Sunday, November 22, 2009

Old Secrets of Maintaining and Increasing Wealth

If you are a day trader or and extremely aggressive investor these methods might not be of use to you. However, this is how middle Class to Rich U.S. Citizens have regularly and safely increased their wealth and beat inflation since the Great Depression.

How you go about creating Principal will be up to you. However, this is one safe way to continue to help your principal(the amount of your original investment) to grow.

One of the basic rules is: Never Spend Principal(although you might sometimes spend interest). If you spend principal then you no longer have an investment to earn interest on.

Another basic rule is: Never charge anything. IF you have an American Express or other Credit card you ALWAYS pay it off every month. If you don't follow this rule then likely you will never be rich. OR if you don't follow this rule if you are rich you soon might be poor. However, to each his or her own.

In times of severe recession or depression tax free municipal bonds should comprise between 1/3 to 1/2 of your investment portfolio. The reason for this is that severe recessions or depressions usually cause an increase in taxes as a matter of course. So finding ways to decrease your taxes (tax free municipal bonds from your state) allow you to avoid paying any state or federal taxes on your investment. Also, you are doing a good thing for your own state by propping up dams, colleges, schools, water and sewage treatment plants etc. which is why the state and federal government waive all taxes on municipal bonds. During the Great Depression they were the most secure of all investments at that time.

At this point you can often(after compensating for paying no taxes) about 10% on your investments(per year). Though municipal bonds these days are not entirely risk free they tend to be a good bet for 1/3 to 1/2 your portfolio while the stock market gyrates up and down until relative stability is reached sometime in the near or far future.

In regard to stocks it is better to own right now dividend bearing blue chip stocks if you are a long term investor(one who holds his or her stocks for 5 to 10 years or more ongoing. During this time you can either reinvest your dividends or spend some of them if you wish or need to.

It is important to realize that no piece of real property (land, houses, buildings) is an asset if it is not completely paid for. So, in your mind just because you are living in a home if it is not paid for it cannot be considered a real asset. The people who are doing best in these times had houses paid for before the recession began. Those people's houses WERE REAL ASSETS and became havens for all members of their family, especially for those who lost their houses because they weren't paid for.

The first generation usually has to make incredible financial sacrifices in order for the next generation to reap some of the benefits. However, once one learns these rules things can still go astray when someone dies because then even with a trust around 50% of the assets then go to the government. So this means in many cases that houses, farms, businesses etc. have to be sold so that the 50% can be paid to Federal and state estate taxes. This is unfair and FDR said he would resend these unfair estate taxes before he left office. Unfortunately he died before he could rescind the estate taxes and millions suffer needlessly each year because of them losing their rightful homes, businesses, farms and other goods and property. Many suicides accompany these happenings as well. As people who were not knowledgeable are completely wiped out of everything they care about.

So, as you can see the more you have to deal with wealth the more you need a good lawyer and a good education. So, if you aren't very disciplined, organized and don't know how to judge good attorneys, accountants, stock brokers and the like, you won't do well dealing with real wealth. There is a saying that I have found to be true:
"A fool and his money are soon parted". This is as true today as it ever was. So, if you want to be wealthy and to grow your wealth for the benefit of friends family and people you meet, intelligence, discipline, wisdom and kindness are at the heart of it.

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