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The 10th and Final Rule of Factor Based Investing®

The 10th and final rule of Factor Based Investing® is that discipline beats greed. Let me tell you a story to explain.

A couple years back, the S&P 500 was the No. 1 performing asset class. I had a client with more than $1 million with us, but he had a 401(k) through his job in an S&P 500 fund that had about $10,000. He was comparing the $1 million—which was designed for his entire portfolio—to the $10,000, since it was in the No. 1 performing asset class.

The problem was that we set up the entire portfolio based on his wishes and desires. A third of the money was in cash because he wanted to buy a new house, and yet he was comparing a third of the money that was in cash. When looking at the entire portfolio, more than half was actually in cash or bonds, and he was comparing it to an S&P 500 fund.

 

Stay disciplined, stay the course, design the portfolios using the rules of factor-based investing, and you’ll be fine.

 

Obviously, he was getting greedy and not being disciplined.

Secondly, he wanted to have this one asset class, so I asked him if he realized that over the last 25 years, the S&P 500 had only been the top-performing asset twice before. Would you want me to put your entire portfolio in an asset class that has just a 10% chance of being the winner any given year? The answer is, of course, no, but retroactively, that’s what you think I should have done. This is just ridiculous.

When you see an asset class or stock that over-performs, stay disciplined and don’t get greedy. What has already happened already happened—you can’t capture last year’s returns! Don’t start chasing returns because if you’re chasing returns, you’re always behind. Stay disciplined, stay the course, design the portfolios using the rules of Factor Based Investing®, and you’ll be fine.

If you have any questions about the rules of factor-based investing, give me a call or send me an email. I’d love to speak with you!

Episode 44: Vinnie Fisher — Managing Your Back Office So You Won’t Have To

Vinnie Fisher is the founder of Fully Accountable, a company that provides back office solutions for small businesses, allowing them to focus their time and resources on building their businesses. Vinnie started out as a lawyer, but eventually moved into the accounting space, where he is now doing something truly revolutionary. Being at the forefront of these changes, Vinnie talks about how his company helps small businesses, while also sharing some tips, tricks and sound advice for entrepreneurs. Tune in to find out more!

Click here for full episode!

Don’t Be Afraid of The Big Bad “Red Flag”

Taking a proactive approach to tax planning will not put your business at risk for an audit. I repeat, taking a proactive approach to tax planning will NOT put your business at risk for an audit. If your Tax Preparer or Accountant tells you that a tax-reducing strategy will create a red flag with the IRS, it might be time to get a new Accountant. In fact, if you pay more than $20,000 in personal income taxes (or make $100,000 or more gross income), it might be time to hire yourself a professional Tax Planner.

If your Tax Preparer or Accountant tells you that a tax-reducing strategy will create a red flag with the IRS, it might be time to get a new Accountant.

Implementing strategies that help you reduce your taxes will not raise your risk of audit. In fact, it’s why the Internal Revenue Code exists (all 70,000+ pages of it). Inside the IRC, there are plenty of legal ways that Small Business Owners like you, can learn to lower their tax liability and keep capital in your business. There are rules tied to their use, and most of the rules are surprisingly simple.

Common “Green Flag” Strategies (You’re Probably Already Using)

Standard Deduction

Mortgage Interest

Charitable Deduction

Less Common “Green Flag” Strategies (You’ve Probably Never Heard Of)

Use Your Swimming Pool As An On-Premises Employer Athletic Facility 

14 Day Augusta Rule – Rent your house and earn tax free income

Implement an Enterprise Risk Management Plan

Though you’ve probably never heard of the less common strategies, they are legal to use and will, in no way, increase your chances of being audited (as long as you follow the rules tied to their use.) If you’re happy “playing it safe,” because you’re afraid of the big, bad red flag,  then you must also be happy giving thousands of your hard earned dollars away. However, if you’d like to prevent further loss (or if you want to prevent losing money in the first place), this eBook is here to help. Inside, we’ve help to demystified the 70,000 pages of the IRC so you can start attaining greater wealth even faster.

