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Archive for December 2018

The Best Books I Read This Year

There are many forms of communication; none are as vital as the written word. It is the edited word which conveys more information than any other media. Sure, video is superior when showing majestic vistas, but words, when edited well, are the most powerful learning tool we have. There is a reason the written word has survived so long even with radio, television and YouTube desperate to overturn the monarchy.

Wealthy people the world over credit their success to reading. From Warren Buffett to Bill Gates to Elon Musk to Richard Branson to your favorite accountant, good books are part of the history of the people currently in the winner’s circle. Educated people possess the tools to create the future the rest of us are forced to live in. Most failures can be traced back to a lack of understanding or misunderstanding.

For these reasons I’ve been a dedicated reader since my late high school years. Before that I couldn’t get myself to read a book the the end and it showed. I struggled with direction in life until the magical day I picked up a book from the school library on weather. It was a mere 128 pages and there were a few drawings of clouds and cloud formations, but when I finished that book something clicked and I never looked back.

Before long I was consuming (and digesting) 1000 page books and begging for more. My interest in personal finance was unleashed! I was reading The Wall Street Journal (every section) from beginning to end daily. Business magazines and books were an addiction. (Science fiction novels were also an addiction I never shook if we can be brutally honest here.)

Learning became a part of my daily life, as important as eating and sleeping. I cannot remember a day when I didn’t read at least a few pages of a book. It has been a long time.

From the humble pages of that 128 page book on weather I built a library with well over 2,000 volumes. It might be at 3,000 by now, but I don’t have time to count; I’m too busy reading.

Find a quiet place to read these powerful books from the past year.

You can always find a quiet place to read.

A few months ago I started a Facebook marketing program for this blog. (I fell in love with writing shortly after I discovered the high finishing a book creates which eventually led to this blog.) As the program started a facilitator asked the group for an interesting fact. I said “I read more hours per day than I sleep.” She was shocked! I told her the truth. “I read a lot — several hours per day — and sleep seems to elude me too often for good health.”

Each year I add 50 or so books to my library. This is down from my younger days when I’d add 150 or so novels to the ranks annually, plus a dozen or so meaningful books. Then I visited the library. When I reflect I sometimes feel like Charlie Munger, (Warren Buffett’s right hand man) a book with hands and legs sticking out from it. It is a rare event for me to go somewhere without a book at hand.

If you love books as I do you enjoy lists of good books to help you select your next literary victims. If an educated individual publishes a list of “Best” books I save the list. I’m always looking for more good material and I rely on the smartest people to give me a recommendation.

Fiction is a minor part of my reading now. There is just too much I want to learn before I go to the Great Beyond. My goal is to be the smartest guy in heaven (or biggest smartass in hell). So I read mostly non-fiction now.

Because I read so many books I have a ready mental arsenal to draw from. By sharing with you the best books I read this past year you can focus on the most important material with your limited (egads!) reading time. I hope you pick up my habit of carrying a book with you where ever you go. A few free moments is easily turned into a education if you do.

Below is my list of favorite books I read in the last twelve or so months. There are many more, but I don’t want to bog you down. I grabbed from the stack the books that most moved or educated me. Consume at your leisure. (Consumption is sometimes dirty word in our society. It is far from dirty when it comes to books, learning and knowledge.)

China’s Great Wall of Debt, by Dinny McMahon

There is a fear in the West that China is taking over the world. The China Miracle, we learn from McMahon, is more mirage than miracle. Ghost cities, complete concrete jungles with few people, really do exist in China. Take away all the extravagant (and wasteful) construction and China’s economy isn’t even close to the size of the U.S.

And then there is the debt for all the wasteful building. The tax system encourages bank lending to state enterprises and local governments. The bad debt is hidden from public view. Nobody know how bad it really is. One thing is sure: if it wasn’t that bad there would be no reason to hide the numbers.

China is still a vibrant nation with a growing economy. However, we need to put the economic miracle into perspective. China has lots of problems and time is running out to fix them. The real question is how bad will it hurt Western economies when China implodes?

And China doesn’t manufacture everything! Many products are created and produced elsewhere and shipped to China for assembly. The trade war is unnecessary and more damaging to U.S. companies than politicians are letting on.

This is my favorite business book of the year because it was so eye-opening. I knew China had massive debt and sewer oil was a real issue, but I never realized how difficult the situation in China is.

 

12 Rules for Life: An Antidote to Chaosby Jordan B. Peterson

Jordan B. Peterson has been everywhere these last two years. His newest book is a set of rules for living life well. It seems so common sense at first: Tell the truth—or, at least don’t lie; Stand up straight with your shoulders back; and, Pursue what is meaningful (not what is expedient) are three of the twelve rules. But it doesn’t take long before you realize the depth of his message.

Peterson struck a cord in our world of identity politics and constant offense at every action. I’ve written on Peterson’s work before. And here. And ended up with endless grief. People either love his work or hate it. Those who hate did their best to deliver a groin shot to a certain unnamed accountant.

But many do find value from Peterson’s videos and books. 12 Rules happens to be the best selling book this year on this blog. Readers are also clamoring for a review of his earlier book (Maps of Meaning: The Architecture of Belief) since they discovered I purchased. (Note: I started reading Maps, but this one will take a while. This is serious and difficult reading. I’m 40 pages in as I write and will read several other books in between—something I rarely do. The material is just too deep to plow through without a break. You’ll get your review if I don’t suffer an aneurysm first.)

12 Rules is highly recommended. One of the best books ever written on what makes us tick.

 

Enlightenment Now: The Case for Reason, Science, Humanism, and Progress, by Steven Pinker

Media constantly tells us how bad things are and many times we yearn for the good ‘ol days. But the data doesn’t bear that out. Things are better now than ever and improving at a rapid pace!

I’ve always been an optimist. There has always been a grand appreciation in me for the awesome time we live in. But even an optimist adjusts to our modern opulent lifestyle and begins to wonder.

