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How to design an investment portfolio that makes sense. June 3, 2010

Posted by shaferfinancial in Finance, Uncategorized.
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I have meaning to write this post for a while.  Based on my 12+ years of looking deeply into the subject, my understanding of the issues with the investment advice emanating from Wall Street [through the financial planning industry], and searching for products that complement each other, I have come up with 3 main strategies.  *******Warning: I actively own and sell one of these strategies, and use all three strategies for myself*******

All these strategies are designed to produce retirement income, while working in concert with each other.  I think that you could use any two together and get the same benefit.  So it is not required that you use all three strategies.  This is designed for long-term thinking only, not speculation nor short term trading.

1.  Equity Indexed Universal Life Insurance:  Building up a reserve account that can be accessed at any time without penalties and that doesn’t go negative is the basis for owning this product.  Yes, there are expenses involved, but the expenses are well under 2% which is a trade-off I would make all day long considering that the taxes saved are between 15-35%.  This is your store of capital that can be accessed without damage to your capital even when the markets are under stress, like today.  I add the disability rider for those making monthly premium payments, which means if you get disabled your retirement is not devastated [I have personally seen this happen to two folks].  There is ample flexibility built in that allows for financial emergencies to emerge and still keep your policy in-force.  Flexibility, protection, no negative returns, and tax benefits make this a basis for a safe portfolio.

2.  Dividend producing stock:  Building a dividend producing stock portfolio is a old and honored system that works.  There are many internet sites that can guide you.  These sites list the stocks that have a long history of INCREASING dividend payments.  Most sites will suggest you be well diversified.  I think that means 4-7 stocks, you might want to have more, but I’m not a huge believer in owning a lot of companies stock because I can’t understand 10-12-20 businesses and I like to understand the businesses.  I only own two dividend stocks and feel confident I can make changes if needed because I follow them closely.  I will move up to 4 stocks in the future as funding becomes available.

3.  Investment Real Estate:  This ranges from raw land to single family rentals.  There are time honored metrics used to make sure you don’t overpay for the property.  Make sure you are cash flow positive.  Get professional help for you first couple purchases [My friend Bawld Guy, is the person you really should talk to first: http://www.bawldguy.com%5D.  Being a landlord is not for everyone, but you can professionalize the whole system and take the majority of headaches out!

It all works together.  When you retire, you have dividends and real estate income producing income.  You can take income from your EIUL at varying levels depending upon your immediate needs.  At some point you are going to want to prepare to shed some of your real estate for various reasons, and because you have the EIUL and dividends you can do that at the most opportune time in the market.  If the stock market goes into a swoon right before your retirement or right after, no big deal because you are depending on the dividend income, not the valuation of the stock.  If you have an untimely death, your spouse and children are not financially devastated.  You, your spouse or children don’t have to dispose of real estate or stocks at bad moments in the market.   Taxes aren’t an issue as your real estate is protected with depreciation, your EIUL is tax free and dividends are currently taxed at a much lower rate.  Sequence of returns is not an issue [read my post on this here].

Tell me what you think!



1. Maui Realtor - July 23, 2010

David, great information. I found your blog/site through Jeff Brown’s blog and I must say I’m impressed by the amount of relevant/useful information and the insightful way it was written. Definitely subscribing.

shaferfinancial - August 3, 2010

Thanks and Aloha!

2. Rita Fisher - September 8, 2010

subscribing to site

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