Maximum Financial Security

Maximum Financial Security

We are focusing on only two majors distinctions that produce Maximum Financial Security:
1) maximum prudence in choosing safely profitable investments

2) maximum legal sheltering of your finances

1) maximum prudence in choosing profitable investments
Investment markets reward certain investment behaviors over others. As financial trends change, some investors benefit while other investors provide the source of those benefits. That is the nature of investment markets.
Prudence in choosing profitable investments means adapting early to the reality of financial markets, which involves a keen sensitivity to risk.  Prudent investors focus on noticing both opportunity and risk, typically noticing long before imprudent investors notice the same developments. In contrast, imprudent investors eventually get surprised unpleasantly, perhaps recognizing some risks only when the risks are so obvious that they are finally undeniable.
For instance, by early 2003, while many investors were pouring in to real estate speculation, a few investors were already noticing the changing tides of financial trends and safely exited real estate before the masses recognized the increasing risk which eventually led to a de-stabilizing of real estate prices. While most investors were still focusing their hopes into real estate and mutual funds, others were focusing on markets that had recently begun to surge, such as gold.
Prudent investors also noticed the developing trends in oil markets early, especially a distinct shift in the balance of supply and demand. That shift led to a price increase of crude oil from $11 to $148 in only 9 years. Rising oil prices led further to gasoline prices rising, which led to a rise in the expenses of people who relied heavily on fossil fuels like gasoline. That increased spending resulted in tightening budgets with less cash available after expenses for fuel. Tighter budgets meant less cash available for investing in stocks and lending for real estate speculation. Less investing in stocks and less borrowing for real estate led to price declines in those investments.
That sequence of events, which became familiar to the most investors by 2008, was the primary subject of an article published in 2004. In that publication, the sequence of developments leading from rising oil prices to a destabilizing of prices in stocks and real estate was called “The DominOil Effect.”
Many other examples, ancient and modern, could be cited. For instance, Charles Merrill (one of the founders of Merrill Lynch) emphatically warned his clients in the late 1920s about a ballooning risk in the US stock market (and US economy). By the mid-1930s, those risks were recognized by even the least attentive.
So, imprudent investors repeatedly get surprised unpleasantly. In contrast, prudent investors consistently receive the benefits from the imprudent speculations of most investors. In fact, that is exactly how one can tell who is prudent or imprudent: who is repeatedly surprised unpleasantly and who consistently benefits from those same developments by noticing them early and prudently adapting.
Question of money

Question of money (Photo credit: anolobb)

2) maximum legal sheltering of your finances
Maximum legal sheltering of your finances means that your assets and revenues are protected and preserved for your exclusive access. For instance, many people are familiar with tax shelters like IRAs and 401Ks. However, those shelters do not provide any insulation against personal lawsuits. Also, if a financial emergency arises, the potential tax benefits of such a shelter may be voided.
So, why not instead use a legal tax shelter that is fully tax-exempt as well as totally insulated from outside liability? What if the shelter also totally sidesteps all the possible cost, stress, and delay of probate proceedings? You can choose to use courts to provide maximum protection for your finances, rather than leaving your finances exposed to rising tax rates and increasingly aggressive litigation.

Note, of course, that maximum legal sheltering of your finances is most relevant only when someone is also prudent in choosing only safely profitable investments. With maximum prudence combined with maximum sheltering, that means maximum financial security!
Bank of America Tower

Image via Wikipedia


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