All Forum Posts by: James Park

After 9 years, the FED raised the rates on Dec 2015. Just wanted to get a vote on how many of you think that the FED will raise rates this year and WHY?

Here are your choices:

A) FED will raise rates once in March, 2016
B) FED will raise rates twice in March and June 2016.
C) FED will raise rates three times in March, June, and September 2016
D) FED will raise rates once in March, once in June, and revert back to QE4 in the second half of the year
E) FED will not raise rates at all in 2016

Love to hear what you guys think.

-James

@Scott Trench,

Thanks for responding to my post. I think as a young investor (especially if are not married and don't have any kids yet) you should focus your efforts and time of owning and building small businesses that you are passionate about ( via S-Corps ). For example,  A flipping business is a business that is no different from owning a software business, a retail business, or an ecommerce business selling widgets. Bigger Pockets is an online business, but just at a larger scale.

Usually for most of these millionaires, their S-Corps are what generally the capital for them to invest in long term buy and hold investment properties for income. Therefore, I would recommend spending more of your time and energy in your young age to build innovative entrepreneurial ventures and buy and hold income properties. (Much more important than pursuing an MBA in my opinion.)

Most millionaires usually have between 20-25% exposure to the stock market, more often then not, the allocation is closer to 20%. You can have more controlling power over your own business and real estate investments, but no one can fully control the stock market. This is the reason why I believe the equity exposure is a smaller percentage to a middle class millionaire's overall networth.   

I have read a lot of books in finance and real estate since my early 20s, but one thing that has always been consistent in my readings for the past 18 years is the wealth profile of millionaires. In chart above you can see what I consider to be an ideal asset allocation wealth profile for the middle class millionaire. Middle Class Millionaires are defined by anyone who has a networth between $1M to $3M. Upper class millionaires have a net worth between $3M to $10M. One thing that is interesting is that you can see that only a small allocation (between 5-7%) of a millionaire's networth is allocated to annuities and life insurance and 3-5% of a millionaire's networth is allocated to qualified retirement accounts which leads me to believe that these middle class and upper class millionaires rely less on life insurance, qualified retirement accounts, and annuties as they have already self insured themselves with their small businesses, real estate investment income, and equity holdings. I believe in a diversified asset allocation model approach that incorporates a 25-35% in innovative entrepeneurial ventures (S-Corps), 25-40% in buy and hold real estate investments (Foundation of their investments), and 20-25% in fixed income and growth equities. 

Below are the Networth and Household income % in the United States. Over the last 4 years, I have interviewed several top wealth managers, commercial brokers, and investors of what their personal retirement portfolio looks like. The problem I have seen with many financial advisors is that they do not own income properties as the foundation of their retirement portfolio and many of them are just broker dealers of life insurance and mutual fund products, and not true AUM investment advisors or wealth managers. Financial advisors have most of their networth in stocks and most of the top commercial brokers do not personally own any commerical properties, but many do own either apartments, multi-family, and single family homes which I believe are the best real estate asset classes to own in your personal retirement portfolio. 

Source: 2013 data from Tax Policy Center

% Networth Estimated                 5% passive income (Annual basis)

99.90 % $30,644,280.00              $1,532,214
99.50 % $11,898,128.00              $ 594,906
99.00 % $7,869,549.00                $ 393,477
95.00 % $1,868,640.00                $ 93,432
90.00 % $943,656.00                   $ 47,182
80.00% $428,540.00
70.00% $247,026.00
60.00% $147,732.00
50.00% $81,456.00
40.00% $38,322.00
30.00% $14,840.00
20.00% $4,314.00
10.00% -$2,066.00

Household Annual Income

99.00 % $521,411
95.00 % $208,810
90.00 % $148,688
80.00 % $107,628

Here is how the middle class and the upper class millionaire differ in interests and responsibilities.

                                                                      Middle Class Millonaire Upper Class Millionaire
1) Making sure your heirs are taken care of :                   66.9%         93.6%
2) Having adequate medical insurance:                           78.1%         76.4%
3) Having enough money for retirement:                          87.3%         53%
4) Paying for children education (529 etc)                        65.2%         28.6%
5) Losing your job or business                                          48.4 %       30.5%
6) Taking care of parents                                                   38.4%        16.1%
7) Mitigating income taxes                                                 90.1%        77.3%
8) Mitigating estate taxes                                                   21.7%        81.3%
9) Mitigating capital gains taxes                                         27.1%       58.5%                      

Here is how I see things playing out. I like to be a contrian thinker and I think that most people believe that we will see couple more rate hikes this year that was first initiated in December after 9 years. I think that the rates hikes may not happen or if it does, it will be raised a lot less than most peope think. What I do think will happen is that the FEDs will reverse course for more quantative easing to QE3 second half of the year. I am making a bold prediction that Gold will hit $1400/ounce in 2016. Mortgage backed securities are also much safer today than they were during our last mortgage crisis. I am feeling more secure investing mortgage backed securities, not the brick and mortar, but financial mortgages. Again the risk is rising interest rates, which I believe will be a lot less than most people believe.

Oil prices dropping below $30 is going to put more money in a homeowner's pocket. Real Estate is local in nature where I can see some parts of the real estate market depreciating in value while other under valued areas will appreciate in value in 2016. 

Below you can see the long term chart of Gold & Silver. CEF is a closed ended fund trading 10% below Net Asset Value.

I am starting to do some research on investing in REITS. I am not talking about the brick and mortar REITS, but financial/mortgage REITS. I know that there are interest rate risks as when rates go higher the REITS will get hurt. How many of you guys think that there will be couple more rate hikes coming up in 2016?  

Just curious to see if there are any REIT investors here. What do you think are the pros and cons of owning a REIT?

@Dawn Brenengen,

Thanks for the mention. I cover the Northern Atlanta region : Alpharetta, Suwanee, Johns Creek, Duluth, Forsyth County, North Fulton, & North Gwinnett. 

Any properties closer to the city, I would recommend reaching out to @Azeez Khan.