The most successful people today spend more time reading than anything else. Here are 5 must-read books on success and growth from the past year. Even the honorable mentions are incredible books.

Winners read.

Pinker not only makes the case, but backs it up with data. This approach appeals to my analytical accountant mind. Here are a few things I found fascinating: We are living longer by a lot, are healthier, eat better, have more wealth, are less unequal (yes, inequality isn’t as bad as we pretend!), enjoy a cleaner environment in most Western nations than a few decades ago, enjoy more peace (no world wars recently), are safer, have more rights, are smarter and have access to more knowledge, and enjoy a quality of life never before experienced by the species.

It is socially acceptable to whine about how bad we have it. Yet the facts are clear. We are in the best of times and the time are getting better! Reading Pinker allowed me to internalize the worldview that the sky isn’t falling and the world isn’t coming to an end.

There is also a good reason for optimism. Warren Buffett is also an optimist. When the world is ending (the stock market is down double digit percentage points) Buffett knows it’s fake news and buys more great businesses at discount prices. If you can discard the negative attitude for a moment and focus on how good the world has become—as outlined by Pinker’s work—you to can make profitable decisions when the Chicken Little’s of the world are screaming like chickens with their heads cut off.

Sapiens: A Brief History of Humankind, by Yuval Noah Harari

Sapiens really surprised me. I’ve read dry mega-histories of the human race and expected the same here. Regardless, I enjoy ancient human history so I pried open my wallet and am glad I did.

Harari compiled an incredibly vibrant and alive story of human history all the way back to the beginning. A good history story allows us to see ourselves in a cleaner and clearer light. This work does just that.

Who we are and where we come from is lost in the fog of a “time from long ago.” In keeping with the theme of this blog, Harari did an excellent job explaining where and when money was created and first used. It was enlightening to see the backstory to our current financial system. It cleared up many questions I had.

We all want to know where we came from. That is why DNA tests are so popular as tools to determine our true ethnic background. Bringing the details into perspective allows us to live a better life, filled with the knowledge we have an important place in the grand scheme of things.

Once you finish reading Sapiens I’m sure you’ll be on the horn with Amazon ordering Harari’s latest classics: Homo Deus: A Brief History of Tomorrow  and 21 Lessons for the 21st Century. These two are on my shelf waiting for digestion. How I’m going to keep these off next year’s “Best Books” list is beyond me.

 

The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, by Walter Scheidel

Have things ever been worse when it comes to inequality? Well, actually, yes! It has also been better, too.

Inequality is the buzzword of the year. Media is filled with demands of gender and race equality. We demand equal pay and equal rights. Some go as far as wanting equality of outcome! (I have no idea how to accomplish that. We tried communism in many societies in the 20th Century with less than desirable results.)

Equality is a worthy goal regardless what happened in the past. There is a sense of unfairness when the rich get richer while the poor keep getting poorer. (Refer to Steven Pinker’s book above for a clearer perspective.) There is something noble about helping people with less get more for their efforts. Poor people can be just as hard working (if not harder working) than the wealthy. So inequality is a necessary study.

Scheidel gives us a broad view of equality in the past up to modern times. No spoiler alerts from me. You have to read the book! But let me say this: There are four ways to lower inequality (as history has taught), but you might not like the answer. Worse, equality doesn’t mean the poor become wealthier; usually it’s the other way around. This is an eye-opening book you want to read.

 

Honorable Mentions

As mentioned above, I read about 50 books a year; a few more if they are short. The list of all I read is more than most can get their arms around. The five books above are page turners worthy of investment. You might want to chisel time out of your schedule for these honorable mentions as they are equally as good as those above. (You should see the good stuff I left off the list. It makes my eyes bleed.)

Energy and Civilization: A History, by Vaclav Smil is the best book I’ve ever read on energy production and consumption by humankind. The facts and figures are addicting. From prehistory to modern times, energy sources and uses are illustrated in an easy to understand format.

Books are a vital part of education, learning and success. Here are the best 5 books of the last year. They are required reading.

You are never too old to read or learn.

Inheritors of the Earth: How Nature is Thriving in an Age of Extinction, by Chris D. Thomas and The Ends of the World: Volcanic Apocalypses, Lethal Oceans, and Our Quest to Understand Earth’s Past Mass Extinctions, by Peter Brannen are two excellent books covering the worries of environmental doom popular on social media and news outlets. Things are not as bad as they seem and there is actually some good news! And history tells a story of renewal, rejuvenation and healing from the planet’s past.

Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks, was promoted on the CNBC website. After Bill Gates gave a nod I made the purchase. As expected, these are twelve really engaging (and informative and instructive) stories of Wall Street behind the scenes. If you like money then Business Adventures will read better than a Stephen King novel.

Hoover: An Extraordinary Life in Extraordinary Times, by Kenneth Whyte. I always thought of President Hoover as the guy who brought us the 1929 stock market crash and The Great Depression. The truth is far from it. Many of FDR’s policies came from Hoover and were not instituted over politics and misunderstanding of economic theory until Hoover was out of office.

I now have a healthy respect Herbert Hoover and his life of public service. Our 31st President was an incredible man of many accomplishments. This biography so moved me I have plans of visiting his Presidential Library in Iowa soon. If only I could find the drive to work as hard and productively as he did.

Finally, we end with a novel: Seveneves, by Neal Stephenson. My shelf is filled with westerns, romance novels, mystery novels and every other genre known to man. What stands out is the shear volume of science fiction I once read. Old habits die hard so I’m back at a familiar trough.

Seveneves is the best kind of science fiction: engaging, entertaining, filled with suspense and mystery, and just enough science fact to make it all work suspending disbelief. This novel start with the moon blowing apart and gets more exciting from there. Two-thirds of the way through the the human race is all but extinct; the attempt to save the world from a lunar catastrophe is nearing an end and seven women (the seven Eves of the future human race) are all that remains of the species. I’ll let you enjoy the story on your own. My guess is you’ll end up staying up too late at night, unable to put this book down, as I did. But trust me, it is all worth it.