Accountants are NOT Tax Planners

Think of your accountant as a “food diary” app. It records what you eat and calculates the amount of calories, protein, fat, and carbohydrates you are consuming. But what good is it to have all this data, if it doesn’t help you lose weight or gain muscle mass? In addition to keeping a “food diary”, you’ll also need the help of a “nutritionist” to analyze the data and create a food and fitness plan that will help you attain your weight loss goals. Much like a nutritionist, Tax Planners provide a strategic plan to help you achieve your goals. Instead of obtaining muscle mass, however, your tax planner will help you achieve greater wealth. Sounds good, right?

Because the difference between an Accountant (CPA) and a Tax Planner may not be obvious, we’ve created this list below to help make it more clear:

Accountant  (Your “food diary”)

  1. 1. Passed a rigorous CPA exam that is entirely focused on General Accepted Accounting Principles (and has absolutely nothing to do with taxes.)
  2. 2. Records data and then transfers this data to a tax return (on your behalf.)
  3. 3. May offer “reactive” tax planning advice after filing your previous year’s taxes.

Tax Planner (Your “nutritionist”)

  1. 1. Uses principles found in the Internal Revenue Code (all 70,000 pages of it.)
  2. 2. Provides strategic tax planning services that help entrepreneurs and SMB owners increase their profit and attain greater wealth.
  3. 3. Offers you “proactive” tax planning advice that will help you pay the least amount of taxes allowed by law.

Everyone knows that if you are an entrepreneur or small business owner, having a good Accountant is essential to the function and success of your business, but it’s not everything. If you want to lower your personal taxes, increase your profits, and attain greater wealth, you’ll need the help of a Tax Planner. Unlike other tax-related services and solutions, at Financial Gravity we’re committed to working with you personally to proactively develop a plan to minimize your tax burden and maximize your success.

Download our free eBook “Bust the 10 Tax Myths Sabotaging Your Small Business Growth” today and learn how to reduce your tax burden.

Financial Gravity Podcast – Episode 43: Josh Elledge — Savings and PR

Josh Elledge runs a website called SavingsAngel, and a podcast of the same name, both of which focus on helping you get the most bang for your buck, and maximizing how far your dollar goes. He also runs an “anti-PR” firm called upendPR that helps business owners grow their business through smart strategies. In this episode, tune in as Josh joins John to discuss two important (and interrelated) topics — savings, and PR. Whether you’re a consumer, or a small business owner, Josh definitely has some great tips that will benefit you!

Click here for full episode!

Financial Gravity Podcast – Episode 42: Jason Kos — Growth through Human Analytics

Jason Kos is a consultant for Culture Index, which is a tool used by Financial Gravity and many other companies, to determine if an individual is a good fit for a company. Culture Index has a unique offering, in that it works with visionary entrepreneurs to grow their business through human analytics, and has consistently delivered on its promises of finding the best candidate for a position. Tune in to this episode, as Jason shares his insights into reading people using the technology that Culture Index has developed, and how it can be used to help you find your ideal employees!

Click here for full episode!

Why Is It Important to Be Patient During These Times?

Rule No. 9 of Factor Based Investing® is patience beats fear. Allow me to explain.

Whenever the market crashes (and it will crash again), people tend to get fearful and make terrible decisions. Those same people usually decide to get out of the market and wait for it to recover.

I read a report recently that said because the Dow, Nasdaq, and S&P 500 were showing record numbers, many people are just now getting back into the market. At this point, that’s seven, eight, nine years after the crash and the market is now fully recovered and even gone way up. That’s not a good time to enter the market, but that’s a subject for another day.

