Wealth Formula by Buck Joffrey

Nassim Taleb, author of the Black Swan, extrapolates his theories on unpredictable events by suggesting that perhaps the ideal way to allocate your capital is by focusing on the extremes. He says that perhaps the ideal portfolio is one where there is extreme safety on the one hand—US Treasuries for example—and extreme risk and upside on the other. The idea is that you put the money you absolutely need away in a place that is as close to impenetrable as it gets. The other portion of your portfolio would go only to extremely risky but also potentially extremely profitable bets. In doing so, he postulates that you might end up with the ideal portfolio. I’m not sure I agree completely with Taleb on this. As we have seen for decades in real estate, when done right, we can pretty consistently achieve double-digit annualized returns. Treasuries would leave your yield below inflation which guarantees you lose money. However, I am increasingly interested in the notion that those who can afford it ought to consider upping the riskier part of their portfolio. We have typically referred to that risker part as an asymmetric risk portfolio. This might include your digital currencies, investments in start-ups and other types of investments where your upside is very high and your downside is pretty much unlimited as well. My opinion on this has been that these kinds of investments should be limited to 5-10 percent of one’s portfolio. But it occurs to me that this allocation percentage is somewhat arbitrary. That is to say, if you make more money, does it potentially make sense to increase the amount you allocate to asymmetric risk? If you make $500K per year you might not want to put $100K into high risk high reward stuff. But what if you make $5 million per year? Would you be crazy to allocate $1 million to asymmetric risk of various kinds? Not necessarily. I’m not advocating this by any means. I would say that a lot depends on what your goals in life are. Personally, I know that I can use real estate to grow my money at a pretty good annualized clip—I figure conservatively around 18-20 percent all in for my investments. Over time, that’s a pretty nice pile of money. But it probably isn’t going to make me a billionaire. If I want to add more zeros to my net worth, I have to take more risks. As Tampa Bay Buccaneers coach Bruce Arians says, “No risk it, no biscuit”. If you want to change your life’s trajectory and add more zeros to that net worth, you have to make sure you are giving yourself the chance to do it. Increased risk, however, does not mean that you are any less thoughtful of your allocations. Private investing always starts with the same principle regardless if it is real estate or venture capital—an evaluation of the people involved. At the end of the day, it is the people more than the asset that makes you money. Obviously this is the case even more when it comes to start-up businesses.  On this week’s Wealth Formula Podcast, I am featuring a company that I have introduced to you before in webinars. The company is Pixelmatic, which is by no means a start-up. However, the game they are creating is brand spanking new and has an impressive team behind it. Tune in to this week’s podcast to learn all about the gaming world and how you, if you are an accredited investor, can get involved with a compelling asymmetric risk opportunity! Chris is originally from Blackpool, U.K. and has been living and working in Shanghai, and Jiangsu since 2011. Chris is currently the COO at Pixelmatic overseeing the day-to-day operations of the business and spearheading the production of Infinite Fleet, an ambitious triple-A MMORTS video game. Chris began work as a TEFL teacher at a multinational training centre in Shanghai and rose through the organisation to operations director at a centre in Zhangjiagang. Later, Chris co-founded a training centre with the CEO Shane English Schools China, giving him valuable insight into business startup in China. Chris pivoted to the video game industry in 2016 as it is his passion.

It’s been nearly 5 weeks since my Covid diagnosis. The good news is that my brain seems to be back. The bad news is, I still feel about 40 years older than I am. That said, at least the trajectory is in the right direction. And, as many well-meaning people have reminded me as of late, I’m not exactly a spring chicken anymore. Thanks again for all those who sent me well wishes throughout this time. It has been great to have so many people actually caring about my well-being! With my neurons finally firing normally again I thought I would take the opportunity to finish up the questions that we had remaining from Q4 and do an “Ask Buck” episode. Keep those questions coming as it’s always great to interact with you in this way. Listen to this week’s episode HERE. 

