Top 10 Reasons Texans Should Consider Living in Panama…At Least Part-Time

Top 10 Reasons Texans Should Consider Living in Panama…At Least Part-Time
By Evie Brooks
 1.  Weather – Panama has consistent temperatures throughout the year, with highs between 80 and 90 degrees. It has a rainy and a dry season, with the dry season starting in December and ending in May. If you’re looking to escape winters up north, you can spend time in Panama during the best weather months of January, February, and March. In addition, Panama is outside the hurricane belt. 
2.  Cost of Living – Panama offers coastal living at a fraction of the cost of comparable coastal locations in North America and Europe. Panama City isn’t super cheap as an international business hub, but outside the city both daily costs of living and of real estate are very low. 
3.  Ease of Residency – Panama offers several residency options, including one of the best pensionado (retiree) visas in the world. You can obtain a retirement visa in Panama by showing as little as $1,000 a month income from a pension, government or private. In addition, Panama’s Friendly Nations visa program is easy and low-cost and can mean a work permit.
4.  Ease of Access – With many daily flights to the United States and Europe, Panama is easy to get to and from if you want to travel home regularly to visit the grand kids and other family. Plus, Panama offers easy regional travel for vacations and sightseeing. 
5.  Ease of Transition – Panama can be called a “halfway house” for expats. Thanks to the country’s standard of infrastructure (the best in Central America); Panama City, the most developed city by far in the region, with its U.S.-style malls, shopping, and restaurants; and large English-speaking population, moving to Panama doesn’t come with the same level of culture shock as moving to other countries can mean.
6.  Language – Part of the ease of transition in Panama is that a high percentage of Panamanians speak English. Add to that the large international community, both in Panama City and other areas of the country, and you don’t have an immediate need to learn much Spanish when you move to Panama. 
7.  Health Care – Panama has some of the best hospitals in the region. Johns Hopkins-affiliated and -managed Hospital Punta Pacifica gets most of the attention, but most all Panama City hospitals have state-of-the-art equipment, as do many of the regional hospitals in the interior of the country. Medical tourism is a booming business in this country, thanks to the quality of service and the excellent costs. 
8.  Diversity – Panama offers diversity of lifestyle, with attractive beach, mountain, and city (including PanamaCity) options. 
9.  Recreation – Panama has some of the best fishing and bird watching in the world. The best sport fishing on the entire Pacific coast of the Americas is said to be in and around Coiba National Marine Park, which is just a two-hour boat ride from Los Islotes. Panama is home to more species of birds than neighboring Costa Rica, and bird-watching tourism is expanding. And, because it’s out of the hurricane zone, Panama is a perfect place for owning a boat year-round. 
10.  Taxes – Panama is a tax haven, meaning retirees have little to no income tax exposure in this country
Evie Brooks is Access Panama Director for Live and Invest Overseas. She’s an international real estate investor with more than 23 years experience, a former Real Estate Investor Educator with the Rich Dad Poor Dad organization and a mentor advisor for professionals who want to learn the art of real estate investing.

10 Steps to Creating Financial Freedom

10 Steps to Creating Financial Freedom

Retirement is a thing of the past. Rarely do people retire. Instead, retirement ends up being a new season in life that is often busier than before retirement. I like to think of retirement as financial freedom.

Financial Freedom – The time in your life when earning an income is a choice rather than a necessity

I love the phrase financial freedom. To me, it is the point you come to in life where you are FREE to serve and give back. To get there, planning is extremely important. It puts the why behind saving and investing. I get a lot of question on what makes up the process. I compiled a list of 10 important steps so that you will have an idea.

1     What is your number? Build your spending plan for retirement by creating two numbers.  

In today’s dollars, what kind of monthly income would you need at financial independence. This is your opportunity to create a future spending plan. Have fun with it. Think of expenses you wouldn’t have then and expenses you would have then but not now. This number drives everything. In fact, the best way to do it is by creating two numbers. First create the ideal future income. Then create the minimum number. If you stay between those two numbers, you are in the ball park. Being in the ball park is ideal!

