With all the high tax rate, it is good to know that there is a way to get a good fixed rate of return, an alternative to 401(k) and tax deduction. Hollis Day, Jr. lashes on the towering tax rate and suggests a smart way to create money through tax. Learn how you can get a good fixed rate of return through tax deductions and an effective alternative to 401(k).
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Crazy Things Going On
There are some crazy things going on. I’ve written down four things to talk about this show: higher taxes, a good fixed rate of return, an alternative to a 401(k) and tax deductions. I’m going to try to squeeze all four in and try to give equal time to those. I want to start off with an article from a guy that I follow named Simon Black. The title is Negative Interest Rates Coming to the US Along with Government Mandated Helicopter Money. To battle the great financial crisis in 2008, the Federal Reserve cut interest rates to zero and printed trillions of dollars. That’s a fact. Those are facts. We’re talking about from 2008. The result was an unprecedented ten-year bull market in stocks, bonds, real estate and every other asset out there. The San Francisco Federal Reserve Bank says that wasn’t enough. In a paper, the San Francisco Fed said, “Negative interest rates, negative 0.75% to be exact, would have allowed for a faster recovery.” The San Francisco Fed suggests throwing American savers under the bus even more than they have already to goose the financial system and ultimately blow an even bigger bubble than we’re experiencing. I used to hammer several years ago, CD rates are up a little bit, but it was an absolute joke of what the banks are paying on CD rates.
Back to the article, the President of the Saint Louis Federal Reserve Bank, James Bullard said, “The current monetary policy is too restrictive,” meaning he wants lower interest rates. Both the European Central Bank and the Bank of Japan were expected to start tightening policy, raising rates, but they both already committed to stay put and maybe even cut rates further into negative territory. China and India are both still easing. The Federal Reserve has also started softening its language on further rate hikes after the last hike sent markets plunging. The trend is clear and this is what you need to understand. Global central banks tried raising interest rates, but the economy couldn’t handle it. That’s at a time when things are reportedly booming. What happens when there’s a recession, when this ten-year artificial bull market inevitably reverses? The writing is on the wall for further rate cuts. The major US fed banks are already floating the idea of negative interest rates. You can be sure there are very real discussions happening right now in high levels about bringing NIRP, Negative Interest Rate Policy, to the US.
A very well-respected financial analyst, a guy named Albert Edwards from SocGen, thinks we’ll not only see negative interest rates but government-mandated helicopter money. From his report, “As central banks thrash around for new tools, I have long thought the next recession would trigger the adoption of helicopter money and deeply negative fed funds. Clients have been skeptical of the latter because of the negative impact on bank margins. I am more convinced than ever that we will see negative fed funds and what happens if the socialists-politicians who are gaining in popularity win control of the government? We’ll only see more government money spent to boost the economy, provide jobs and education for everyone.” Higher taxes will come too, but it won’t be enough to stem the bleeding. Deficits are going to explode. I’ve been talking about this for a while and every day it seems something else comes out in the news to reinforce what I see is a giant risk to the economy. The rise of socialism, exploding government debt and a market crash. Most of you, Sage Money Radio folks, you see these signs but what are you doing to protect yourselves? It’s the nature of the beast. If you want to see what I’m doing with my own money, call me at 202-SAGE. That 202-7243an go to the website, SageMoneyRadio.com. You can send me an email from there.We are overtaxed and the government waste a ton of money every year. Click To Tweet
We have some lunatic elected officials. It seemed like every time I read something, I’m tired of reading it. Almost to the point where I don’t want to read when I see a couple of these idiot names, which I don’t want to report. I don’t want to say their name to give them more credibility. I don’t want to tout to reading it, but they’re raging lunatics. They should probably be sentenced to a lunacy hearing because of their crazy ideas. In all seriousness, we’re talking about trying to decrease cow farts. In all sincerity, in all truthfulness, cows do produce some methane gas but it comes out their burp, not their rear end. We have lunatic saying this and put it in writing to eliminate air travel in ten years. Only a true certified lunatic will say something so stupid but yet people get behind these lunatics.