Political difference aside, I for one was relieved to see some order restored to the government last week. Whatever policy differences I have with Joe Biden, I believe him to be a man who cares dearly about his country and a man of integrity. As a person who loves this country first above any party, I wish him well and I hope that he can guide us through a difficult part of our history—one defined by death and destruction of a pandemic, the ensuing financial hardships inflicted on our people and hyperpolarization and partisanship not seen since the civil war. It is my sincere hope that President Biden can help us to find a new national discourse where we can disagree with one another without being hateful.  Perhaps it’s unrealistic to think that we can put the genie back in the bottle. After all, we live in a world without any agreed upon facts. We live in a world of soundbites and gotcha moments.  But we are capable of more, aren’t we? I know you are. Our community is made up of a lot of different people with different views on the world. However, I get the sense that there is goodness in all of you. The kindness that you show me and each other when we are meeting is special.  The outpouring you had for me when I got sick was genuine. You are good people. As such, I want you to join me over the next several years to do your part in helping to bring the rhetoric down. Let’s be thoughtful people and show respect not only to those with whom we agree, but those with whom we disagree. Above all, we need to remember that we are all fortunate to be Americans and that underlying all of our differences, we all want what’s good for our country regardless of what that might look like through the eyes of any one individual. Now, with that said, let’s get into what is probably going to be the most financially impactful change of the government on your pocketbook: taxes.  There is no one I trust more on these matters than my own CPA, Tom Wheelwright, Rich Dad Advisor to Robert Kiyosaki and author of Tax-Free Wealth. This week’s episode is exactly what you need to know about tax law changes right now. Miss this episode at your own risk! Tom Wheelwright is a CPA, CEO of WealthAbility (Tempe, Arizona) and Best-Selling Author of Tax-Free Wealth. Wheelwright is a leading wealth and tax expert, global speaker, and Entrepreneur Magazine Contributor. Tom is best known for making taxes fun, easy and understandable, and specializes in helping entrepreneurs and investors build wealth through practical and strategic ways that permanently reduce taxes. As a Rich Dad Advisor to Robert Kiyosaki (Rich Dad Poor Dad), Tom frequently speaks at conferences worldwide to entrepreneurs on these topics. His work has been featured in The Wall Street Journal, Washington Post, Forbes, Accounting Today, Investor’s Business Daily, FOX & Friends, ABC News Radio, NPR, Marketplace and many more media. Shownotes: What is a Reconciliation Bill? Can we expect dramatic changes for high-paid professionals this year? Bonus Depreciation Are there any possible benefits for tax payers with the recent administration shift?

I’m still recovering from Covid so please excuse any typos and oddball things I might say. I am actually on steroids that do make people a bit different psychologically. As an update on my progress, I am about 10 days out from diagnosis. Overall I am relatively stable but have been dealing with something that many Covid patients call the cytokine storm period. At a high level, this means that the virus ramped my immune system up big time, so my battle is now less about the virus and more about fighting off my own immune system from damaging my body. That’s why I’m on the steroids that suppress the immune system at this point. I’m hopeful that by next week’s show, this will be over. In the meantime I want to, again, thank the hundreds of you who have reached out to wish me well. I am very touched. I especially want to thank some of my physician colleagues who have literally consulted on my care from thousands of miles away. Guys like Patrick Troy in Hartford and his colleagues. He’s been on the phone with me every day, looking at my labs, CT scans, etc. I live in a small town with not a lot of big gun pulmonologists and ICU docs like Patrick, who gives this community greater perks than just the financial stuff. This morning I sent Patrick my labs and he said they were starting to look “boring”—which is good. He added that he knows that I like boring! He’s right. I do feel a sense of responsibility to give you this public service announcement and hopefully it is meaningful to you. Avoid this virus like the plague (which itself is a bacteria and easier to treat). Because it sucks and it’s scary. I can’t tell you how many frightening stories I’ve heard in messages from you guys lately about otherwise healthy guys our age who succumbed to the disease. So…do what you can. This is not a political issue, it’s common sense. Wear a mask and get vaccinated when you can. I guarantee you whatever side effects you get are better than having this disease. Just some more thoughts here broadly on this virus: It’s really mind boggling to me that a virus that started in a wild animal meat market from Wuhan China probably from bats created this havoc in my body. Kind of gross to think of it that way actually. I do hope that at some point the world stands up to the Chinese government to more aggressively regulate these places. After all it’s not the first killer virus to come from these places and it won’t be the last. But China owes it to the world to do its best to regulate its wild animal trade and be transparent with the rest of the world. The problem is that they are a world economic power and you can’t exactly sanction them to death like Russia or Iran. But you can shame them and the Chinese do care about their reputation on the world stage.  One last thing on Covid-19. An article in the Los Angeles Times today reports that 1 in 3 of L.A County residents are estimated to have had Covid-19. That’s three of the ten million people in that population. The good news is that it should make it easier to herd immunity with the vaccine if you are already starting from a 30 percent previously infected population. So, that’s my daily Covid commentary and we will leave it there. I do want to make sure that I continue to provide you the kind of financial information that you have come to expect from this show. So, today we are going to jump into a topic that you can sink your teeth into. We are going to talk about the different options that you have when you have capital gains. The truth is there is no one size fits all but there are a lot more options than people realize. We are going to talk to Brett Swarts today about those options from A-Z. After that conversation, make sure to keep listening as I will end the show with some additional commentary on bitcoin and other asymmetric risk strategies. Brett Swarts is the CEO of Capital Gains Tax Solutions. With his team at Capital Gains Tax Solutions, he has helped overwhelmed high achievers win at funding a passive or active tax deferred income stream, succeed at timing the real estate market, and sell with confidence. Shownotes: The 1031 exchange Delaware Statutory Trust Can you minimize how much equity goes into the Delaware Statutory Trust? What are Opportunity Zones and what are the problems associated with them? capitalgainstaxsolutions.com experttaxsecrets.com