 

These are my favorite books of the past year. I encourage you to read the ones that interest you. Please share books you were moved by this past year. You see, I need more good books to read, too.

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

 

4 Financial Planning Steps Every New Parent Needs to Take

4 Financial Planning Steps Every New Parent Needs to Take. Having a child is a wonderful experience with incredible responsibilities. Make sure your child is safe; take these 4 simple steps to assure baby is always healthy and warm.

4 Financial Planning Steps Every New Parent Needs to Take

For Christmas Eve I have a special guest post for you, kind readers. Back in August Lucille Rosetti helped us with financial and legal issues for those helping seniors. These are issues I haven’t had to deal with personally so my advice is based upon an incomplete worldview. 

Today Lucille gives powerful advice for young parents. One point needs to be made before you read ahead. Lucille discusses life insurance needs for young parents. (See note in comments section for more.) While this community tends to refrain from life insurance, I don’t consider it worthless. There are times life insurance is a good idea. I’m not a fan of cash value life insurance with (very) rare exception. That doesn’t mean it shouldn’t be considered, however. Your facts and circumstances will determine your insurance needs.

You can read more of Lucille’s work on her blog, The Bereaved. She is also the author of Life After Death: A Wellness Guide for the Bereaved.

 

4 Financial Planning Steps Every New Parent Needs to Take

Lucille Rosetti

When you become a parent, another person’s life is in your hands. It’s scary and exciting all at once, and you only start to feel confident in your new role once you have a few years of experience under your belt. However, there’s one big step you can take now to ease your fears, and that’s handling your financial planning.

Financial planning is about more than funneling money into a retirement account. When you have a family, you need to take steps to provide for your family if you pass away. Without safeguards in place, a single unfortunate event could put your family’s security and well-being at risk. If you want a financially secure future for your children, these are the four things you need to do.

 

Write Your Will

A will does more than distribute your property after you pass away. If you have children, your will is the vehicle for naming the person who will care for your minor children if you die. In addition to naming a guardian, your will allows you to appoint a person, known as a trustee, to manage money left to your children until they become adults.

If both parents die without a will, the courts appoint a guardian for minor children. Babycenter warns that in some states, an administrator is appointed to manage your children’s money until they turn 18. If you prefer to name someone you know and trust to look after your children, a will is a must.

Update Your Health Insurance

Most health insurance plans require a new baby to be added within 30 days. If you miss that window, you may end up with an expensive gap in coverage. If you and your spouse have insurance through employer-sponsored health plans, compare plans to determine which offers better coverage for the price. If you’re unhappy with your current health plan, you can also use this time to switch plans because having a baby qualifies for a Special Enrollment Period.

Buy Life Insurance

Life insurance may not have been on your radar when you were child-free, but now it needs to be. A life insurance policy pays a cash benefit to your surviving family if you die during the coverage period. This essential financial support allows your family to make up for the loss of income and keep a roof over their head if the worst happens. Stay-at-home parents should purchase life insurance too, because the high cost of childcare poses a significant financial burden if the primary caregiver passes away.

Don’t just purchase the cheapest life insurance policy you find. There are different types of life insurance policies, and it’s important to understand the difference so you can purchase the right policy for your family. While many parents opt for a term life policy because of the lower premiums, spending more on a whole or universal life insurance policy lets you accrue cash value, turning the insurance policy into an asset that you can sell for cash in retirement.

 

Pre-Plan Your Funeral

You don’t need to pick out flower arrangements and headstones when you’re still young, but you should have a plan to pay for your funeral. If you don’t, you could put your family in the unfortunate position of struggling to pay for a funeral while beset with grief. At a typical cost of $7,000 to $9,000, that’s no small burden. There are several ways you can set aside funds for a funeral. You can name your spouse co-owner of a joint savings account, create a payable on death account and name a beneficiary, purchase funeral insurance or pursue another pre-pay option. Do your research to select the option that makes the most sense for you and your family.

Thinking about life’s what-ifs may not be pleasant, but it is necessary. If you fail to plan for the worst-case scenario, you could leave your family in a difficult situation without the necessary resources. Make these financial planning steps a priority when your child is born to protect your family.

Image via Unsplash

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

 

Deducting Gambling Losses with the New Tax Bill

All gambling wins are reportable income. Avoid unnecessary taxes by deducting losses without itemizing using gambling sessions. Sessions also allow you to avoid state taxes, too.

All gambling wins are reportable income. Avoid unnecessary taxes by deducting losses without itemizing using gambling sessions.

The Tax Code doesn’t treat casual gamblers very well. On the one hand the odds are stacked against you winning (those fancy casinos were built on losers, not winners). And on the other hand winning can be worse than losing when the taxman gets a hold on you.

Recent tax law changes turned a bad situation worse. The higher standard deduction means fewer people will benefit from deducting gambling losses since you need enough itemized deductions to exceed the standard deduction before the gambling losses reduce your tax liability.

Then we have issues with state tax returns. If the federal tax return doesn’t treat casual gamblers with respect, state tax returns can be down right rude. Wisconsin, for example, doesn’t allow any gambling losses against wins as an itemized deduction: if you lose, you lose; if you win, you lose.

Before we explore strategies for deducting gambling losses we need to review the rules as they stand.

 

Gambling Wins and Losses on a Tax Return

Gambling wins are reported on the front page of Form 1040 for tax years 2017 and prior. Gambling wins are reported on Schedule 1, Line 21 for tax year 2018.

