How to Find Wide Investment Moats the Easy Way

13 minutes

 

wide investment moat

Finding a company with a strong competitive advantage like an Apple (AAPL) is what every investor is looking for. It is not easy and there are not a lot of formulas that you can use to find them. We are all on the lookout for companies with wide investment moats. Especially value investors. We love these types of companies. Companies with wide investment moats are likely to be around for a long time, not that they are invincible. But they are great companies for growing wealth over time.

“But all the time, if you’ve got a wonderful castle, there are people out there who are going to try and attack it and take it away from you. And I want a castle that I can understand, but I want a castle with a moat around it.”

Warren Buffett from a talk he gave to MBA students at the University of Florida

What is the definition of an investment moat?

Charlie Munger and Warren Buffett are generally accepted as the originators of the term “moat”.

A moat refers to “business’ ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.”

Investopedia

Competitive advantage is going to be any factor that allows a company to provide a good or service that is essentially the same as it’s competitors. But allowing them to beat their competitors in profits.

An example of this would be if you shop online for a product. Chances are you will see many different companies offering the same product but one stands out because they offer a lower price or perhaps free shipping.

This gives that company a competitive advantage over their competitors because of the free shipping, that the others may not be able or willing to offer.

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403b: 9 Benefits that Can Help Your Retirement Savings Grow

9 minutes

photo courtesy of borderlessreviewsandnews.com

What is a 403b?

A 403b plan is a retirement plan for certain public school individuals, employees of tax-exempt organizations, and ministers. Individual 403b accounts are set up by employees and managed by eligible employees.

While not as prominent as the better-known 401k, the 403b retirement framework is often used by schools systems, churches, hospitals and may other types of organizations.

The structure of the 403b is as follows.

An individual account within the 403b typically takes the form of a Tax Sheltered Annuity. This is an annuity contract offered by an insurance company. In exchange for a premium, which can be paid in a lump sum or a series of payments. The insurance company agrees to make fixed or variable payments beginning at a future date. This can be either for a specific term or for the rest of your life.

Like a pension, your contributions and your contract’s earnings from investments can consider building up your retirement income stream.

A 403b can also be structured as a custodial account that can invest in mutual funds.

Some 403b plans which are specific to churches can take the form of an account that invests in either mutual funds or annuity contracts.

You can’t contribute directly to your 403b plan. What they do instead is per your salary-reduction agreement they withhold a predetermined amount from your paycheck. This is known as an “elective deferral”. These elective deferrals are exempt from income tax, although you are still responsible for Medicare and Social Security tax on these contributions.

Plan earnings are also exempt from income tax until the participant withdraws them. This is one of the big benefits of the 403b plan and the tax-deferred annuity structure.

One thing to keep in mind is that some plans don’t allow for after-tax elective deferrals. In these cases, the deferral amounts aren’t deductible on your tax returns. Of course.

On top of elective deferrals, your employer can contribute directly to your plan via “non-elective contributions”. Current regulations allow your account to be funded through a combination of elective deferrals and employer contributions.

So how much can I contribute to my 403b?

Continue reading “403b: 9 Benefits that Can Help Your Retirement Savings Grow”

3 Different Types of Annuities and How They Can Be of Benefit

12 minutes

 

Photo courtesy of clay marketing

Did you know that Charles Dickens refers to annuities in his novels often because they were the favored investment of the upper class in 18th century Europe?

Or did you know that Babe Ruth didn’t lose his money during the Great Depression because his money was safely invested in annuities?

One last one for you. Did you know that Wheel of Fortune often gives away annuities as prizes?

Annuities are a product that most of us have heard of, but what do we really know about them? What are they really? How do they work and when should I use them?

These are some of the questions we will answer as well as looking at the different types of annuities, and there are many.

What are Annuities?

Annuities were invented by Babylonian landlords in approximately 1700 BC. They used the income from a certain piece of farmland to provide lifetime rewards for soldiers loyal assistants.

In more recent times, annuities were first offered to the American public in 1912 by the Pennsylvania Company for Insurance on Lives and Granting Annuities.

According to Investopedia, an “annuity is a contractual financial product sold by financial institutions that are designed to accept and grow funds from an individual and then, upon annualization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payments begin is referred to as the accumulation phase. Once payments begin, the contract is the annuitization phase.”

Annuities were designed to be a reliable source of steady cash flows for an individual in their retirement years. Or alleviate risk or the fear of outliving your money. A very real fear.

Annuities can also be created to turn a large lump sum of cash into a steady cash flow. This is great for winners of large sums of cash such as lottery winners or a winning a lawsuit.

Defined benefit pensions or Social Security are two examples of lifetime guaranteed annuities that pay retirees a steady cash flow until they pass.

You remember those J.G. Wentworth commercials? Well, those are the perfect example of a lifetime guaranteed annuity. You give them your lump sum of cash and they give you a lifetime cash flow for that exchange.

How do Annuities Work?

An annuity is a cross between an insurance product and an investment product. They come in many different shapes and sizes, but the basic theme is that you give your money to a financial institution, like an insurance company and they promise you a certain rate of return, usually for the rest of your life.

The annuity will make payments to you on either a future date or series of dates determined by you. The income you receive from an annuity can be paid out monthly, annually, or even a lump sum payment. Continue reading “3 Different Types of Annuities and How They Can Be of Benefit”

7 Awesome Lessons from the Richest Man in Babylon

7 minutes

http://www.thesimpledollar.com/wp-content/uploads/2006/12/richest_man.jpg
http://www.thesimpledollar.com/wp-content/uploads/2006/12/richest_man.jpg

“A part of all I earn is mine to keep. Say it in the morning when I first arise. Say it at night. Say it every hour of every day. Say it to yourself until the words stand out like letters of fire across the sky.”