For those of you in our accredited investor club, you might have noticed an abrupt cancellation of our real estate webinar last Tuesday conveyed by a cryptic message from my assistant, Madalyn. Well, here’s what happened. Sunday, I went on a hike with my daughter. She is 11 years old and has the lungs of a marathon runner. I do my best to keep up with her.  We do this hike regularly and wanted to set a new record time for ourselves. So with Taylor Swift music blasting for motivation we set off and ended up destroying our record by several minutes! Then we went home and met up with my other two daughters who are 8 and 5. Feeling like we wanted to end Christmas vacation together with a bang, we all jumped into the swimming pool which, where I live, you can do comfortably in January if you crank the pool up to 90 degrees. We played in the pool for an hour—basically I just throw them around in the pool which they love. After, that we had dinner and called it a night.  Around three or four in the morning, I began having terrible chills and body aches. They rapidly got worse and worse. My temperature at 5AM Monday morning was 101.5 F—officially a fever. It felt like the flu but, given this whole Covid-19 thing, I had a bad feeling that it was not my old friend influenza who I had defeated a few times in life already. So, I got myself tested at about 8am at one of those drive-in places. While I waited in the parking lot for the results I could tell it was getting harder and harder for me to breathe. 30 minutes later, I had a positive Covid-19 test and I could literally feel myself getting sicker by the minute. I am a life-long asthmatic so I knew I needed to be proactive to give myself the best chance against this thing so I went straight to the hospital. As I walked a couple of blocks from the parking garage to the emergency room, I could feel the strength leaving my body. Honestly, it was getting scary. The waiting room for the emergency department was outside and everyone else there was pretty clearly a covid patient—all hacking away into their masks—pretty awful. Anyway, an hour or so later I got inside the emergency department. By that time my temperature had gone up and my energy levels had dipped to zero. I felt like I had been run over by the proverbial mack truck. And my breathing was getting more labored. In these situations I must say that it is very helpful to be a physician. I was made aware by my primary care physician that the local hospital was giving a very select group of patients a somewhat experimental drug called bamlanivimab—let’s just call it BAM.  Even though I did not meet the age and weight criteria, I was able to argue that my underlying asthma should be a reason to have it. Honestly, they didn’t really fight me on it. But being a doctor, I was lucky enough to know that the drug existed and to ask for it. So, like many of the septuagenarian politicians on TV who miraculously recovered in no time, I too was given the goods. A couple of hours with an IV in my arm and I was sent home. I was in rough shape and had to get a ride back—left my car at the hospital. All I remember at that point was being unable to move and having a temperature of just under 105 degrees. Now remember, the day before all of this happened, I felt no symptoms at all. It is incredible how fast this thing took me down. It’s a beast. That night I sweat more than I had since my days as a high school hockey player in Minnesota. I slept for 15 hours. And then I woke up—alive again. I felt sick, sure, but normal sick.  And I truly believe that my miraculous turn around was because of the BAM.  So as I record this podcast, I’m now on day 5 of my Covid-19 journey. Technically I’m not out of the woods but I feel pretty darn good for feeling like I was possessed by the devil himself only a few days earlier. And for the last 2 days at least, my mind has been reasonably functional. I’ve watched a lot of TV and thought about a lot of things that are going on in the world right now. So, rather than try to push out the usual podcast, I figured I’d just share some of those ideas with you—stuff like Covid-19, the current state of American politics, tax implications of government changes and, of course, cryptocurrency. Listen HERE.