All gambling wins are required to be reported even if the casino doesn’t report the win to the IRS. Gambling wins are reported on a W-2G for:

  • bingo or slot wins of $1,200 or more (not reduced by the wager),
  • $1,500 or more (reduced by the wager) for Keno, or
  • $5,000 or more (reduced by the wager or buy-in) for poker,

There are certain instances where a W-2G is issued for other gambling winnings of $600 or more.

Losses are allowed as an itemized deduction dollar for dollar against the gain. Gambling losses cannot be greater than gambling wins for the tax year.

Example: John wins $23,500 during the year playing slots and other casino games. His gambling losses are $37,900. John reports his $23,500 of wins on Schedule 1 and $23,500 as an itemized deduction on Schedule A. The additional losses are not deductible. If John doesn’t have any other itemized deductions and is married he is better off taking the $24,000 standard deduction. He derives no additional benefit from the gambling losses while he pays tax on the wins.

When it comes to state taxes some states do not allow any gambling losses, even against gambling wins. This creates a unique situation. In Wisconsin, for example, you can win a million dollar jackpot and go on a gambling spree losing it all and end up with a huge state income tax bill because none of the losses can offset the win. For federal you would report the income and deduct the losses on Schedule A; very little additional tax, if any, would result on the federal tax return.

Gambling wins reported on Form 1040 can cause other serious tax issues even if you can deduct losses on Schedule A. Many credits are affected by adjusted gross income. Losses are deducted further down the return so gambling wins can reduce or eliminate:

  • Education credits,
  • the Earned Income Credit, and
  • the Premium Tax Credit

In addition to lost credits, gambling wins can reduce or eliminate:

  • IRA deductions or Roth contributions allowed
  • Passive Activity losses, and
  • affect the Alternative Minimum Tax

And if this isn’t enough, your Social Security benefits could be taxed more and Medicare premiums pushed higher.

The above lists are not inclusive either! The tax issues from a gambling win can hurt you in many more ways.

But there is a solution to all the tax pain.

Gambling Sessions

When you consider the tax implications of a casino win you might want to think twice about gambling. While I’m not a fan of gambling, since it isn’t conducive to financial independence, I still understand some people enjoy casino games as a form of entertainment. A certain accountant once tried his hand at card counting to reasonable success. 

I’m not here to judge. If you gamble I want to assure you have the best information to reduce your taxes on wins.

Gambling wins can cause other taxes to go up and reduce or eliminate other deductions. Learn how gambling sessions allow you to deduct losses before they add to your tax bill.

Gambling wins can cause other taxes to go up and reduce or eliminate other deductions. Learn how gambling sessions allow you to deduct losses before they add to your tax bill.

The basic tax rules above (report all gains and itemize losses to the extent of gains) are valid, but there is a better way. Enter gambling sessions.

The IRS in 2008, and later clarified in 2015, created rules for deducting gambling losses called gambling sessions.

The idea was a gambling win wasn’t really a true win until the session was completed. The Tax Court ruled it is impractical to record each and every wager (pull of the lever, deal of the cards or throw of the dice) and therefore wins and losses can be tabulated for each gambling session versus each hand of cards played, et cetera.

gambling session starts when you make your first wager of the day for a specific type of game and ends when the last wager of the day is made on the same type of game.

Gamblers need to take extra caution not to mix different types of wagers when calculating sessions. Slot machines are different from blackjack, blackjack different from poker, and poker different from craps.

Example: You play slots in the morning and take a break for lunch and return to the one-armed bandit. This is still the same session.

Example: You play slots for an hour and then move to craps. The slots and craps wagers are different sessions. If you later return to slots the same day you are still on that day’s slots session.

Tax Tip: IRS guidance says a gambling session ends when the clock strikes midnight. This is somewhat true. Playing late into the evening could cause two separate sessions in the same sitting. You can choose to use a calendar day or any 24 hour period as long as it is consistent. Consistency is the key. You can call a day from noon to noon the next day or 5 p.m. to 5 p.m. the next day. Your day should be consistent for the entire year for all gambling sessions.

Extra Gambling Deductions

Let’s use a live example to illustrate the valuable deductions allowed with sessions and an extra deduction for losses not allowed by sessions.

John’s gambling sessions log.

The above sessions log is for a casual gambler who had four sessions throughout 2017. For calculating a session you can use your starting “money in” and netting your “money out” at the end of the session to determine your gain or loss for the session. Inside each session large wins could exist. For example, on February 2nd John may have won a $12,000 jackpot and received a W-2G, but by the end of the session he had only $700 left for a net $200 sessions gain.

John will report $900 of gains on his tax return regardless the gains inside a single session. Losses are not allowed against gains for between sessions.

The $900 gain will end up on Schedule 1 (Form 1040) and will be subject to tax and may affect other deductions and credits on the return. You can also deduct $900 of the additional losses on Schedule A if you itemize! (The $900 sessions gains on Form 1040 can be still be deducted from other losses on Schedule A.) The sessions will always break even (unlikely) or net out as a gain because losses are not allowed between sessions. But unused losses from sessions can be deducted on Schedule A against session gains.

Reporting Sessions Without Getting Audited

Reporting gambling sessions can cause a problem with the IRS computers and cause an unwanted envelope arriving in your mailbox.

Remember when we said you could have a gambling session with a $200 gain (February 2nd above)? Well, inside that small gain could exist a large gain with a W-2G issued. If you only report a $200 gain when the IRS has W-2Gs showing thousands in wins you will get a bill for the difference.

Don't let a gambling win turn up a tax joker. Don't lose all your gambling wins to taxes. Use the trick professionals use to deduct all gambling losses. Deduct your gambling losses without itemizing.

Don’t let a gambling win turn up a tax joker. Deduct your gambling losses without itemizing.

Yes, in the above example only $900 of gains are reportable. But you need to tell the IRS computer what it wants to hear. You could always attach a statement to the return, but the IRS computer may not pick it up before a nasty gram goes out or a full audit triggered.