2     Figure out how much risk you really want to take with your investments and get an advisor to help. 

It is important to understand what you have to earn on your investments to achieve your goals. More importantly, your risk level has to match that growth rate. It has to be realistic and achievable. For example, I don’t think that I would want a plan that depends on a growth rate of 10% per year.

3     Based on that number figure out how much you have to save.

Once you have the above numbers, now you can see how much you have to save each year. If it ends up being a higher savings number than you would like, then you adjust your goals.

4     Make sure you realistically adjust for inflation.

Just because we haven’t had a problem with inflation as of late doesn’t mean it has been removed from the economy. Inflation is a real threat and should be considered in one’s plan.

5     Make sure your financial independence plan has a benchmarking system so that at the end of each year you know if you are on track or not.

It is important that your plan tells you at what level your retirement assets need to be. If you are above that number, you know you are ahead of your goals. If you are below your number, that might signal to you that you need to change something.

6     Don’t “overcount” on social security.

I looked it up and yes overcount is a word and don’t do it when it comes to social security benefits. I don’t believe that social security is going away. At the same time, I wouldn’t count on 100% of the benefit too heavily. If you aren’t within 5 to 10 years of taking it, I would consider using 65-75% of the number for your projections.

7     Have a plan for managing risk and a frequency of how many times a year you are going to look at your strategy.

The stock market doesn’t always go up. What are you going to do when we go through the next big bear market? That can ruin the best laid plans.

8     Hire a financial advisor to take you through the process in the event you can’t find a program that will give you all of these numbers.

I wouldn’t expect you to go through this process by yourself. Besides, I have yet to come across a do it yourself calculator that will create these plans. In fact, we had to create our own system because I didn’t like any of the software programs that I found. A financial advisor that is fee based and also possesses the skill set to create a plan is invaluable.

9     Be intentional about things.

This has to be a priority. You have to be intentional on following through, monitoring the plan, and knowing where you are with your numbers at all times.

10   Review your plan each year and know up-front that all numbers could change- flexibility is key.

This isn’t a plan you set and forget. At the end of each year, it is important to check your numbers and review to make sure you don’t need to adjust something. Flexibility is key when you are projecting out 15 to 30 years.

If you need help and want to build a Financial Freedom plan, email me at bob@prudentmoney.com and we can discuss the process!

 

The Optics of the Biggest Tax Cut in History

Photo Credit: Fox News, “President Trump’s tax plan: Here’s what it includes”, April 26, 2017

The Optics of the Biggest Tax Cut in History

 

Optics… There is no one in the history of politics that can control the optics better than President Trump. If he wants you to believe something, he will tell you over and over that it is “big league” until you eventually believe it. It is fascinating to watch. President Trump announced his tax cutting plan just before his first 100 days was complete. It is being hailed as the biggest tax cut in history. It was almost humorous to hear the Fox morning show hosts falling all over themselves about how great this is. I say, let’s not get ahead of ourselves.

 

The devil is in the details and there is a major lack of those details. True to form he did simplify the system by proposing to reduce tax brackets down from 7 to 3. Does that save taxes? Maybe for some but maybe not for all. It comes down to the effect of the elimination of tax deductions. He is leaving the mortgage rate deduction and the charitable deduction alone. However, it looks like the rest of the deductions might be gone. So yes, it is true that the tax brackets are reduced. However, with the potential elimination of deductions, it looks like there might be a percentage of tax payers that will actually pay more in taxes.

 

Although I appreciate the spirit of make America great again, cleaning up the swamp, and unlike most, I believe his heart is in the right place, I don’t think that a reduction in tax rates is the answer especially if it potentially raises taxes on any percentage of Americans. You reduce taxes and you reduce revenue to the government. I can give you 19.8 trillion reasons why that might not be a good idea especially given the fact that we are still heavily financing our government spending.