When I just finished surgical residency, I took a job with a cosmetic surgery company for a few months before realizing that I was not employee material. It was a hodgepodge group of surgeons there. Some of us were younger guys who recently finished training and were looking for experience. There were also a couple of older guys who had failed in private practice and had become “journeymen” doing work at multiple practices to make ends meet. I had just finished reading Robert Kiyosaki’s Cashflow Quadrant and was finally making some money of my own, following several years of minimum wage indentured servitude as a surgical resident. So, I was receptive to financial advice. I remember one time asking a sixty something year old surgeon what he would have done different if he could all do it over again. Now this guy had really not managed his finances well and was still having to crank it out just to get by. That said, what he did wrong was equally valuable to me compared to what others might have done right. When I asked him, he didn’t flinch—“I would have bought more permanent life insurance,” he said. “In fact, that’s all I should have done.” Admittedly I was a little confused by his answer. You see, I didn’t even know what permanent life insurance was and it never occurred to me that buying life insurance could be an investment. As it turns out, this poor guy made a lot of bad investments throughout his life culminating with the 2008 stock market crash that wiped him and his plans to retire out in a flash. I asked him that question in 2009 and the only thing he had left was a permanent life insurance policy with cash value that had grown EVERY YEAR for 35 years. As this guy was giving me his perspective, another younger guy was listening in and, when the coast was clear, advised me not to listen to a word the older guy had said. “Don’t listen to him,” he said. “Buy term, and invest the rest.” Now this guy was just a year ahead of me but he sure seemed confident in what he said so I listened to him. My wife was pregnant with our first daughter at the time so I asked around and found a Northwestern Mutual agent that all the doctors seemed to use (the blind leading the blind) and bought some term insurance. I did look at the option of permanent life insurance but, frankly, it was a ripoff! The idea of life insurance as an investment didn’t come back to me until about five years later. By this time, I was making quite a bit of money with a couple of businesses cranking at the same time. During this period, I was in a CEO group with another guy who was an advisor to ultra-high net worth individuals. He and I got to be pretty good friends and I trusted him. He was the first one to explain to me why so many affluent people bought permanent life insurance products. As it turned out, the older surgeon who was broke and the younger know-it-all that gave me their contradicting advice were both right. Permanent life insurance was, indeed, a powerful and reliable investment and that’s why so many ultra high net worth individuals use it. However, the guy who told me to stay away from permanent insurance was also right because the way most policies are structured, they are a rip-off. It was an example of a pattern I began to recognize—there are the products and investments that most people see and then are the ones that only the wealthy know about or qualify for. Once I realized that, I bought my first over-funded whole life insurance policy. But unlike when I bought term insurance, I bought this policy as an investment and as a strategy to augment the rest of my investments. The type of policy I bought was so different than what everyone was talking about with permanent life insurance that I decided it needed a new name to escape the baggage around traditional unfavorable policies. So, I decided to call it Wealth Formula Banking. Wealth Formula Banking is a wealth creation account more than anything else. It is an account that grows tax free at a guaranteed compounding rate and has done so since the civil war through the great depression, multiple bank failures and recessions. It is also a wealth magnification machine. While your money grows at a compounding rate, you can borrow money from the insurance company at a simple rate effectively allowing you to grow your money in two places a the same time! Any cash flowing investment can be enhanced by simply leveraging cash value and using the arbitrage of simple vs compounding interest to your financial advantage. It’s like double dipping your investment capital! When I finally got a policy all I could think of was “Why didn’t someone tell me about this five years ago?” Now, going back to that friend years before that exposed me to the virtues of permanent life insurance, he wasn’t talking about this structure that I call Wealth Formula Banking. He was talking about a different kind of investment strategy. The kind of policy he was recommending to me grew with an index to the S&P 500. The account would give me essentially all of the upside to the market but none of the downside. On top of that, I would use bank leverage to multiply my upside gains. That kind of policy goes by many names, but formally it is a “premium financed indexed universal policy” and was really only available to people making