My Take on the Brexit

So, the votes are in and the dust has settled.  The citizens of England have voted to leave the EU, by a very small margin of 52%.  There are lots of messy details to sort out and the analysts on TV are all buzzing.  I’m a typical American with a limited global perspective, but I do have some opinions I would like to share.

It Could have Easily been Avoided

Brexit Vote Leave Sign

Image by David Holt

The UK had been trying to negotiate with the EU for years on critical issues, such as immigration.  But, the EU not only seemed stiff and inflexible, it turned a deaf ear to the issues and challenges facing the UK.  I don’t know if it was arrogance on the part of the EU or a sense of being repressed by the UK, but it didn’t end amicably for either party.

As an obvious outsider, I believe the Brexit could have been avoided with some basic respect and flexibility from both sides.  I don’t know what pushes leaders into entrenched positions when clearly some compromise is called for.  I do know if you back someone into a corner, the outcome is rarely good.

One of my former co-workers James from England told me years ago, “Once you raise your flag and draw your sword, it’s pretty hard to then back down.”

The Will of the People Really does Matter

In my opinion, the Brexit vote comes down to one thing: sovereignty.

The people of England have a proud culture of rugged individualism.  With popular phrases such as “Carry On” and “Keep a Stiff Upper Lip”, they don’t expect things to be easy.  What they do expect is to have a say in their future.  The step they took yesterday was a vote to regain their sovereignty.  Only time will tell if they made a wise decision.  Will they suffer for their brashness or will they flourish?

America has a similar culture and we are going through our own revolutionary moments right now.  Our government has turned a deaf ear to the problems facing Americans and have instead foisted their hand-picked political lackeys upon us.  But, America isn’t buying it.  We want real changes in our government and we want honest leadership that loves our country.  Instead, we have an arrogant duopoly that is for sale to the highest bidder.  Our vote is coming in November.

The Bottom Line

The bottom line is that freedom comes at a cost.  For the courageous voters of the UK, the cost is economic uncertainty.  Courage is always to be admired and freedom is always to be treasured.  Three cheers for England!

“There is shock, sorrow, anger and fear among people in the EU’s institutions.”

– Mark Mardell

Feedback is Requested

Anyone from Europe, the UK or anywhere else in the world is encouraged to share your opinions in the Comments section below.

Recommended Reading

Financial Samurai – What’s Next After the Brexit?
The Economist – The Brexit Debate
The Telegraph – Glorious Opportunity of Brexit

Fallout from the Panama Papers

A Panamanian legal firm, Mossack Fonseca, was recently hacked and Sunday over 11 million of their confidential documents were posted on the Internet.  This is significant because MF is the fourth largest global asset protection (tax shelter) law firm.  These documents list many of the world’s most wealthy and powerful.

Why this is Such a Big Deal

Panama City

Image by Matthew Straubmuller

Everyone has known for decades the super-rich and politically-connected can move money around the globe, without any tax implications.  Politicians talk about it; books and articles are written about it; but, nothing is being done to stop it.  In fact, many banks and heads of state appear to be creating and using this tax-evasion network.  Whenever any complications arise, laws and tactics are quickly changed to protect the network.

The Facts are Undeniable

Until now, it was easy to gloss over the problem and deny this was happening on such a massive scale.  Now, it’s virtually impossible to deny.  It’s impossible to even downplay the size of the problem.  The working class knows they’ve been paying an unfair share of the global tax burden and now they finally have the ammunition to do something about it.  It will be interesting to see how it affects the elections.

