Deception of Ownership

Personal ownership of property (real and personal) is a long-held status symbol for most people. When people hear “status symbol”, they tend to think of flashy cars, designer clothing, or large homes.

However, even those who fancy themselves financially responsible own their home, vehicles, and other assets in their own name, looking with satisfaction at their modest lifestyles and “net worth.”

However, when people own their property they (1) set themselves up for disaster and (2) end up not paying themselves first.

Courting Disaster

When people own property in their own name, it can be taken from them quite easily. A lost job, a lawsuit stemming from a car accident, divorce, or any number of other risks can spring upon them at any time. Unexpected medical expenses from an accident, heart attack, cancer, or other untimely unwanted events can quickly leave one vulnerable to creditors.

Even those who have emergency funds, who can weather several months of no income can find themselves out of cash with courts ordering a house’s equity to be taken from them, equity that they’ve created by diligently paying down their mortgage with their hard-earned money.

Paying Other First

When people have earned income, others have claim to their money first. The most obvious are the various taxes taken out of a paycheck before it even hits direct deposit, but others are more subtle.

Control But Do Not Own

Courting disaster and paying others first when not necessary isn’t the best of strategies, given that alternatives exist. Rather than owning a house, a car, a load of paper, etc. it is recommended that one control these things without ownership.

For example, a properly constructed Illinois-style title-holding land trust allows one to not own a home, but still retain all the benefits of ownership. (I recommend people attend a NARS 2.5 day workshop to get a first-rate education in this area.) These are very different from the family living trusts designed to avoid probate, but which afford no legal protection.

Unfortunately, many probate lawyers give the false impression that these tools will offer protection despite endless case law in which these types of trusts are declared dry (meaning they’re invalid) when it comes to asset protection. As of this writing, experts in the field have not found a single case where a correctly constructed equity-holding trust has been declared dry. Use the traditional family trusts to avoid probate, but lock up your property in water-tight structures, such as what NARS educates people on. Put your beneficial interest in the home’s EHT in the family trust, not your home itself.

As far as paying yourself first, businesses are an excellent method to have access to pre-tax dollars, allowing one to spend before even the IRS gets a crack at the money. This must be done correctly and legitimately. Be sure to become educated on the ins and outs to avoid risk. (Remember, it’s you as the human that governs risk.)

Hopefully this will stimulate some thought. Most anything can be controlled without ownership. It takes some stretching of one’s paradigm to see how this can be possible, but it’s been the norm for money wise people for hundreds of years.

I Shot a Sacred Cow

This response is rather lengthy, so I’m putting in a new article.

In response to High Risk is Just Plain Dumb, Bob wrote,

I’ve been following this conversation with interest, but I’m done with it now because I just realized you’ve got nothing valuable to say, mostly because of this statement: “There is no such thing as a risky investment, only risky investors.”

I’ll take my paid-off house and mutual fund portfolio over this stuff any day.

Good luck with all this.

If you’re really gone, Bob, I sincerely wish you the best. It’s better to have some sort of plan than no plan. It will serve you.

It appears to me that Bob is upset because I put a bullet through the head of one of his sacred cows. We all have our sacred cows. We have deep, emotional attachments to them. When somebody shoots one, the act tends to trigger an emotional response inside of ourselves.

Bob proves my point. I would hope that Bob hangs around and engages in a dialogue to help us understand what is inside his head and heart. If he takes his ball and goes home, we’re diminished, and I’ll have to make some assumptions. That’s always dangerous, but that’s all I’m left with.

Where Does Risk Lie?

I want to follow a line of reasoning, expanding on what I wrote, so I’ll use fictional people, Alice, Charlie, and Dan.

Let’s say that Charlie has an attitude that resembles Bob’s, at least superficially. He believes in that investments have risk. He believes that putting money in a mutual fund is investing. He believes in hoarding building net worth as the Way to protect against an uncertain future.

Why does Charlie turn his money over to a third party, rather than directing his portfolio himself? Because he has no expertise in the matter. He knows instinctively that if he were to attempt directing his paper portfolio, he’s end up with a “capital depreciation fund” (a tip of the hat to the funny guys at Car Talk). His capital would disappear in a blaze of unhappiness.

For Charlie, directing his portfolio creates a huge risk. He might get lucky a few times, but eventually he’ll lose his shirt. Guaranteed. Why is this? It’s because he lacks the knowledge to utilize the markets effectively.

Let’s say that the worst thing happens, and Charlie gets lucky a few times. He start to think, “Hey, this isn’t so bad.” Dan sees this and wants to get a piece of the action, too. Charlie passes his “knowledge” to Dan, who then puts it to use. If Dan is lucky, he’ll lose his shirt now rather than later. When Dan is sitting shirtless in front of his computer, he thinks, “Man, these markets are ‘risky’.”