The best way to handle this is by modifying your sessions reporting on the tax return. Let’s assume the February 2nd session above contained a $10,000 win. Your log will read exactly as above if those are your “money in” and “money out” numbers. But you will report the February 2nd W-2G gain of $10,000 and $9800 of “money in” called gambling losses on the return for a net of $200 again.

Let me see if I can make this clearer.

When I prepare a tax return I enter all the W-2Gs first. This tells the IRS computer I didn’t miss any gambling wins. Then I go the the client’s log and net the difference to arrive at the correct answer.

I still attach the log to the return. This nips an audit before it begins. The attached log allows an auditor to reconcile your sessions without opening a full audit, saving you time and aggravation.

The thing to remember is that your gambling sessions bottom line must be accurate. Adjustments sometimes need to be made so the IRS computers don’t start smoking.

From the above example you can combine all sessions when reporting on the tax return. (Still attach your sessions log to verify the reported sessions gains.)

Let’s assume for our final example that John started with $500 on February 2nd, won a $10,000 jackpot and kept playing until he had only $700 left. The other sessions had no W-2G wins.

Here is how I’d report John’s sessions on his tax return:

  • Gambling Income: $10,000
  • Gambling Sessions Losses: $9,100

The tax return only needs this one simple combined sessions reporting to arrive at the correct $900 of gambling gains. Remember to deduct the excess allowed on Schedule A (losses up to total gains not reduced by sessions losses).

 

Gambling can be exciting and fun. Winning is best of all. Just make sure you don’t pay a penny more in tax than you have to. The deck is already stacked against you by the IRS and casino. Don’t throw your winnings away, too.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

 

Do You Need an Investment Adviser/Financial Planner?

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Once again we see the market throwing a temper tantrum. On the way up it was tempting to handle your investments on your own. Now with the horizon less clear and a modest correction in the books as I write, you wonder if professional help might be worth the extra expense.

Those most knowledgeable about money resist the advice of commissioned (or fee-based) professionals. As everyone know, fees have serious consequences over long periods of time. The lower the fees the more you’ll have 10 years down the road.

But when the market gets schizophrenic confidence in one’s abilities declines. Worse, you can make serious mistakes well in excess of what you would pay a financial professional.

The stereotypical financial planner or investment adviser is history. Commission based compensation still exists but on a much more limited scale as fee-based planning has taken over, hitching the client’s performance to the adviser’s income. Annual fees typically run around 1% of assets per year. While this fee is lower than many mutual fund expense ratios from decades ago, 1% annually starts to add up. And remember, you not only lose the 1% fee, but all the future gains that 1% would have earned.

Readers of this blog generally forgo advisers since they are well versed in the details of money management. Some readers apologize when they call me for a consulting session as they pay investment management fees to an adviser. It doesn’t bother me if you use an adviser because there are good reasons to hire an adviser which we’ll cover shortly.

Normally people in the FI (financial independence) community would want to pass on an article suggesting you might benefit from a financial adviser. This should be the exception. After careful consideration I decided to share 3 reasons a financial adviser could be a good idea for you.

Actually, I personally believe there is only one true duty of a financial professional. Don’t cheat and skip ahead. There are other minor duties a financial planner should provide should you decide to hire one.

Broken Confidence

Before we begin I want to share why I’m writing this post. This blog has a presence on several social media platforms. I also follow several groups and pages in the genre on Facebook. Recently a few people confessed they were willing to sell because the pain was too great since they lost maybe 10% or so of their portfolio value from the market top a few months back.

This confused me since these same people exuded tremendous confidence in their personal investing habits without the help of a professional. How could a run-of-the-mill correction have people screaming? How would they react in a real down market? A bear market?

Further digging showed many were investing in individual stocks such as Apple, which is down is bit more than the broad market averages.

Of course selling after the decline is in full swing is rarely a good idea. The time to sell is when the market is up, not after it drops 10% – 25%.

People comfortable spending less than they earn and investing the difference consistently do fine when the market is climbing. But when the ride gets bumpy or a bear market growls loud, these same people consider making the largest mistake of their financial life: selling at a market low.

I see this whip-sawing with clients all the time. It breaks my heart to see a client bust her tail to build a sizable nest egg only to lose money in one impetuous panic trade.

And that is where professional help comes in. While fees are always a concern since we know it hurts long-term performance, we need to weight the costs against real world results.

So here are the 3 things a financial planner or investment adviser must do to earn your business:

3. Asset Allocation

Index funds get all the press, but index funds are not the answer to every problem. (Have halitosis? A healthy dose of a Vanguard index fund will clear that right up! If only.)

Index funds are an important part of almost every financial plan. A financial professional should help you (or keep looking until you find one who does) determine how much should be in bonds, equities and cash. (If the adviser recommends Bitcoin, commodities, options, or other esoteric investments, especially if commission based, run like the wind while you still have a chance. And hold your wallet tight as you run!)

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

My personal portfolio has very few bonds. I certainly don’t follow the traditional investment philosophy of subtracting your age from 100 and having that much in bonds, or some such advice. (Yeah, I know I mangled that. The point is I don’t follow traditional investing advice.)

This brings up an interesting point. Your portfolio will look different from mine even if we are exactly the same age, in the same health, and have the same amount of money! The reason is that your personality will be different from mine. I’m willing to ride out any storm (for real!) while you might lose sleep at night if your investment/s decline temporarily.

When the market drops I start licking my chops. Where some people get scared and want to sell to protect from additional declines, I’m thinking about—and usually carrying out—purchases of more shares of companies or index funds.

Down markets are where the real money is made! The same applies to an individual stock if it is a quality company in most cases. (Apple is down hard recently and may drop more. I added a small amount to my portfolio and if the decline continues I’ll add more. Apple is a well run company with superb management. Temporary setbacks are part of investing and usually a time to invest in more shares of great companies and always a good time to buy broad-based index funds.)