 

Unfortunately, we have given up on holding our politicians accountable for financial irresponsibility. As President, he has free reign to deficit spending. So, he can cut taxes, promise growth, and behind the scenes borrow more and more money to finance what doesn’t work out with the best laid plans. That will never harm his legacy because for some strange reason we expect it to happen. As a country, 19.8 trillion dollars of debt doesn’t bother Americans enough to say enough is enough. Plus, you have to blame many politicians and Presidents before President Trump in their role in the creation of trillions of dollars of debt. However, if this tax reduction passes, he will always be remembered for it.

 

President Trump has many a book written about his life. They are all very personal and talk about his beliefs and philosophies. Out of fascination, I have read a few. He doesn’t waiver in his approach to life and appears to have the same beliefs today as he had as a young real estate developer. The most important thing to him appears to be the optics. This is why he is cramming everything into the first 100 days. As part of his legacy, he wants the first 100 days to look unlike any other President. It has been impressive. It is good to actually see a President work. I hope he is successful and I further hope that he is right and not playing a guessing game. However, there is one question that will eventually be answered. At the end of the day, does it Make America Great Again or create the right optics? We shall see.

Warren Buffett Said What?

Warren Buffett Said What?

Unfortunately, investors look to Pop Culture Finance to increase their knowledge on investing.  Pop Culture Finance or PCF makes many wrong assumptions and speaks in absolute truths.  For example, one assumption they make is that everyone has the same risk level which in this day in time is so far from the truth. PCF articles write as if everyone should invest and take the full amount of risk. After investors have gone through two bear markets in the last 17 years, we have become more and more a risk averse investment community.

They also speak in absolute truths as if their beliefs that are expressed in the media is the Gospel and the only way to go. There is only one absolute truth when it comes to money that there are no absolute truths – just opinions.

A recent quote by Warren Buffett illustrates my point and absolutely makes no sense!

“Buffett, meanwhile, says an index fund portfolio of 90 percent S&P 500 and 10 percent Treasurys is probably good enough for most investors — that’s how he is recommending his wife invest.”

Now who am I to disagree with Warren Buffett? However, I will.  First, a 90% investment into a S&P 500 index fund and a 10% Treasury Fund barely provides any diversification. Further, “probably good enough for most investors” remark is also off base. Once again a remark that lumps everyone into the same risk profile. On a scale from 1 to 10 with 10 being the riskiest that would probably register a risk level of 9.

 

If you run the numbers, you will see that this approach yields very little value from diversification. I ran a Morningstar illustration investing 90% S&P 500/10% Treasurys portfolio versus 100% S&P 50 portfolio verses a 50%/50% portfolio (equal weighting stocks and bonds). This was run during the financial crisis which I used a date of 10/31/07 to 3/31/09.  I used VFINX for the S&P 500 fund and VFITX for the Treasury fund.

If an investor invested 100% into the S&P 500 fund the return for the period above would be -46.67%.

If the investor invested 90% into the S&P 500 fund the return for the period above would be -40.23%.

As you can see that approach barely yields any diversification. One might as well go 100% because both approaches showed a lost over 40%.

Now, if you went 50/50 in stocks and bonds the return would have been -14.23% which is offers up way more diversification.

Just realize that there are assumptions being made for you when you read these PCF articles most of which raises your risk level. One would think that Warren Buffett’s advice is as good as gold. Unfortunately, most of these big investors have lost touch with the common everyday investor.

NOTE:  Returns in above example where created through Morningstar.  Past history doesn’t guarantee the same results in the future. This was designed as an educational piece and in no way is to be taken as strategy or advice. Seek the advice from a professional before making investment decisions. In addition, there was no rebalancing during the period or any additional fees applied.

The Big Banks Have Figured a New Way to Stick It to the Consumer

The Big Banks Have Figured a New Way to Stick It to the Consumer

A money grabbing trend has started in the financial services/banking industry and ironically it is a result of a government mandated rule.

The Department of Labor issued the new fiduciary rule to go into effect sometime in the future. The fiduciary rule was passed so that advisors put the interests of their clients first ahead of their own.  This primarily points to the commission based advisor.

For example, let’s say that the advisor has product A and product B.  Product A pays a higher commission.  Product B is better for the client.  However, the advisor recommends product A.  That is a conflict of interest and the advisor putting his or her interests ahead of the client.