I’m worried that these big states have a lot of urban liberals, but they’re socialists. Where does the money come from for their entitlement programs? It comes from us, taxpayers. They’ll say the government, but there is no government without taxpayers. There are no elected corrupt, elite, pompous politicians without taxpayers. Anytime I can keep my own money because it’s my money. I do firmly believe in paying some taxes, I do. We need a government. I understand that. We need a defense in the military. We need some infrastructure. My problem, my issue is we are overtaxed. I believe that the government wastes a ton of money every year. The federal government here gave California $3.5 billion to do some fast train, rail train from LA to San Francisco. They’ve spent $3.5 billion and now they shut the program down. That’s less waste. Do I trust the government in giving them more my money? No. I have found some ways to keep more of my own money. I have found some ways that it doesn’t matter what income tax rates are in the future. It doesn’t matter because I will be protected in what I’m doing with my own money. Does that interest you?
What’s good for the goose is good for the gander. I’m only going to show things and I only talk about things, strategies that I believe in and that I’m doing. I don’t have a briefcase full of 48 different mutual funds telling you that you should be in this one because you’re 60 but your son should be in this one because he’s 35. I think that’s garbage. If you’re going to recommend something to somebody, you better be in it, my opinion, my belief, but I’m not part of the Wall Street clique. I usually march to the beat of a different drum in about everything that I do in life. I use toothpaste that has no fluoride in it. My friends think I’m a geek, but I’ve read enough studies about fluoride. That’s another topic. I’ll march to the beat of a different drum than Wall Street. I’m not even in the parade. I’m definitely not marching down on Wall Street, but I do know people who make money on Wall Street. I’m not part of the inside clique. I have found some other strategies that I put my own money, hence, I talk about on this show and I show people about them. Anytime that a person, a true taxpaying, hardworking civilian citizen can keep more of their own money, I think it’s great.
Going back to where you seek financial advice, I am not a financial advisor. I’m not a certified financial planner. I don’t want to be involved in Wall Street, day-to-day fiasco drama soap opera of the ins and outs or the ups and downs. I make that decision, but I also meet people who have money in Wall Street. I have some clients that have come on board with what I’m doing and they still have the vast majority of their money in Wall Street. If you are receiving financial advice from someone who tells you that you will be in a lower tax bracket when you retire, see if they will sign and date that statement on their letterhead and see if they’ll be held liable for it. I think that may be true for some people, but for the majority of folks, you will not be in a lower tax bracket when you retire mainly because you don’t know what future tax rates are going to be. We don’t know that. You can’t make that prediction. Right now, historically we are in the lowest tax brackets we’ve ever had. Taxes are on sale right now. My point is I’d rather pay taxes right now on my money that I’m going to invest. It’s a juvenile simple example. Would you rather pay taxes on the harvest or the seed? Would you rather pay taxes on the seed that you’re going to go plant or would you prefer to pay taxes on the harvest six months down the road in that example, or in retirement, 10, 15, 25 years?
It’s the unknown. I don’t trust the government to dictate my tax rate. The 401(k) program is a government-sponsored program. Are you aware of that? They’re giving you a little tax deferral right now. You’re deferring the tax. You’re postponing the tax. They will tell you what the tax rate is going to be when you’re ready to pull your money out. If you’re under 50 and you have a solid ten years left working, that’s not a good plan in my opinion. There are other ways. There are other alternatives. If you trust the government and if you think taxes will be lower in the future, then you should be deferring, maxing out your 401(k) every paycheck. I don’t believe that in my opinion. When I meet with people, I ask them, “Do you think taxes will be higher or lower in the future?” Do you know that no one has ever answered that question to me lower, not a single person ever? They think taxes are going to be hard. Just look at the debt. Our country’s debt hit $22 trillion for the first time. I don’t think we can even comprehend the word trillion. To me, it’s hard to comprehend the word trillion.