A good adviser/planner will help you build a portfolio that allows you to sleep at night. For some it might be all cash, ie. bank deposits. (I actually have a neighbor who has it all in the bank and is happy as a clam in his retirement. He sleeps at night! No index fund gains would be worth the loss of security to him so it is the right thing to do. . .  for him.)

2. Goals

The financial professional is more than a product pusher. The professional will know his client (that’s you) before making any recommendations. If an adviser prescribes before diagnosis, walk. Keep looking until you find an adviser who wants to work for you.

Investing isn’t about “more money”. Well, not completely, at least.

Investing needs a reason, a purpose, for it to be something you’ll be consistent with. Financial independence can be a solid goal since once you reach FI it opens your view to the horizon rather than working a job because you must. You may stay working in your current environment if you enjoy the work after reaching FI. There is nothing wrong with that! You might want to start a business or explore an idea. That is good, as well, as that is where all progress comes from.

Early retirement is an honorable goal. So is building a nest egg so you can work less and spend more time with family is a goal that motivates. Growing your portfolio to leave an adequate legacy is also an important consideration. So is growing your portfolio so you have the resources to fund philanthropic causes dear to your heart.

Goals are endless. An adviser or planner must be willing to listen to your goals, even help you formulate clear financial goals that will serve your needs.

Often times we don’t even know what we want. Just wanting more money isn’t reason enough! With only a vague, undefined goal, that SUV looks mighty tempting fast. Only goals you fully subscribe to will keep you on course and fill you with joy.

So, advisers and planners need to understand who you are and what makes you tick and work with you to discover your real financial life goals. It might sound like a detailed job; it is.

When I work with clients I practically give them a tax and financial proctology exam. You might be laughing now over my choice of words, but I’m dead serious. I need to know my client when dealing only with taxes. My advise is based on what I discover about my client and her goals. If it’s important with taxes; it’s tremendously more important when it involves your financial plan.

1. Panic and Greed

Two very important traits a financial adviser must have before you work with them is they must understand who you are and how it affects your asset allocation and a determination to help you reach your financial goals. But those traits are nothing compared to what I consider the only true value a financial professional has: dealing with your emotions: fear and greed.

It might seem like a total waste of money to pay a financial planner 1% of your portfolio annually when all the money is tucked safely into index funds. The whole low-cost benefit of index funds is partly removed with the advisory fee. So how can it be worth it to hire a professional for such a simple (and appropriate, I might add) investment portfolio?

On the surface the fees might seem like a waste until you remember how we entered this post: people freaking out on social media over a mild market correction.

If a 10% correction has you running for cover you made the wrong investment! Or at least you didn’t adequately prepare yourself for the reality of your investment choices.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

And this isn’t a blame game either. Most people have no idea how risk adverse they are until the proverbial manure starts hitting the fan. Then Katy-bar the door, boys. It’s about to get real.

And for this reason a financial professional can earn her keep.

People who build a large portfolio do so by ignoring short-term market moves. It’s easier said than done. Most people need a steady hand to see them through. Enter the investment adviser/financial planner.

If the current market volatility concerns you then you either made the wrong investments for your personality or you need a professional to smooth the emotional peaks and valleys, maybe both.

The same applies to bull markets. If you’re tempted to use margin (borrowed money) when the market is hot you need a professional to talk you down.

My decades of experience makes it clear to me many people need professional help with their money. Everyone wants to go it alone because we all think we’re smarter than we really are, and as the market rises (as it usually does) it masks our deficiencies. Blue skies lull us into a false sense of security. Then the storm arises.

If you are considering a financial professional after reading this then I want you to do it right. Interview several financial professionals. If they aren’t interested in you, really want to know and understand you, move on. The adviser you hire (you’re paying them so you are hiring them so they darn well better do their job!) must take an interest in your goals. In fact, they should naturally gravitate toward questions bent to learn about you and what most motivates you.

Make it clear to any adviser you consider that you want a steady hand, not exotic investments. She must help you deal with the emotions in a down market so you don’t crush your financial dreams with impetuous trades; she must hone your desire to take a flyer when the world is getting rich in FAANG stocks.

A good adviser does those kinds of thing because they are responsible and looking out for you, her client. Anything less and you’re better off with the security of a bank.

A Parting Story

The mid and late 1980s were an incredible time to be invested. A long-time client with experience managing his own money added religiously to his portfolio. From 1982 to 1992 the market churned out an annual return well into the double digits. It was a good time to be invested in equity mutual funds.

During this decade my client invested in Fidelity’s Magellan Fund. During a good portion of this investment period the legendary Peter Lynch managed Magellan. Returns were in nose-bleed territory.

My client was a steady investing hand. An up market didn’t turn him greedy. He added funds steadily as he earned them.

Mild downturns were also okay for my client. But the 1987 stock market crash turned him into a sleep-deprived zombie. He couldn’t take the market volatility so he sold. At the bottom! Then the market recovered and blue skies returned so he moved back into Magellan.

Then in 1990 the market once again declined. Not nearly as bad as 1987, but enough to shake our good friend. As you may have guessed, he sold. A short while later when the market returned to new highs he felt safe enough to push all his money back into Magellan.

During this period the Magellan Fund was up an over 20% per year on average if you never sold. Our hero managed a measly 2% because he sold twice in decade out of fear, less than money market funds would have earned back then. Our hero went from mouth-watering investment returns to performing worse than money market funds over two stupid decisions.

Moral of the story: It only takes one or two stupid investing mistakes to sabotage your financial goals.

Now be honest: Do you need a financial professional to see you through the storm clouds?

Now for the bad news. If you do, they are as hard to find as a good under-priced stock.

Good luck.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

 

Is Staying Fully Invested in the Market the Right Move?

Should you always be 100% invested. It depends on your circumstances. Sometimes cash is the better investment. Cash can also grow your long-term investment returns.

