Author: Joe Withrow

“Man, Florida drivers are nuts,” I muttered to myself as rows of Florida license plates weaved back-and-forth in front of me as we headed south on I-95.

The traffic had slowed to 45 miles per hour just south of Daytona Beach. And each Florida driver was hell-bent on breaking free. They zoomed left… then right… honking at each other with each mighty swipe of the wheel.

But they didn’t get anywhere.

They remained in the exact same spot on the road… simply alternating between being behind the car ahead in the left lane and the car ahead in the right lane.

I couldn’t help but think – this is a microcosm of the current state of humanity. We just can’t bear to sit still…

It was a sunny day in April. The first blooms of Spring were upon us. And I was on my way to meet my heroes.

My SUV was packed with stuff that might furnish a south Florida apartment. I didn’t have one yet though. Minor details.

More importantly, my head was packed with ideas that might help lift Agora’s newest publishing group from a hodge-podge collection of franchises to something more cohesive. And more profitable.

My destination was Delray Beach – an intercoastal town just north of Fort Lauderdale. That was the corporate headquarters of the Agora’s newest business. It had formed through the merger of four franchises: Bonner & Partners, Casey Research, Palm Beach Research, and Jeff Clark’s option trading service – formerly housed within Stansberry Research.

Bill Bonner was the driving force behind Bonner & Partners. And Bill’s the Godfather of the entire financial publishing industry. More on that in just a minute…

Continue reading “How I met the heroes of capitalism”

A large percentage of the people running our institutions are actually at war with reality...

That’s what my old friend Christian Nix said to me last week. I had the privilege of chatting with him on his Expat Phyles podcast… and it was a wide-ranging conversation. I’ll share it with you once the podcast is edited and published.

I met Christian – Tain, as his friends call him – five or six years ago within what used to be called the Agora network. Agora is the ancient Greek word for “gathering place” or “marketplace”.

I don’t believe that name is used to refer to the network much today, but the Agora still exists. It’s the largest financial publishing network on the planet. Except it’s decentralized.

Continue reading “On the Agora, economics, and moral philosophy”

We’ve been talking about real estate as an asset class all week. Today I’d like to wrap up our discussion by zooming out and looking at the big picture.

In every developed industrial country there is a glass ceiling of-sorts hanging over top of the middle class. This is certainly true in the U.S. Here’s what I mean…

When we add up all of the taxes across all levels of government, the average middle class person likely pays out half of their income in taxes each year.

It starts with the taxes that are typically withheld from our paychecks every two weeks. The Federal Income Tax… State Income Tax… Social Security Tax… the Medicare Tax – these taxes are each taken right out of our paycheck before we ever see the money.

Then we have to pay sales taxes on every good or service we purchase. And we pay excise taxes on things like gasoline and alcoholic beverages. We also have to pay property taxes on any real estate we own. Then we pay taxes and registration fees on our vehicles. 

These are taxes that virtually all middle class people pay – year in, year out.

Then if we happen to make any money on our investments, we’re required to pay taxes on our capital gains. Unless we defer those gains through a qualified retirement account. If that’s the case, we’ll be on the hook for normal income taxes on our money down the road.

If we were to add up the dollar amount of all these taxes each year, I bet it would equate to roughly half of our income. Which begs the question – how does one get ahead this way?

That’s the glass ceiling.

Continue reading “Shatter the Glass Ceiling with Real Estate”

Yesterday we talked about why the “nest egg” approach to retirement doesn’t work. And to illustrate, we showed how a retiree creating $70,000 a year in income from a $1 million nest egg would be completely broke in twelve to sixteen years.

A big part of the problem is that taxes eat into a significant portion of the nest egg. In our example we assumed a 15 percent tax rate. That required our retiree to sell $83,000 in assets each year just to get the $70,000 in income.

This is why I see real estate – old fashioned rental real estate – as the best vehicle for building income. It’s an incredibly tax-advantaged asset.

That’s because for every property we buy, the Internal Revenue Service (IRS) says we can “depreciate” a fixed percentage of its total value every year.

In other words, we can write off a portion of the property’s value against our income every year… even though we didn’t lose the money.

So depreciation is a phantom loss. Just for tax purposes.

And that’s just one element to it.

Continue reading “Why real estate is a better way”

“A healthy nest egg can provide a solid foundation for a fulfilling retirement, allowing you to pursue your dreams and create lasting memories.”

This quote highlights the promise of the “nest egg” approach to retirement perfectly. We’re talking about the traditional model that’s been widely accepted since the early 1980s.

This approach says that we should pour our savings into financial assets to work up to this mythical retirement number.

The idea is that we build financial assets and hope our returns get us up to a big enough number that we can live comfortably in retirement. Then, we draw down our assets to create income for ourselves after we quit working.

That is to say, we sell off our stocks and funds and use that money to live on.

The problem is, this approach puts us on a see-saw. It forces us to choose between assets and income. When our assets are going up, we don’t have the income. Then when we want the income, our assets have to come down.