Everyone is Implicated

  • 12 Heads of State
  • 150 Politicians
  • 29 Forbes List Billionaires
  • Dozens of Global Banks
  • FIFA Officials and Players
  • Drug Cartels and Dealers
  • Arms Dealers and Nuclear Proliferators
  • Companies linked to the CIA

The Fallout so Far

  • The president of Iceland has stepped down
  • The President of Argentina is under investigation
  • Vladimir Putin called the leak an American plot
  • The Prime Minister of England is under fire
  • The President of France is under investigation
  • CEO of Austrian Hypo Landesbank stepped down
  • Swiss Federal Police raided the UEFA offices
  • Police in El Salvador raided the local MF office
  • Australia is investigating 800 listed taxpayers
  • China has blocked MF related media and Internet

Evasion in America

There is a curious lack of Americans listed as MF clients.  Does this mean it’s not happening here in the US?  No, it just means Americans don’t move their money through Panama.  There are three key reasons for this:

  1. The Panamanian Free Trade Agreement forces Panama to release information to American authorities.
  2. US law makes it easier to setup shell companies in the Caribbean and other tax havens.
  3. Recent US laws like the Foreign Account Tax Compliance Act (FACTA) make it harder for American citizens to hide their money abroad.

Don’t be surprised to see Americans implicated in future leaks.

The Bottom Line

The bottom line is that transparency is a good thing, unless you are breaking the law.  International law is pretty murky and much of this may be legal, in some countries.  But, evasion and laundering are taking place on a global scale.

“Corruption, money laundering, and tax evasion are global problems, not just challenges for developing countries.”

– Sri Mulyani Indrawati

Recommended Reading

CNN – The Panama Papers: 7 Things to Know
New York Times – The Panama Papers: Here is what we Know
The Guardian – Fallout from the Panama Papers

Robo-Investing is the Next Big Thing

Toy Robot

Image by Randy Chiu

It’s no big secret the financial services industry often takes advantage of retail investors.  High fees, poor performance and a lack of liquidity can be the cost of doing business with a commission-based financial advisor.  They have to get paid and that requires some costly products.

Finally, there is an alternative to hiring a financial planner or choosing your own investments.  For a small fee, you can try robo-investing, also known as automated investment advisory.  It is suddenly all the rage with millions of retail investors, especially Millenials, who seem to trust technology more than people.

Since programming an algorithm is cheaper than hiring lots of financial advisors, there can be significant savings for automated investors.  There can also be a big advantage to automating the entire investment process.  You can set it and forget it, instead of manually rebalancing your portfolio.  There are also automated features for very complex transactions, such as Differentiated Asset Location and Tax-Loss Harvesting.

Disclosure: This is not a paid post. I received no compensation from nor do I have any financial interest in companies profiled in the article. This information is provided objectively for the interest and entertainment of my readers.

The Key Players

Wealthfront – Wealthfront was established in 2011 and has over $2.6 billion under management.  They have quite an array of automated services including Direct Indexing, Differentiated Asset Location and Single Stock Diversification.  Customer assets are held in a brokerage account by Apex Clearing Corporation.  The management fees are .25%, with the first $10,000 managed for free.  The account minimum is $500, which is great for small investors.

Betterment – Betterment was founded in 2010 and has over $1.7 billion under management.  One nice feature of Betterment is individual goal setting.  This is something I did manually for my retirement funds, my house fund and college funds for my kids.  Management fees range from .15-.35%, in three tiers, depending on assets in the account.  There is no account minimum, but you will pay the highest tier fee (.35%) until you have at least $10,000 invested.

Schwab – Charles Schwab has been a champion of small investors for decades.  As one of the early discount brokers, they offered an alternative to pricey brokers on Wall Street, long before you could buy stocks online.  Their Intelligent Portfolios are available to investors with an account minimum of $5,000 and are free of commissions and advisory fees.  Managements fees are generated from the Schwab ETFs and third-party ETFs available in the portfolio.

FutureAdvisor – FutureAdvisor was founded in 2012 and has over $600 million under management.  They don’t hold your assets directly, instead you invest with Fidelity or TD Ameritrade and they manage your accounts.  For some odd reason, people over 68 years old aren’t eligible to invest with FutureAdvisor.  There is no account minimum for the free service, but the premium service requires at least $10,000.  The management fee is a flat .5% of assets.