Are the markets themselves risky? They go up and down, certainly, but this is volatility, not the same thing as risk. Or, is the lack of knowledge inside the heads of Charlie and Dan a factor? I suggest that this is the key.

Furthermore, I would suggest that neither Charlie nor Dan were investors. They were speculating, certainly, but hardly investing.

Let’s turn our attention to Alice. She’s an actual investor. She’s developed the knowledge, insight, and systems that allow her to create a consistent positive cash flow from the markets.

If Dan were to study under Alice, gain the knowledge and expertise, and put the systems into place that allow him to obtain the same results as Alice, he wouldn’t have the same fearful aversion to the markets because he knows how to manage risk down to the point where profit is ensured. He’ll lose some but win more so to him, the markets aren’t “risky”.

Compare Alice and Charlie, the educated person and the ignorant person. They operate in an identical environment, but in one person there is high risk (Charlie), and in the other person there is low risk.

How, then, can we say that the market itself is risky when the person is what drives the outcome over time?

Another Tortured Simile

Labeling things “risky” and “not risky” is akin to calling the events in our lives “good” and “bad”. As I wrote in Life Throws Curve Balls, events are neither good nor bad. They just are. They may be desirable or undesirable… but good? Bad? How do determine “good”? Or “bad”? As a human being, some of the most powerful educational experiences I’ve had came from gut-wrenching undesirable experiences of my life. While in the process of going through the experiences, I desperately wanted out, but found no egress.

In retrospect, I cannot label those experiences as “bad” since the benefits I’ve derived from them have been tremendously powerful in my life. I don’t want to go through them again as they were horrible, but neither do I want to give up the knowledge gained.

They were not “bad” experiences, but simultaneously “undesirable” and “beneficial”. That’s one of the essences of life. How is it that I derived benefit from the “bad” experiences? I chose to. I could have chosen to be bitter and angry, but I chose otherwise. It was the human element that made the difference, not the event itself.

In a similar vein, calling a investment vehicle “risky” or “safe” is not particularily useful, seeing how outcomes are directly influenced by the individual involved in making the decisions… not by the instrument itself.

An Apology

In making the last post, I skipped some foundational concepts. I didn’t lay some groundwork and ending up shooting a sacred cow suddenly. I apologize for that and will try to avoid having sacred cow burgers for dinner again. I try my best, but know that despite my best efforts, others will be offended. So I do my best again.

Digging the Foundation

I had a dear friend and mentor (sadly, now passed away) who was the first to expand my perspective on the world beyond what is commonly taught by the big companies that have for decades defined the common perspective of success. This man, named Mark, was at once a savvy businessman and multi-millionaire, and a very spiritually-minded man who donated much of his time to the religious instruction of young people. His business supported his twin passions of his family of 11(!) children, and the development of well-rooted young people that could think critically.

His background was one of an ordinary person, who in his 30’s was tutored by persons of… rare productivity. I may be slow at times, and a tough nut to crack, but he was patient, gracious, and insisted that if I wanted to learn, that he’s point out the path, but I’d have to move my own feet.

Frequently when I had questions he would have me buy a book, read it, and not until then would we talk. Some people — usually those who despised Mark’s financial success — told me that was a sure sign he was mean spirited (or just evil) because “a good person would just tell you”.

I admit, at times I wanted to scream my agreement with those folk to his face. I was never so rude, but I did question his method at first. He would drive me batty with “go, do, and then we’ll talk”. One reason he gave me made no sense at the time, and made me as mad as a rattled hornet’s nest. He would say that the worst thing he could do was to just answer my questions outright. That made me question his sincerity or honesty for a some time.

I learned that his way was quite wise. He wanted me to wrestle with the mind of another human first, people he had learned from. If had just told me, he would have robbed me of precious experiences. I gained knowledge beyond what he could have given me, for he could only give me what was right for him. He could never have given me the rich mixture of ideas that spoke to me in the place I was at the time. This method also helped me to increase my own ability to discern between ideas, what was useful, what was not.

The First Book

This is the first book Mark ever suggested that I read.

George Clason wrote his classic work The Richest Man in Babylon as a series of pamphlets; I believe starting in 1926. The all presents a story, akin to a parable, set in ancient Babylon. Each pamphlet becomes a chapter in the book. Each story is designed to teach one or more basic ideas of personal finance.

I would recommend that people not be fooled by the easy style. It’s full of precious ideas. One will find some overlap with Dave Ramsey’s preaching, but I’d caution about reading with Ramsey’s assumptions in mind.

Click on the picture to see the book on Amazon.