Should you always be 100% invested. It depends on your circumstances. Sometimes cash is the better investment. Cash can also grow your long-term investment returns.

Most of the time the stock market is climbing north. Interspersed between bull markets are those times when rookie investors act as if the sky is falling.

Long bull markets turn normally intelligent investors into casino gamblers; they even use gambling terminology: we’re due for a bear market or as they say at the casino, “Red is due after 8 black spins” at the roulette wheel; as if the ball has a memory. The odds of it coming up red are the same as it was last spin, in case you were wondering.

Of course, long moves in the stock market sets off our sixth sense that this can’t last forever. Before long you’re not fully invested (a religious mantra of many investing circles) which smacks of market timing.

This brings up a good question: Should you always be 100% invested in the market?

If only it were as simple as a yes or no answer.

The truth is many people should NOT be fully invested in the market and some people SHOULD be and it has nothing to do with market timing. The trick is to know when to be fully invested and if not, by how much.

It boils down to your personal situation: where you are on your journey to financial independence, how close to retirement you are (or if you are in retirement), spending habits and viable alternative investments.

Investment Levels

Whether you should be fully invested or have cash in money market accounts includes many variables. The easiest decision is when you are starting out.

Under $100,000: When your net worth (this should probably be liquid net worth) is under $100,000 and you are a good distance from retirement age you should be fully invested at all times.

This is the time to super-charge your tax benefits by funding retirement plans to the max. Employer contributions (if available) are an added bonus.

With time on your side you have to stay fully invested. Markets declines will come and go, but the risk is being out of, rather than in, the market. Riding out the storm of a bear market is only a minor speed bump in the rear view mirror so fully invested you should be.

Fully invested requires some explanation. Fully invested applies to your retirement and non-qualified accounts. These funds are earmarked as long-term investments and should be where they have the greatest opportunity for gain: broad-based index funds. You still need an emergency fund or at least some liquid assets easily accessible should your employment situations change or a major expense arise. We don’t want to be in a situation where we are forced to borrow at unfavorable terms or sell an index fund at market lows. A modest amount of liquidity is necessary and has nothing to do with market timing.

Your level of cash involves several factors. If you own a home and have access to a line of credit, it might be better to keep everything invested always and use the LOC if the need arises. This allows your savings to be working to your advantage. As the economy and business grows, so does your wealth.

In any case, when you are young and just starting out, the more you keep invested the better. Dividends and corporate profits keep climbing with only modest, short-term declines. You need the out-sized returns of the market to reach financial independence in a reasonable amount of time. The broad market averages 10% per year (some years more, some years less) while money market and bank accounts barely keep up with inflation if at all.

Investing can feel like a balancing act. Should you invest in the market or keep some in cash? There are good reasons to keep cash instead of investing.

Investing can feel like a balancing act. Should you invest in the market or keep some in cash? There are good reasons to keep cash instead of investing. Please share on Pinterest.

$100,000 – $1,000,000: The first $100,000 is the hardest. You earn every dime to get your account value up. The higher the account balance, the easier it is to get it compounding with meaningful numbers.

As your net worth climbs, having more cash can be beneficial, especially if you invest in individual stocks or have real estate investments.

When starting out it is important to invest in less risky investments. While the stock market does go down, the long-term gains are enviable for those with a modest amount of patience.

As your account balance rises you may consider alternative investments. Income property comes to mind. So does Peer Street and similar types of investments. (Most alternative investments should be a minor part of your portfolio.)

Retirement accounts will remain fully invested unless you are in or entering retirement where about 2 years of living expenses should be in a money market account.

Non-retirement accounts are a different story. The higher your liquid net worth the more likely you will keep some money in cash. High net worth individuals have more opportunities to invest than low net worth people. (Consider this an incentive to grow your account values.)

With a higher net worth you are either closer to retirement than those starting out or in retirement. A long-term investment horizon makes index investing almost a necessity. However, once retirement pops above the horizon or is your current lifestyle, more cash needs to be held in liquid money market accounts to satisfy normal (and sometimes abnormal) living expenses.

As your net worth grows you tend to learn how to ease up on traditional labor. Ample money allows you the freedom to choose between more time at work or more time with family; most people choose more family time. Because you now have the resources to spend less time in a formal working environment, you will need liquid funds to cover expenses wages may not.

Over $1 million: Even index funds keep a small percentage of their assets in cash to cover expenses and for withdrawals. Now that your liquid net worth reached seven figures you need to consider the same strategy.

Millionaires start to see their income get lumpy. This means you don’t see a steady income, but larger chunks from sales of assets or from your business or commissions, rents, dividends and interest. While wages can still make up a sizable part of your income, other passive forms of income generally dwarf your earned income. (The stock market gaining an average 10% in a year on a $1 million account yields a $100,000 unrealized gain and $20,000 in dividends at a 2% dividend yield.)

More alternative investments tend to show up now that your stash has climbed to million dollar status. The easiest way to invest a small sum is in an index fund. With a larger pile alternatives play a potential role.

We preach index fund investing a lot around here, but everyone I work with that has at least seven figures of net worth has accumulated several alternative investments. Once you begin investing, opportunities abound. Just be careful it isn’t a scam; they abound, too.

There is a difference between a few dollars and a million plus. With a million dollars you now spend more time allocating assets: how much real estate should I own and where, do I own bonds, individual stocks, gold (please, no), micro lending investments and so forth.

Most of the people I work with that have a large net worth tend to keep a small pile in cash. Five percent of a million dollars is $50,000. It sounds like a lot, but a small amount compared to the whole. $50,000 sounds like a lot until you realize circumstances could require you to need this liquid cushion. Remember, income tends to gets lumpier when your net worth gets reasonably high (and even worse when unreasonably high).

Business Owners and Side Gigs

Readers living off business income have a unique set of challenges. Businesses need working capital so uninvested money needs to be easily accessible for operating expenses or opportunities to expand the business or spike profits.

