Understanding How the Stages of Life Should Affect Investment Strategy
Ya don’t give a drowning man a glass of water, right? It’s not appropriate to his immediate circumstance. That glass of water makes a lot more sense when given to the man in the desert who’s been without water for a couple days. In this initial part of a series, I will address a common thread to the various real estate investment strategies — the strategy must be apposite to the current stage of life.
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In a previous post I wrote about the questionable practice of worshiping at the alter of cash flow. It contained an example of an investor who chased cash flow to his detriment — he didn’t have nearly the amount at retirement he could have, due to the inappropriate timing of his agenda’s strategy. In simpler terms, we should implement strategies that will tend to maximize our ultimate goal — the generation of as much after tax retirement cash flow as possible.
See? Captain Obvious lives.
When you’re saving after tax money year in and year out, and you’re not gonna retire for one or two decades, growing your net worth is #1 on your to-do list. Reasonable folks can debate the how of gettin’ that done, but not the timing.
Here’s an example — Arriving at retirement with no way to access your wealth, or shelter your ‘incredible’ income.
Several times a year I get a call from someone who’s ready to retire, but recently had the chilling epiphany that they’d apparently screwed the pooch — though they can’t figure out how. I mean this sincerely, it’s not my intention to offend, but there are thousands of geniuses out there rapidly approaching retirement who’re just now figuring out they’ve put themselves between a rock, a hard place, the IRS, and their own planning. They read a few books, got mentored by Uncle Fred who was ‘phenomenally’ successful, then set out to duplicate the promised results — which, much to their chagrin they succeeded in doing. Here are just a few of their unintended ‘successful results’.
- Income with little or short lived tax shelter
- Income generated by properties as old as their owner at retirement
- Having to choose between partially or completely disinheriting their heirs
- Being forced to execute what I’ve referred to as After the Fact Panic Planning
- Downsize anticipated retirement lifestyle do to uninformed planning
The real estate investor must understand and recognize when particular strategies are inappropriate for their stage of life. Don’t chase cash flow for cash flow’s sake — like water, it can give life, and it can do harm when used with unsuitable timing — like when you’re far from retiring and don’t need it. Same with depreciation — tax shelter. Depreciation can be made into a powerful and long term planning tool — but only if you’re aware of the possibilities — the avoidance of tax deferred exchanges can be a wonderful thing sometimes. Understanding what doesn’t work the way it has for decades is crucial to avoiding sleep depriving revelations at 1 in the morning — does buying and never, ever, no exception, selling anything, ring a bell?Knowing that the only thing you never wanna ‘time’ is the market itself.
Solid, proven and effective strategies become as valuable as a glass of water to a drowning man when used with ill-advised timing. What’s worse, it can ruin what coulda been a magnificent retirement, turning it into a mundane existence.
Next week I’ll be talking specifically about what’s been used as a safety net for those who’ve been too clever by half. It’s like a tie in a baseball game — kissing your sister. 🙂