seven figures plus. Since then, I have identified variations to that model including what we call Velocity Plus that can be used by anyone making as little as $125k/year. As you know, I am a huge supporter of these strategies. And, given the volatility of the stock market and the potentially systemic risk of ETFs and mutual funds identified recently by the likes of Dr. Michael Burry (The Big Short), I think it is important for everyone to truly understand the impact they can make on your future and to the future of your children. And, with the new year, I think it important for us all to start with the basics. What’s important? The most important thing in personal finance is not to lose money and to secure the future of your children. So anytime someone comes to me and asks where to start, I tell them to start with Wealth Formula Banking. But again, the noise out there against these products is constant and it can make you uneasy. Prominent financial bloggers in the medical space have, in particular, created a plethora of poorly understood comments regarding these types of policies. Today, we are going to pick apart some of these criticisms and give you our perspective.  Again, in my opinion, Wealth Formula Banking and related concepts should be the starting point for the high net worth financial plan. So it’s appropriate for us to start with this topic in the new year! Make sure to listen to our first episode of 2021 HERE. Christian joined the financial services industry in 2004. Over the course of his career to date, he has developed a broad-based knowledge and experience set. He began as a traditional advisor, working with local clients in his home state. In that context, he began a movement of successfully partnering with other professionals, including accountants and attorneys, to assist clients in implementing sound financial strategies. He spent more than five years in management with 2 regional planning firms, during which time he assisted new and seasoned professionals in creating efficient systems and methods to build meaningful practices. Over the last several years, he has expanded to working across the country, teaching financial principles, and working with clients across a broad spectrum, including wealth accumulation, retirement distribution planning, as well as innovative, advanced planning strategies for both high-income and high-net-worth individuals and businesses. He’s a member of AALU, and holds the designations of Accredited Asset Management SpecialistSM and Accredited Wealth Management AdvisorSM Christian is married and has two children, and is an avid sports fan. Rod has been in financial services since 2009. Prior to going into business for himself, he worked in marketing and finance with several small businesses. He had the opportunity to purchase an existing furniture business in 2007, just prior to the Great Recession. The experience of struggling to stay afloat amid difficult economic conditions inspires Rod every day in his efforts to educate and assist his clients in implementing sound financial strategies. He strongly advocates for establishing a firm foundation, utilizing proven strategies and financial tools to create a strong base upon which we can each build our financial house. In addition to focusing on Wealth Formula Banking and Velocity Plus, he has expertise in retirement income planning. Rod has a bachelor’s degree in Marketing Communications, and an MBA with an emphasis in Entrepreneurship. He and his wife Jodi are the proud parents of 7 wonderful children. As a family they thrive on spending time exploring nature, playing games and doing projects together. He enjoys sports, music and reading. Shownotes: Doctors get fooled because of a lack of financial sophistication? It’s absolute nonsense to say somebody’s going to benefit from your investment and therefore it can’t be good. Do insurance products provide estate-planning benefits that are not available in other ways? Misunderstanding the value of liquidity

We are finishing the year off with one final episode of “Ask Buck”. This episode has a wide variety of questions with issues ranging from cryptocurrency to child-rearing. Make sure to listen! P.S. Thank God 2020 is coming to an end!

Lots more questions to answer on this Christmas week episode of “Ask Buck”! We talk about real estate markets, equity vs debt in your home and lots more. In the holiday spirit, I even asked a couple of our Wealth Formula Network members to join! Lot’s of fun as usual. Enjoy the episode!

It’s time for another round of “Ask Buck”. This week’s episode includes questions on Wealth Formula Banking, cryptocurrency, gold and real estate markets. Listen HERE!

It’s time for our next series of “Ask Buck” episodes. It used to be that we just did one of these every few months. But now we get so many questions that it has become a quarterly series! While all of our shows are educational in nature, the nice thing about the “Ask Buck” shows is that material is highly focused on practical information and strategy applicable to most investors. These shows have become extremely popular over the years and, if you are new to the Wealth Formula community, are particularly useful to “catch up” on recurring themes in our world. Tune in now for the first “Ask Buck” episode of Q4!