As an example of this kind of behavior, we had a woman call us in September 2008 wanting to sell everything because the market was going to zero. I told her the market was unlikely to go to zero and then asked where she would put the money she got from her sale. She told me the bank, to which I replied if the market was going to zero, that means the banks will be gone too. I explained to her that based on her irrational, fearful thinking, major companies like Walmart and Coca Cola would also disappear.

 

Be patient during these tumultuous times.

 

One of the things we teach our clients is to be patient during these tumultuous times. There will be another market crash, so you have to be mentally prepared for those kinds of things so you can hold the line, stay the course, and let the market recover. Barring a thermonuclear war, markets always recover, and if a thermonuclear war does happen, odds are your portfolio will be the last thing on your mind.

In times of fear, we tend to think irrationally, so remember to always think rationally. Patience beats fear, and during market downturns the best solution is to be patient.

As always, please don’t hesitate to reach out to me with any additional questions that you may have. I look forward to hearing from you!

Financial Gravity Podcast – TAX TUNE UP 010: Why Did the Loophole Cross the Road?

A senator from Arizona, Jeff Flake, isn’t happy about some of the current loopholes in the tax code, especially those that offer tax credits for selling chicken “litter” to power plants.

Key Takeaways:

[:21] Don’t blame the IRS for tax season, blame Congress.

[:43] Senator Jeff Flake has issued a report called “Tax Rackets” that comes down hard on “outlandish loopholes” in the tax code.

[1:22] Flake is especially hard on a tax incentive for chicken farmers.

[2:15] The power plants that these tax breaks would subsidize aren’t very popular amongst taxpayers, either.

[2:56] The developers of American Dreamland are requesting tax-subsidized municipal bonds to finish a $5 billion mall.

[4:29] Flake says the subsidies he has exposed will cost taxpayers $50 billion over the next decade.

[4:52] Call Financial Gravity when you’re ready to start paying less in taxes.

Click here for full Episode

10 Common Tax Myths You Should Stop Believing (Right Now)

Do any of these situations sound familiar?

 

I’m the proud owner of three Subway franchises.

I just expanded my thriving Landscaping Business to a neighboring city.

I am an entrepreneur running a Design Agency

Then you’ve likely heard your fair share of haughty “business advice.” Regardless of which stage you are in the entrepreneurial process, it’s important that you understand how to make the tax code work best for you (and no, you don’t have to read all 70,000 pages of the Internal Revenue Code beforehand.) Instead, we’ve compiled the myths into 10 (easy to digest) tidbits below.

Below are 10 common tax myths you should stop believing right this minute:

 

  1. 1. All accountants are tax planners.
  2. 2. Small Business Owners have a higher risk for an audit.
  3. 3. All you need is an LLC to avoid self-employment taxes.
  4. 4. Retirement accounts are the same as retirement plans.
  5. 5. Your Dependents are only an expense.
  6. 6. Obamacare has eliminated all medical deductions.
  7. 7. Deducting your home office is an immediate “red flag”.
  8. 8. If there’s food involved, it must be a “meals and entertainment” expense.
  9. 9. Mileage is the one tax write-off you can use for your car.
  10. 10. If it is legal, I should know about it.

 

BONUS MYTH: Proactive tax planning is just for big companies.

Believe it or nor, the financial industry benefits from small business owners not understanding tax myths. Download your free eBook today to learn how to make the Tax Code work best for you.

*image by Olu Eletu

Financial Gravity Podcast – Episode 41: Kevin Van Eekeren — Entrepreneur, Investor, Farmer

Kevin Van Eekeren has a podcast called the State of Logic podcast in Fulcrum Investing. Kevin is an investor in seed and Series A companies, a farmer, and owns a few other businesses, as well. He started out training police officers and SWAT teams, but has grown from the initial non-profit he started, to running a rock solid investment company. Join Kevin and John on this episode to find out more about Kevin’s journey, the things he’s learned from successful and unsuccessful companies, and what investors are looking out for in companies.

Click here for full episode!