George S. Clasen, The Richest Man in Babylon

One of my favorite quotes from one of my favorite books on finance that I have ever read. It sums up all that is important in saving for retirement and how to look at money in your life.

This week we are going to venture off our path a little to discuss a book that has had a huge impact on my life, as well as countless others.

The Richest Man in Babylon was written and published in 1926 and has gone on to become one of the classics in personal finance. Through stories set in ancient Babylon using parables, they set about teaching seven steps to financial freedom.

It uses seven parables to teach thrift, financial planning, and personal wealth. It is written in a style reminiscent of the Bible in its simple, easy to understand writing. It is not a long, dry book that you would associate with finance but an easy to read and understand. Frankly, I read this is about two days. It is very hard to put down and is very fascinating. It really opens up your eyes to what is possible.

I wish this had been taught when I was in school as a younger man, as it would have opened up many more ideas on how to deal with and handle money. I can’t stress enough how much this book as impacted my life and inspired me to branch out from the standard of just saving money to save it.

Alright, let’s start talking about the parables and how they can improve your life.

Lesson 1. Start thy purse to fattening.

Continue reading “7 Awesome Lessons from the Richest Man in Babylon”

Keogh Plan: Secrets Unlocked for You

3 minutes

Photo courtesy of wisegeek.com
Photo courtesy of wisegeek.com

What in the world is a Keogh Plan?

According to Investopedia. A Keogh plan is a tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes.

A Keogh plan can be set up as a defined-benefit plan or defined-contribution plan, although most plans are set-up as a defined-contribution plan.

More on this later. The Keogh plan was initiated in 1962 and was the invention of a New York congressman named Eugene Keogh. Prior to 2001, they were very popular but due to changes in the tax system they were replaced by the SEP IRA, which has the same contribution limits and much less paperwork. Always a good thing.

So, how can this plan help me?

So who can set up a Keogh plan? Any self-employed individuals or any small business that is a sole proprietorship, partnership, or LLC.

This type of plan is a perfect choice for high-income earners.

Typically the Keogh is funded by the employer.

The Keogh comes in two kinds of flavors.

Defined contribution: these types of plans have two variations. Profit sharing and money purchase. The profit sharing version is most like a SEP, there is a ceiling on contributions. 25% of contributions or $53,000 in 2016. Below these limits you can contribute up to. With the money purchase plan, you can choose the percent you would like to contribute each year. And stick with it, if you don’t the IRS will become your best buddy. Not! Penalty for you.

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Simple IRA: 10 Valuable Benefits

6 minutes

What the heck is a Simple IRA?

Picture courtesy of nextgenerationtrust.com
Picture courtesy of nextgenerationtrust.com

The SIMPLE IRA is an acronym for Savings Incentive Match Plan for Employees. This plan allows employees and employers to contribute to a Traditional IRA which is set up for employees.

The ideal use of the SIMPLE IRA is for start-up retirement savings plans for small employers not currently offering any sort of retirement plan.

I’ve touched on these statistics before but did you know that:

  • the average 50-year-old only has $42,797 saved.
  • 45% of Americans having nothing saved.
  • 38% don’t actively save for retirement at all.
  • 20% of Americans tap into their 401k savings early, either thru a loan or early withdrawal
  • 80% believe they will not have enough savings when they retire.

These numbers scare the crap out of me and that is why we are here talking about this subject.

If I can make the difference with just one person my mission will be complete.

This is why we are talking about all the different retirement plans out there so you have some ideas of which would be the best fit for you. And how they could help you.

Benefits of a SIMPLE IRA

1. Very easy to setup.

A Simple IRA is very easy to setup and is ideal for the small business that wants to offer a retirement plan for their employees.

There are no start-up costs and no operating costs of a conventional retirement plan.

It is available to any small business with less than 100 employees. And it is easily established by filling out a few forms. These forms are available at IRS.gov.

There are no filing requirements for the employer, but keep in mind that they may not have any other retirement plan currently setup.

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10 Revealing Questions to Share Benefits of the SEP IRA

6 minutes

Eggs in a basket savings. Photo by 401kcalculator.org
Eggs in a basket savings. Photo by 401kcalculator.org

What is a Sep IRA?

A Sep IRA stands for simplified employee pension plan which allows an employer to have a simplified way to contribute to an employee’s retirement plan. It also allows them to contribute to their own retirement savings.

Contributions are made to an IRA or Annuity IRA for each employee who participates. This is a SEP IRA.

A SEP IRA account is a Traditional IRA and has the same investment, distributions, and rollover rules as a Traditional IRA.

10 Questions

1. What are the best SEP IRA plans?

As SEP IRAs are considered Traditional IRAs by the IRS. And they have to be set up by your employer the clear answer is a Traditional IRA.

This also means that it will have to same rules in regards to contributions, distributions, and tax related benefits. We discussed these in an earlier post.

Also, any plan that you contribute to is a great plan. The point of all this is to show you the light and help you take action.

2. Can I open a SEP IRA?

If your w2 income comes from that employer then you will need to participate in their retirement plan. If they are small enough they may have a SEP IRA plan for you to participate in.

You also can open up your own Traditional or Roth IRAs as well.

Continue reading “10 Revealing Questions to Share Benefits of the SEP IRA”