more Tax efficiency: ETFs are more tax efficient; they are managed to minimize capital gains events – they rarely pay out capital gains Mutual fund managers, on the other hand, sell securities to handle redemptions or asset reallocation and generate capital gains for shareholders – even those with unrealized losses Overall, investors are better off with ETFs; especially when they are investing in passive strategies

The podcast discusses the challenges of running brick-and-mortar businesses with high fixed costs, the importance of competent management, and the stress of meeting revenue targets. It explores the world of online businesses, offering caution and insights for potential investors, emphasizing the benefits of low fixed costs and automated processes. The chapter also covers investing in online businesses through platforms like Empire Flippers, financing challenges, valuations, and risks associated with purchasing online businesses.

Buck shares the similar path that almost every successful entrepreneur he knows took.

Market Updates: Economic data since last week’s update: Core PCE Price Index rose 0.2% in April, in line with expectations Job openings decreased in April, indicating a cooling labor market Equity markets have been a bit volatile recently, down a couple of percentage points Ongoing volatility is expected as we move through the summer and elections However, the economic and inflation backdrop should provide good support for public equity and bond markets Potential for the Fed to start reducing rates in the second half of 2024, which could restart the real estate investment cycle The recommendation is for investors to be deployed and looking for opportunities, rather than sitting on the sidelines Investment Topic: Private Credit Funds Also known as private debt or direct lending Growth in non-bank lending due to regulatory changes making it harder for banks to expand their balance sheets Private credit funds raise capital from investors and deploy it as loans and other debt instruments Can target different types of credit and debt structures Potential benefits include regular interest payments, 7-12% annualized cash returns, and portfolio diversification Risks include being locked into a long-term investment and fund manager selection being key

This week’s episode on Wealth Formula Podcast is a primer on asset protection. One of the things that I learned a few years back is that asset protection and estate planning are not one and the same. Asset protection is simply protection against creditors. An offshore trust in the Cook Islands, for example, is a rock solid way to protect your assets but it is not an estate planning vehicle. Since this week’s podcast discusses asset protection, I want to just remind you of what you MUST know about estate planning. As of today, if you are single you can leave up to $13.61 million to your heirs without being subject to estate taxes—double that if you are a married couple. As long as you are below that, you need two things at a bare minimum to ensure that you don’t make your loved ones even more miserable than they already will be. You need a will AND you need a trust. The key difference between a will and a living trust lies in how they manage and distribute your assets during your lifetime and after death. A will is a legal document that outlines how you want your assets distributed after you pass away. It only takes effect upon your death, at which point it goes through the probate process overseen by a court. On the other hand, a living trust is a legal arrangement where you transfer ownership of your assets into a trust during your lifetime. The trust is managed by a trustee (which can be you initially) for the benefit of your beneficiaries. Upon your death, the assets in the trust are then distributed according to your instructions, bypassing the probate process. You want to avoid probate at all costs if you want to make it easy on your loved ones. Probate is the legal process that takes place after someone dies to distribute their assets and property to the rightful heirs or beneficiaries. It involves going through the court system, which can be time-consuming, expensive, and open to the public. It can drag on for months or even years, especially if the estate is complex or there are disputes among heirs. A living trust allows assets to be distributed relatively quickly after death without court involvement. Furthermore, probate fees, court costs, attorney fees, executor fees, etc. can eat up a significant portion of the estate’s value. With a living trust, you avoid most of these costly probate expenses. So if you have not done so, PLEASE make sure you get these documents done. It’s not expensive and your family will thank you for it. Show Notes: 05:47 A Review on Estate Planning & Asset Protection 07:56 How to Determine What You Need 12:03 Protecting Your Real Estate 13:53 When Do You Need a Trust? 16:45 Asset Protection Strategies that Mitigates Tax 19:45 Upcoming Law Changes 23:50 Beneficial Owner Information Report

The upcoming wealth transfer from Baby Boomers to younger generations is a significant and unprecedented event in history, often referred to as the “Great Wealth Transfer.” Research indicates that about half of this $100 trillion transfer will go to Gen X, with the other half going to Millennials and Gen Z. This generational shift is interesting, as Gen X has been described as less altruistic, preferring to retain wealth for themselves, compared to the younger generations’ greater focus on social equity and environmental sustainability. It will be intriguing to see how this “impact” orientation evolves as Millennials and Gen Z age. For those listeners who will be on the receiving end of this wealth transfer over the next decade or two, it’s important to have the proper structures in place to ensure a smooth and tax-efficient transfer to your heirs. This is something that can and should be addressed now. Considering this upcoming wealth transfer also leads to some additional implications from an investment perspective. Baby Boomers’ portfolios tended to be heavily weighted in stocks, bonds, and real estate. However, surveys show Millennials and Gen Z investors are much more open to alternative assets, such as real estate, private equity, venture capital, crypto, and other investments. This shift aligns with the younger generations’ higher focus on sustainable investing, which accounted for 73% of their portfolios compared to only 26% for the general population. While there has been some recent backlash on sustainable investing, this trend could see a resurgence as the wealth transfer occurs. Interestingly, real estate seems to be a consistent favorite across all generations. Turning to the current market environment, equity markets remain near all-time highs, bond prices are generally steady, and safe-haven assets like gold and bitcoin are also elevated. The market expects the Federal Reserve’s preferred inflation metric, Core PCE, to show further cooling when the latest data is released this Thursday.