January 2017 - NorthStar Capital Advisors

10 Life Lessons We Learn Too Late

A few years ago someone on Quora.com asked the question, “What are the lessons people most often learn too late in life?” Jay Bazzinotti provided the following brilliantly insightful response:

1. Time passes much more quickly than you realize.

2. If you don’t take care of your body early then it won’t take care of you later. Your world becomes smaller each day as you lose mobility, continence and sight.

3. Sex and beauty may fade, but intimacy and friendship only grow.

4. People are far more important than any other thing in your life. No hobby, interest, book, work is going to be as important to you as the people you spend time with as you get older.

5. Money talks. It says “Goodbye.” If you don’t plan your finances for later in life, you’ll wish you had.

6. Any seeds you planted in the past, either good or bad, will begin to bear fruit and affect the quality of your life as you get older — for better or worse.

7. Jealousy is a wasted emotion. People you hate are going to succeed. People you like are going to sometimes do better than you did. Kids are going to be smarter and quicker than you are. Accept it with grace.

8. That big house you had to have becomes a bigger and bigger burden, even as the mortgage gets smaller. The cleaning, the maintenance, the stairs — all of it. Don’t let your possessions own you.

9. You will badly regret the things you didn’t do far more than the things you did that were “wrong” — the girl you didn’t kiss, the trip you didn’t take, the project you kept putting off, the time you could have helped someone. If you get the chance — do it. You may never get the chance again.

10. Every day you wake up is a victory.

What’s Your Wealth Index?

How do you know the health of your wealth? Are ahead of the curve or are you behind? Do you need to be saving more or do you need to ease up and be less frugal?

The most complete and accurate way to answer these questions is to reference your financial plan (i.e., a formal, written, date-specific, dollar-specific retirement accumulation plan). But a quick, “back of the envelope” approach is to use the Wealth Equation. This metric was created by Dr. Thomas Stanley, noted researcher and author of the Millionaire Next Door.

Here’s the formula:

Expected Net Worth = 10% x (your age) x (your gross income)

So if you’re a 50 year old making $150,000, your Expected Net Worth is $750,000 (=0.1*50*150000). If you’re a dual-income family, you would use your total family income and average age of the two earners.

Now take your Expected Net Worth and compare it to your actual Net Worth (don’t know your actual Net Worth? see our special offer below*). Create your Wealth Index by taking the ratio of those two numbers:

Wealth Index = (Actual Net Worth) / (Expected Net Worth)

Your Wealth Index tells you where you fall into the following categories:

Under Accumulator of Wealth (UAW) Wealth Index ≤ 0.88
Average Accumulator of Wealth (AAW) 0.88 < Wealth Index < 1.84
Prodigious Accumulator of Wealth (PAW) Wealth Index ≥ 1.84

Continuing with our example above, imagine that you are that 50 year old with an actual Net Worth of $937,500. Then your Wealth Index is 1.25 (=937500/750000) which puts you at the moderately high end of the Average Accumulator of Wealth (AAW) category.

Ideally, you want to be a Prodigious Accumulator of Wealth (PAW), in other words, a hyper saver who is consciously building a tremendous amount of wealth. If you’re a PAW (i.e., you have a Wealth Index at or above 1.84), Dr. Stanley calls you “balance sheet affluent” because you have an army of dollars working for you and you’re doing a great job of accumulating assets.

If you’re a AAW (Wealth Index between 0.88 and 1.84) you’re probably right on track. If you’re a UAW (Wealth Index below 0.88) you’re likely behind the curve and need to save more and spend less to grow your financial health. Remember you want to be saving between 15% and 20% of your gross income to fund your retirement.

A note to younger folks:
If you’re in your 20s and 30s (or even early 40s), your expected net worth in the Wealth Equation may be a bit too ambitious since Dr. Stanley designed this for people in their 50s and above. It still serves as good general reference point. For younger savers, Dr. Stanley suggests the following approach to ramping up your retirement savings:

In your 20s, save at least 5% of your income
In your 30s, save at least 10% of your income
In your 40s, save at least 15% of your income
In your 50s, save at least 20% of your income

We would urge you to try to accelerate this so you’re saving 15% to 20% as soon as possible to assure you will enjoy a happy and well-funded retirement of 30+ years.

*Need help calculating your actual Net Worth? Send us an email at info@nstarcapital.com and we’ll send you a free tool to calculate it quickly and accurately…forever!)

Oh Baby! You’re Expensive

Many parents worry about saving for college, but don’t forget about the proceeding 17 years! Food, clothing, shelter, and other necessities will cost $233,610 for a child born in 2015 to a middle-income family.

This week the the U.S. Department of Agriculture released their annual report where they total up the cost that parents pay to raise a child from birth to age 17.

The annual expense per child ranges from $9,330 to $9,980 on average (depending on age; $174,690 total!) for households with an annual income less than $59,200.
The annual cost increases to $12,350 to $13,900 ($233,610 total!) for households with income up to $107,400.
The annual cost increases yet again to $19,380 to $23,380 ($372,210 total!) for households with annual income greater than $107,400.

Housing, childcare & education, and food comprise 63% of the expenses.

It’s interesting to compare the costs of raising a child born in 1960 (the year the USDA study first started) to a child of 2015. The total cost has increased 16% from $202,020 in 1960 (in 2015 dollars) to $233,610 in 2015.

Housing was the largest expense on a child in both time periods (decreasing from 31% in 1960 to 29% in 2015)
Food was the second largest expense (decreasing from 24% to 18%)
Childcare & education has surged from only 2% in 1960 to 16% in 2015
Healthcare has doubled from 4% in 1960 to 9% in 2015

Ponzi Schemes? Look No Further Than Your Backyard!

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation. The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920 (see photo).

People often don’t realize Ponzi schemes happen everywhere and all the time. Take for instance Bruce Kramer and his company Barki, LLC based in Mint Hill, North Carolina. This small town is just outside of Charlotte, NC and not far from the headquarters of our firm, NorthStar Capital Advisors. The Charlotte Observer broke the story on May 29, 2009:

In January, with the economy tanking and Bernard Madoff’s $65 billion scam unraveling, Bruce Kramer met a nervous investor for lunch at Hawthorne’s pizzeria in Mint Hill.

The investor, a Charlotte consultant who had invested several hundred thousand dollars with Kramer’s foreign currency exchange firm in Cabarrus County, wondered if the money was safe. Kramer reassured him it was, recalled the investor, who asked not to be identified to protect his family.

Kramer then thanked him for lunch and drove off in a new $90,000 Maserati.

A month later, Kramer shot and killed himself. Court documents allege he swindled $40 million from 80 clients and spent much of it on luxury cars, a racehorse, art and extravagant parties.

The U.S. District Court ultimately issued a default judgment against the late Bruce Kramer and his company ordering more than $40 million in fines and restitution.

How to spot a Ponzi Scheme

According to the SEC, many Ponzi schemes share common characteristics. Look for these warning signs:

High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.
Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

10 Life Lessons We Learn Too Late

What’s Your Wealth Index?

Oh Baby! You’re Expensive

Ponzi Schemes? Look No Further Than Your Backyard!

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