Most of the major brokerage houses are owned by the big banks.  For example, Bank of America owns Merrill Lynch.  So, what are the big brokerage houses doing?  They are taking commission based accounts and converting them to fee based accounts.  In fee based accounts, the notion is that there is no conflict of interest because we are dealing with fees versus commissions. The same fee gets paid regardless of the advisor’s advice.

This article points out the increase in revenue for the banks because of advisors switching from a commission model to a fee based model.  The article states that Bank of America Merrill Lynch saw an increase of $29.2 billion in fee-based accounts in the first quarter.  JP Morgan saw $8 billion of new deposits.  These deposits will create new fees for the banks.

There is one problem with this change from commissions to fees and it is ironically enough it is a conflict of interest.

What is the advantage for someone who was in a buy and hold commission account changing to a buy and hold fee account?  There is in most cases no advantage for the client.  A fee based model implies that the advisor is going to actively manage the account.  Are commission based advisors suddenly going to become seasoned money managers?  I think not.

They solved the old conflict of interest by creating another conflict of interest.  Regulators frowned on commissions so to stay in the business the big banks encouraged their advisors to switch to fees.  However, they aren’t going to do anything to earn those fees.  Who gets the advantage here?  The advisor gets the advantage and so does the crooked banks/brokerage houses that are encouraging it.  Once again, the big banks who own these brokerage firms are sticking it to the consumer.

If your advisor wants to switch you to fees, dig a little deeper to see the advantage.  For a fee advisor, there should be an active management strategy in place.  So, look past the glossy marketing brochures because you are probably seeing a commission account dressed in fee clothing.   Most commission based advisors are going to buy and hold and maybe reallocate at the end of the year.  That is not worth a big management fee.  It shouldn’t take long for investors to realize that they are being taken advantage of.  In fact, wait until the next big downturn.

Who gets the advantage?  In most of these offers to switch to fees, there won’t be one for you.  However, there will be a new revenue model for the advisor.

The Student Loan Debt Bubble is the Next Debt Crisis

The Student Loan Debt Bubble is the next Debt Crisis

 

Consider these facts about student loan debt:

 

  • Over the past 10 years the amount of student loan debt in the U.S. has grown by 170 percent, to a whopping $1.4 trillion
  • 44 million people have student debt. Eight million of those borrowers are in default
  • The average debt load individual graduates carry is up 70 percent over the past decade, to about $34,000

 

How exactly did we get there? Let’s just call it greed.

 

According to this article, a great deal of the tuition hike came as a result of hiring and increased payrolls for additional employees charged with bringing in big donors and building their school’s brand and of course building new buildings and facilities.  It is about attracting students not to a school based on academics but based on the benefits that it offers.  You spend money to make money. Of course, they fund all of this spending through borrowing money, dependence on donors that they can name buildings after, and increasing tuition.  The math is the math and the math is based on greed.  Realistically the cost of educating a student doesn’t have this high of an inflation rate.

 

Parents want to send their kids to college.  The problem is that they are just not prepared to do so especially at these costs.  As a result, they look to the government to fund the endeavor just hoping that they can figure out a way to pay the money back.  Unfortunately, it is the government that is enabling this student loan bubble.  According to this article, 90% of the loans made are backed by the government.  Imagine that…. the government is at the heart of the problem.

 

The saddest part of this student loan bubble are the default victims.  Unlike any other type of debt, there is no walking away from student loan debt.  There is even relief for IRS debt.  It is like being in a debtor’s prison.  Sure, there are programs that help…when they work.  Yet, they are so unknown by the masses and complicated that students are unaware of them or understand how they work.

 

Of course, this ends up catching up with the economy through consumer spending.  There is a whole generation who is bogged down in student loan debt that is preventing them from buying houses and doing other consumer spending.

 

Colleges with their fancy sports programs, big buildings, and activity centers won’t always be so grand.  At some point this debt binge has to come crashing down.  Debt bubbles always pop.  When it does, it won’t be pretty.

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