Paul Ferraresi

Well a new administration is in place and with the promise of higher taxes. As you look ahead and see deficits for as far as the eye can see, a war on terror that will last another generation, a bankrupt Social Security/Medicare system, and, a financial crisis not seen in a generation…you know that your taxes will go even higher than the new administration has told us their plan is.

Couple this with a Democratic near super majority Congress whose initial plan of business will be to eliminate the deduction for 401K, then, they plan take your 401K accounts and wrap your monies into a social security account…now you know why markets are shaky. You have been experiencing a classic bear market in stocks and real estate so what’s a body to do?? If you followed our advice over the years and fully diversified your portfolio you would be in fine shape. (All my comments are not personal…they are strictly business advice.)

In addition, for many years I have begged you to save 15-25% of your gross income and invest it, so as to minimize your risk. Well, now that the horse has left the barn and you want to close the door. What can you do?

Follow the principles I have taught you and have also been passed on by Doug Andrew in his many books.

• If you harvested your home equity and put it in a conservative side fund you would not have lost now that your home value has dropped. It is gone and there is nothing you can do.
• If you still have some home equity, then, get it out now before it drops more. The additional mortgage may be one if the few remaining deductions you will have.
• Maintain aggressive savings
• Reduce unnecessary expenses such as vacations or eating out. You are trading today’s benefits for your future security and peace of mind.
• Stop funding your IRA/401K for tax deduction beyond your company match level. You will find in retirement the tax you will pay on the distribution will be 10-15 times what you saved in taxes from the original deduction.
• I recommend my clients reduce taxable income via mortgage interest deductions.
• Invest your non performing home equity and "above the matched" 401K contributions into safe investments that earn more than 8% per year tax free (maximum funded equity indexed universal life policies structured by a highly skilled professional); you will enhance your retirement income substantially when compared to traditional retirement strategies. You will also eliminate the downside risk of stock market investing. You participate in the upside of the market but not the downside.
• The above strategy will allow you to fund this new retirement plan with indirect tax-offset deductible monies, it grows tax free, you can withdraw it tax free and when you die it transfers tax free.

The present monetary policy and future plans to "bailout" companies and "unqualified" home buyers will put inflation into a mode of full steam ahead.

Thus, place long term investment money into assets that will benefit during inflation…commodities, real estate, gold and natural resources. (Be Selective with your natural resource picks.) The new administration plans to punish oil companies and coal producers. Although the ultimate outcome will be higher energy prices stay away from direct investments and look toward essential services to these industries and companies.

The policies that have been outlined and promised will not be beneficial to Domestic Stocks. Work your allocation to place more in International Equities. Additional policies from this administration will not be good for medical, health care or pharmaceutical companies in the U.S. These asset classes are still considered good long term plays. Look for multinational companies that do a majority of their business outside the U.S. International health related companies will not be negatively affected by the new U.S. changes in health care. Any defense related companies will be negatively affected in this new administration. Offset these positions with higher allocations to hard assets to take advantage of fear, higher inflation and a weak currency.

Visit with your advisor to realign your portfolio quickly to take advantage of the mega shift coming in the investment horizon.

It is imperative that you now concentrate on aggressive tax planning. I haven’t seen such a demand from my clients for help in this area since the late 70’s during the Carter administration. Back then tax rates were at 70%. Since 1982 tax rates have dropped, tax revenue skyrocketed going into the Treasury and people concentrated on making prudent investments. Consequently, you saw a massive bull market in stocks and real estate from 1982 until 2008. These upcoming policies of the new administration are very similar to the Carter years, so let’s make money like we did under those policies in the late 70’s.

I am sure you can see a huge tax rise and a shift in U.S. stock market returns coming in everyone’s future. Tell me, are you going to be one of the masses and wait until the boat has capsized to then look for your life preserver? Or, do you want to get into the preserver now and safely get to shore?

Call or email if you are ready to build your wealth. Discipline or regret!!