Business owners have many legitimate complaints these days:
taxes, regulations, competition (from home and abroad),
can't find good people. The list goes on and on. Always
has. Always will.
Yet the pride of the American capitalistic system is the
successful family business. These entrepreneurs have found
their way through, around or over the seemingly endless
obstacles to become a "successful business owner." An SBO
for short.
For the purposes of this article, SBOs have excess funds to
invest (other than back into the operation of their
business, which produced the funds in the first place).
Typically these excess funds are in one (or more) of three
places:
(1) still in the business,
(2) in their (or spouse's) name or
(3) in a qualified plan (profit-sharing, 401(k), IRA or
similar plan).
Over the years the quote that follows has been nicknamed
the SBO's lament: "I know how to make money in my business,
but when it comes to making money with my investment money,
either I don't have time to watch it, don't know how to
watch it or rely on my investment advisor. When the market
is up, my advisors do fine, when it's down they do lousy."
For the past couple of years, the lament usually ends with,
"Now the market is lousy (or down, or uncertain, or similar
words). What should I do?"
(Note: Yes, yes millions of Americans-other than SBOs-have
the same investment dilemma as SBOs: "Where do I invest my
money?")
Now, regular readers of this column know that your author
is a tax planner: finding legal ways to avoid all types of
taxes-particularly estate taxes. To do this requires-among
other things-getting my client's personal balance sheet.
Here's what I can tell you that the balance sheets reveal
about the investments of SBOs (and also other estate
planning clients). Their success (or failure) in the stock
market and a myriad of other investments, in general,
mirrors the Dow Jones: happy on the way up and painful on
the way down. Usually, real estate investments are a
winner.
Now what about that excess cash? Terrible results. Almost
always the investments are conservative: divided between
(1) CDs and money market funds,
(2) municipal bonds and
(3) a "zillion" variety of annuities.
After taxes and inflation, your net earnings on (1)
investments are typically less than 3%, sometimes even
negative. Those income tax free bonds, (2), not only have
a low rate of return, but fall in value when interest rates
rise. Annuities, (3), could fill a large book to describe
all the varieties and, most of all, the complaints from
clients. Never, not once, has a client told me that he/she
is happy with the results of an annuity. (I would like to
hear from a reader who has personally had a positive
experience with any annuity.)
As you can imagine, almost every estate planning
consultation with an SBO-and other clients-requires serious
consideration concerning the client's investments: safety,
risk, tax consequences, rate of return and other factors.
We discuss alternate investments, considering, among other
things profitability, risk and how taxed.
Currently, the most popular alternative investment is Life
Settlements. The following quote from "The Wall Street
Journal" and "USA Today" (and other sources) tells you why
LS are becoming such a popular investment. "Life
Settlements [has become a] trillion dollar industry
dominated by institutional investors including Berkshire
Hathaway (billionaire Warren Buffet's company), AIG and
CNA. Their pursuit of this market is related to the degree
of safety, high yields in excess of 15% per year and the
fact that a Life Settlement is not affected by market
forces."
"Life settlements are a very good option for the investor
that has as his or her investment philosophy a desire for a
secure, safe and "minimal risk" investment It is for your
"nest egg" money It is not considered a security by SEC.
Therefore it is not normally provided as an investment
option by stock brokers."
Of course, your question is "Can a little guy (as opposed
to an institutional investor) invest in LS. Yes, it's all
made possible by a small publicly traded (on the NASDAQ)
company. Its average rate of return an LS investments has
been 15.83% per year on average during the company's
16-year operating history.
15.83% annual rate of return, with minimal market risk is
available for cash (IRA, 401(k) or other qualified
retirement plan) is available. This is for Accredited
Investors only, not for the little guy'. -END OF ITEM-
----------------------------------------------------
Irv Blackman is both an experienced CPA and lawyer. He
founded Blackman & Kallick, the largest independent CPA
firm in Illinois, and is the founding Chairman of the Board
of New Century Bank of Chicago, Illinois. Please see:
http://www.taxsecretsofthewealthy.com to learn more. If you
want to contact Irv, please visit the website or call
888-278-3623.
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