Businesses must have an adequate cash reserve! Every business owner enjoys surprise opportunities unannounced. Some of my best money-making opportunities were the result of having cash available when competitors didn’t.

Cash is king! 100% invested all the time can hurt your investment return. Find the right balance between cash holdings and index fund investments.

Cash is king! 100% invested all the time can hurt your investment return. Find the right balance between cash holdings and index fund investments.

Side gigs are really micro businesses. The same opportunities fall in the laps of side gig purveyors.

The type of business determines the amount of cash needed. In my tax practice I generally keep $50,000 liquid with a $100,000 line of credit. Small opportunities do not require the risk of waiting to sell an asset or borrowing money; I can write a check. As strange as it sounds, there are times when they sell dollar bills for 82 cents a piece. (Well, it seems that way. I use multiple bank offers with this working capital, snagging thousands of dollars annually in bonus interest. I also can buy assets or invest in a new business venture connected to this blog or my practice without funding concerns.)

As you approach retirement you also need to consider more liquid funds because there will be a need in a few years or less. (Index fund investing should have a 5 year time horizon minimum.)

Short-term funds must always remain liquid to prevent a market decline forcing you to sell at a loss! As I stated, money needed within 5 years should be in a bank product or money market account. This applies to everyone at all net worth levels. Nothing guarantees a market decline better than dropping short-term funds in the market you’ll need in six month or a year. It’s almost like God is punishing you for being stupid (or greedy). (Yes, I’m speaking from experience.)

Retirement

Retirement changes everything. As you are growing your nest egg you are also bringing in outside cash from work and/or income properties, et cetera. When you are in retirement you are earning less (or nothing) so you need the income stream from investments to cover daily expenses.

You annual spending habits and investment values determine how much you will need to keep liquid.

If your net worth is really high and spending level low you can keep all your money invested in index funds and live off the dividend stream.

For everyone else it is a good idea to keep around 2 years of living expenses in cash (money market accounts). If the market keeps climbing you can sell enough of your index fund to pay bills. When the market declines you can live off the money market funds. If the market decline is steep you can divert dividends to the money market account rather than reinvesting dividends.

The goal is to a void a cash crunch when the market is down significantly. Small declines ( a correction, defined as a 10% decline from a recent market top) are no problem as you’ll still sell part of the index fund for living expenses (if dividends don’t cover the bills). What I’m worried about is the 2008 type decline of 50%. I don’t want to sell in that environment no matter what. It’s a buying opportunity if anything.

Market Timing

As my net worth grew over the decades I noticed I keep more and more money in cash when valuations become stretched. While this isn’t technically market timing (buying and selling to capture small market movements), it is done with the expectation of investing at a later date at a better price.

Currently I’m at a high cash position. Money pouring in over this year I’ve kept in money market accounts (I still invest automatically in my Vanguard index fund, but the money coming in is always more than the baseline I automatically invest). For a while I invested in Peer Street and made a few other modest investments. I tried to get out of investing in individual stocks, but I had to invest more in Altria when the world was coming to an end and the dividend yield jumped over 6%. I also added to my Facebook and Apple holdings modestly when their stocks declined significantly.

Another reason I keep more money liquid now is that I want a ready pile of cash for an emergency investment. The economy is humming right now, but the day always comes when a piece of real estate shows up 30% below market value for a fast sale. And I’m just the guy to make a fast sale to because I don’t need a loan; I can close this afternoon.

Liquid funds have a low rate of return until you can pull the trigger on a deal like no other in zero time! Businesses and individuals frequently have fire (or should I say FIRE) sales for a variety of reasons. I enjoy getting first dibs because the seller knows I can close the deal fast.

Bonds

Interest rates also play a key role in how  much you should have in equity index funds. When interest rates are high it’s easier to keep more liquid funds as your money market pays stock market returns.

We haven’t seen high interest rates in well over a decade. That doesn’t mean those days will never return. In the early 1980s you could buy a 30-year Treasury with a 14% coupon (the bond paid 14% interest annually for 30 years) and the interest was state tax free. Regardless of what the stock market did, I would not have had hurt feelings if I had money in Treasuries for 30 years at 14%. That is about the best risk-free investment there ever was.

If Treasury bonds climb to 7% or higher I will probably keep some money in bonds. If you are starting out you still need to ride out the stock market storm as you need the compounding effect of growing businesses to build your nest egg. If your stash is a bit bigger risk-free bonds might be at home in your portfolio. (For the record I currently hold one, that is 1, Treasury Inflation Protection Security (TIPS) of $1,000; my entire bond portfolio.)

If interest rates ever climbed to double digits there is nothing wrong with dumping a large portion into Treasuries, especially if you are retired. You can throw the 4% rule out the window when the U.S. government is paying more than 10%.

Wrap Up

Reading personal finance blogs might lead you to think holding cash is a sin. It Isn’t! Having plenty of cash ready to jump at a moment’s notice is a powerful wealth building tool. Warren Buffett keeps large amounts of cash at his firm, Berkshire Hathaway. He keeps the cash handy for potential claims from his insurance business and for opportunities to buy good businesses at a good price. You and I should be no different.

If you buy and sell the market hoping for a quick gain you are market timing and you will eventually get you head handed to you (if you already haven’t). Every client I ever had who *traded* the market had sub-par results and most took a bloodletting.

It might seem like a fine line between market timing and what I’m suggesting here. It isn’t. Money I keep to the side for potential investment can stay in money market accounts for years for all I care. If I don’t find a super deal for the money is plods along earning 2.3% (the rate as I write). It may never get invested. If, however, the market declines I’ll allocate more of these liquid funds to the index.

And if Apple decline more or Facebook drops (or gets better management) or Altria stays at these levels (or buys Juul, I think it’s a god fit) I’ll be exchanging more of that cash burning a whole in my pocket for pieces of those businesses.

xt-align: center;”>More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here.