My Predictions for Robo-Investing

  • Automated investing will continue to grow at a rapid pace.
  • Traditional investment firms will add automated features (like Schwab), in order to attract investors to their funds and ETFs.
  • Automated investing will begin to displace low-end investment advisors.
  • Younger investors will prefer automated investing to managed investing, the same way automatic transmissions have replaced manual gear boxes.

The Bottom Line

The bottom line is that good financial planning requires a lot more than picking a couple of investments and hoping they meet your goals.  If you lack the time and experience to do your own planning, robo-investing may be the solution.

“An investment in knowledge pays the best interest.”

– Benjamin Franklin

Recommended Reading

Barron’s – When Financial Advisors meet their Robo-Rivals
The Simple Dollar – Betterment vs. Wealthfront
Dough Roller – Betterment vs. Wealthfront

My Thoughts on Retirement Planning

I received an email from one of my readers asking me about my thoughts on retirement planning.

“What did you do successfully in your 20s to prepare for retirement?

What you would have done differently to ensure a better financial future?

What would be your ideal retirement plan?”

My ideal retirement plan would be to retire today, but that’s not realistic.  I will very likely retire a millionaire at age 67.  If I run into some money or develop a successful side-gig, I may retire sooner.  I would also love to cut back to 3-4 days a week and semi-retire in my 50s.  Since my house is almost paid off and I love living at the beach, I’ll likely stay here, even though California has high taxes.

What I did Right in my 20s

  • I started investing at age 21.
  • I saved consistently, even with a low income.
  • I did research and learned how to invest.
  • I bought newsletters and found mentors.
  • I wrote down goals and plans to achieve them.
  • I read books and listened to motivational tapes.
  • I followed a career path and chose a great profession.
  • I found side-gigs and invested the extra money.
  • I drove older cars and maintained them myself.
  • I saved for a house and will pay it off before retirement.

What I Would Change if I Could

  • I would have gotten my college degree in my 20s, instead of my 30s.
  • I would have demanded higher pay that was equal to my skills.
  • I carried credit card debt and took out a second to fix up my house.

The Bottom Line

The bottom line is that saving up for retirement isn’t as daunting as some people think.  As long as you start in your 20s, you will have plenty of time to save and invest.  If you wait until your 30s or later, the math becomes a lot more difficult.

“A whole generation of Americans will retire in poverty instead of prosperity, because they simply are not preparing for retirement now.”

– Scott Cook

Become a Millionaire in One Easy Step

I read an article today that discussed the status of the world’s growing number of millionaires.  This article shared a very enlightening statistic.

Millionaires invest on average 20% of their income.*

*Source: Yahoo Finance

Investing is the Key to Success

Hey You Millionaires

Image by Rance Rizzutto

So, it’s pretty much as simple as that.  If you invest a good part of your income, then within a number of decades you will likely become a millionaire.

Call me Captain Obvious, but “Everybody Knows That”.  The only question is, why aren’t people doing it?

Obviously, I have over-simplified the process of investing and accumulating wealth quite a bit.  I wanted to just concentrate on one simple facet of the entire process.  I want to understand why people fail to invest.  This has confused me for the 30 years I have been investing.  One reason I started this blog in 2007 was to encourage people to get started investing, yet it seems like a fool’s errand.

36% of people in the U.S. have nothing saved for retirement.*


Feedback is Requested

If you are one of the people who reads my blog and you don’t invest, I would love to hear the reasons why.  You can leave an anonymous comment, if you don’t want to be identified.  I am searching for creative ways to encourage new investors.

If you don’t currently invest, what is keeping you from doing it?

The Bottom Line

The bottom line is that investing is the most common way to become a millionaire in America.  That’s why there aren’t any posts about clipping coupons or making soap on my blog.  We need the magic of compounding in order to prosper.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

– Robert G. Allen

Recommended Reading

101 Centavos – Long-term Investing versus the Quick Buck
Don’t Quit your Day Job – What Type of Investors Perform Best?
Squirrelers – The Snowball Effect of Money