Plus, this model pits us squarely against the tax code. It doesn’t matter if our financial assets are in 401(k)s, IRAs, or regular brokerage accounts—they are going to get taxed in the end.

I’d like to use an example to illustrate just how fragile this is.

Continue reading “Why the nest egg retirement model is doomed”

“Ninety percent of all millionaires become so through owning real estate.” -Andrew Carnegie

We spent last week talking about building financial security and ultimately financial independence. The key here is that we need to have a system in place. As we discussed, chasing piecemeal investments is likely to keep us stuck on the treadmill.

When we talk about financial independence, we’re talking about a situation where our investments throw off enough cash flow to replace our active income. This isn’t something a 401k can do for us. So when we left off on Thursday, I suggested that rental real estate was the best vehicle to get there.

Simply put, real estate is a tried and true asset class. It’s largely timeless. The above quote from Andrew Carnegie over one hundred years ago highlights that.

I was thinking about this more over the weekend…

The early hints of summer are upon us up here in the mountains of Virginia. Green has gradually engulfed the cliffs that rise majestically above the meandering Jackson River below.

Continue reading “On real estate, cash flow, and timelessness…”

Yesterday we talked about some common financial mistakes. I made them all.

The root cause of my problem came from chasing “piecemeal” investments. These are investment ideas I came across that certainly sounded good… but I had no rhyme, reason, or strategy guiding my decisions.

That experience forced me to develop a comprehensive investment system and stick to it. This is critical if our goal is financial independence.

For me, it all started with an honest and thorough assessment of the monetary system and the macroeconomic climate. This sounds like a simple thing… but the current monetary system is rather insidious. That’s because our money loses purchasing power year after year.  

As Tom Dyson pointed out in our membership call last month, this makes it very difficult to plan. This is why Tom’s philosophy centers around owning energy.

So understanding the monetary system and the macroeconomic climate is critical. And we can use that knowledge to construct a strategic asset allocation model.

Continue reading “How to Systematize Financial Independence”

The true purpose of money is to acquire assets.

That’s the key lesson in the classic board game Monopoly. If we acquire assets, we will always have the financial means to take care of ourselves and our families. That’s even if our active income were to go away.

If we accept this statement as true, the only remaining question becomes: what assets should we acquire?

Our core focus in these pages is how to get our personal finances right given the shifting macroeconomic climate we find ourselves in. My belief is that simply funneling a little money into 401k funds won’t cut it anymore.

So what’s the solution? Here we run into the information problem.

It’s funny… it used to be that a lack of information was one of our biggest challenges. Before the internet, finding information was much more difficult and time-consuming.

Today we have the opposite problem. We are inundated with incredible amounts of information all day, every day.

And if we go online and search for investment ideas and strategies, we are going to find an avalanche of what I call piecemeal investment advice.

There are plenty of services that focus on buying stocks or bonds in a particular sector or market. There are also scores of trading systems out there. They all promise to help us line our pockets with big gains.

To be sure, some of these services are decent. But none of them provide a comprehensive approach to finance.

They don’t provide an integrated system for becoming financially independent. Nor do they help us implement a complimentary tax strategy to maximize our investment returns. Most of the time they’ll keep mum on the tax issue for liability purposes.

Continue reading “The common financial mistakes I made…”

The art of economics consists of looking not merely at the immediate but at the longer effects of any act or policy. It consists in tracing the consequences of that policy not merely for one group but for all groups.

This is the key lesson found in Henry Hazlitt’s masterpiece Economics in One Lesson. This book is required reading for anyone who fancies themselves an educated person. I learned far more about economics from this one short book than I ever did from my university economics courses.

What Hazlitt’s talking about here is the importance of understanding second order effects. That is to say, we need to consider the indirect consequences of a policy or decision to truly get a feel for its effectiveness.

This sounds perfectly logical. I doubt anyone would argue against its merit.

The problem is, second order effects typically aren’t immediately visible to us. Thus, people tend to focus only on the short term, direct results of a given policy or action – what they can see. Then they tend to ignore the indirect consequences that occur down the road. Out of sight, out of mind.

That being the case, I’ll share with you how I came to understand the importance of second order effects… and why they are often ignored.

Continue reading “My experience cleaning up the 2008 mortgage crisis”

“The Maronite Church is an ancient Christian community with a unique spiritual heritage rooted in the Syriac tradition.”

In the spirit of our discussion on the ancient Phoenicians last week, I attended a traditional Lebanese festival over the weekend. The Maronite Church in a neighboring town hosted the event… and the turn-out was great.

Here’s a snapshot of the scene walking in:

Here we can see the walkway lined with tents and vendors. In the background we can see a majestic bell tower. It rises above the beautiful stone walls that encircle the Maronite Church’s campus.

Walking through the arched doorways beneath the bell tower leads to a circular courtyard. It connects the church itself with the dining hall and the office facilities.

A beautiful fountain sits in the middle of the courtyard. And over the weekend this area featured traditional Lebanese music and dance performances.

Here’s a look at the courtyard:

Continue reading “The spirit of the ancient Phoenicians is alive and well…”