I’m sure there’s a reader named Billy out there, “Billy, here’s $1 trillion. Go spend $1 trillion.” To spend $1 trillion, a person would have to spend $10 million a day for 273 years to get to $1 trillion. Our country is $22 trillion in debt rising every nanosecond. For me, I believe that tax rates will be higher, therefore I’m paying the tax now. I’m not going to postpone it. That’s where the fallacy lies. I think 99.9% of your traditional financial advisors, your traditional certified financial planners are worried about and focused on the accumulation of money. What about the distribution? You can make it a little bit less rate of return if you’re going to be in a much lower potentially 0% tax bracket. Yes, it is possible to pay a 0% tax bracket as it absolutely is. Some people will never be in a 0% tax bracket. They have too many moving parts. There are too many assets. I meet a lot of people that could be in a 0% tax bracket. I said 0% tax bracket, I’m talking about in retirement if you take the steps right now. Where your money sits, the place it’s in is more important than the rate of return.What's good for the goose is good for the gander. Click To Tweet
The 401(k), when I learned this a couple of years ago, I thought it was a profound statement. I’m not necessarily beating up on advisors. It’s the way the system is set up. If you have, let’s say $1 million in 401(k) or IRA or whatever it’s in, you’re paying someone to manage that money. Let’s call it a 1% fee. I have seen a little bit lower than that. I’ve seen higher than that. I’ve seen over 2% of fee people were paying, the yearly fee to the advisor. That doesn’t include the fees within the funds they’re in. Your asset manager, he gets a massive raise to manage your 401(k) or IRA instead of an after-tax investment. Let that sink in. For number’s sake, you have $1 million in 401(k). How much of that money is yours? You do have to pay taxes on that money. If you took it all out at one time $1 million, you’re going to be in the highest tax bracket. If you took a little bit every year, you can be in the 25% tax bracket.
Let’s say 25% of that money is not yours, $1 million so that means you’re going to get to keep $750,000 of that money. You’re paying at least a 1% fee on the full $1 million. You’re paying a 1% fee on money that’s not even yours. You’re paying a 1% fee on a fourth of that. Isn’t that crazy? Does that make you mad? Does that bother you? That bothers me and I’m not you. Again, it’s the way the system is set up. There are other places for your money to make money other than Wall Street. Why does your advisor love your 401(k) more than you do? He loves it. Do you want proof that the 401(k) can be a tax nightmare? Take it out. See what happens when you try to take your money out. It will be a tax nightmare. You don’t need a qualified retirement account to retire. You need money. Where your money sits is often more important than the rate of return you’re trying to chase. I get paid to set up tax-free benefits for my business owners and clients under using the current tax law that’s already on the books. What will taxes be when you’re ready to take your money out of your 401(k)? I don’t know, but they’re probably going to be higher. If you think they’re going to be higher, why are you postponing that?
Kicking the can down the road, there’s a better way and especially if you’re still working right now. If you’re what I call overfunding your 401(k), maxing it out, you can lower that contribution to the qualified plan to the minimal amount to get the max. Call me and let me show you where you can redirect what you’ve been putting in. My goal is to not change someone’s monthly standard of living. You can redirect what you’ve been putting in your 401(k) into a different account. That is liquid in case life happens, you can get access to it.
My oldest child, Hollis Patrick Day III, is a tenth grader. He received $5,000 of play money, his whole grade did. They’re learning about the stock market. That thing is cool. I sat down with him. We’re going over some stocks to buy. Again, I’m not a stock guy. I do follow a couple of stocks in the energy sector, Marathon Oil, ConocoPhillips, Exxon Mobil, Sanchez Energy, Encana, EOG, some of the things I follow those. He bought some of those stocks, Tuesday night. Wednesday morning when the stock market opened up, he was in the first place. I said, “Son, if all prices go down, these are all going to take a hit. It’s going to be bad. You could go from first to last very quickly.” He thinks I’m a genius because he’s kicking butt right now. It’s been luck we bought these stocks. I’m trying to tell him this is volatile. I went over the word volatility. They’re trying to teach a good life lesson about money. I’m glad the school is doing this. It’s fun to go over. It’s fun to watch his excitement because he’s been tracking them all day. We bought a little bit of Verizon. He was like, “Dad, Verizon is the only one doing down. I need to ditch it.” I said, “No, son, hang out for a little while.”
Good Fixed Rate Of Return
Let’s talk about a good fixed rate of return. What would you be happy with? What is a satisfactory rate of return for you, 2%, 12%? I meet so many people. It fluctuates on what someone’s looking for. What if you could earn an 8% rate of return over the course of one year but it will be paid monthly to you? If a person has cash and you’re looking for a way to earn interest without spinning into the basis, the principal, would that be good for you? There’s some risk involved. The risk is lower than the stock market. That’s my opinion. We all have our opinions. There’s a place where you could put your money. Again, if it’s IRA money, the monthly check would go back to the IRA. There’s also a compounding effect as well. There’s a way to do this where you are the investor. We call them a lender. You’re lending your money to this company out of Texas. They are an oil and gas company and they drill oil wells. That’s a separate investment. That’s not what I’m talking about. You lend them your money to go lease the land before they drill the wells. It was two different investments. It’s two different strategies.
The actual oil and gas strategy, there are some major and awesome tax deductions. On this fixed income side, this fixed interest yield, there are no tax advantages. The interest you make is treated as ordinary income. It’s a way to earn money without dipping into your basis or if you got some old 401(k) money or some IRA or 401(k) money, you can transfer that to a self-directed IRA company or custodian. The compounding yields for you, if you don’t want to touch this money in one, two or three years, you can lock it up for one, two or three years. The one-year simple interest yield where you get paid for one year, you’re paid for twelve months over a year is 8%. For the one year compounding, you get 8.3%. There’s no monthly income there. If you want monthly income for two years, you’re going to lock it up, you get 8.5% for two years but it’s paid monthly. If you want to lock your money up for two years, the compounding yield is 9.23%. If you want to lock your money up for three years and get paid every month for 36 months, it’s a 9% simple interest yield. If you want to lock your money up for three years and getting nothing per month, but at the end of three years you get your basis back plus you make 10.28% per year for three years, that’s what I call a solid double in baseball terminology.We're talking about trying to decrease cow farts when in all sincerity, cows do produce some methane gas. Click To Tweet
What interest rate do you feel comfortable with? First of all, there’s a risk in everything. There’s a risk in your phantom FDIC insurance. It’s fake insurance. It’s not real. Beware of the annuities. When I say the word phantom, I think of the phantom money, because I heard this guy, one of my mentors, was beaten up on some of the annuities not long ago. When I heard him it was seven, eight years ago, he got phantom money. On the annuity, you got to watch the phantom bonus money. It depends on what annuity companies you’re looking at. Some of these annuity companies, some of these annuities, the bonus is fake. It’s not real. It’s like CNN. It’s fake. It’s made up. It’s a marketing gimmick. There are only a handful of annuities that I would show somebody less than three, so be careful. The risk on this secured business loan paying 8% to 9% annual returns with monthly interest payments. They’re offered only to accredited investors. Each lender holds a pari passu first position security interest in the project loan documents. A UCC-1 lien is filed.
A UCC-1 lien is a perfected lien. It’s created when the lender files a UCC financing statement with the appropriate authority, which is usually the secretary of state. This statement specifies the collateral used to secure the loan and gives the lender precedence in the collection process if the borrower defaults. Unperfected liens leave lenders open to possible claims against the collateral by other creditors. The project loan will be secured by liens against the real and personal property of the sponsor. For instance, $100,000 loan to this company will pay you $8,000 a year in simple interest for one year or the compounding 80 to 99. You lock $100,000 up for three years. At the end of three years, you will get your $100,000 back plus $30,864. Again, show me by another strategy where you can mark down to the penny what you’re going to receive. You can’t do that in the stock market. You can’t do that in these fixed indexed annuities. You can’t do it. What are you looking for? Can you live with an 8%, 9% rate of return? Can you live with that?
Seeing all this is done, our company does exactly what the big guys do, just only on a much smaller scale. I spoke to a landman. We were being solicited by all companies right now, my family is because we own 401 acres in Ethel, Louisiana. In case you don’t know, there are a lot of activities going on right now in Pointe Coupee Parish, East and West Feliciana Parish and in Wilkinson in the mid-counties in Mississippi. There’s supposedly nine billion barrels of oil in what they call the Tuscaloosa Marine Shale. Also these companies, they’re talking about the Austin chalk formation. A lot of good things are going on in East and West Feliciana Parish. I think it’s a good sign. There’s an oil services company that is getting ready to lease some land around Clinton to put some of their guides and travel trailers. That’s a good sign whenever that starts happening. I was telling you that because I’m ready to start negotiating with this company. The three main companies right now are EOG, Marathon Oil and ConocoPhillips. In fact, some things are made public on some leases that were signed Track Number 45077 in East Feliciana Parish, which is a little bit over 2,000 acres. A company called Keela Exploration put a bid in it for $520 an acre and 22.5% royalties. ConocoPhillips came to the table with $910 an acre with 25% royalty.
Where is ConocoPhillips getting the money to lease this land, to offer this landowner this kind of money? ConocoPhillips is a publicly traded company. I follow ConocoPhillips because I know they are around. They have a bunch of lands leased by our family’s property in Ethel, Louisiana. Britton is the son of Lionel Kleinpeter, the running back here at Catholic High years ago, played for ULL. Britton and I used to go hunt in my grandfather’s property. As you get through Baton Rouge, you’re going north and you get through Baker, Zach. When you get to Slaughter, Ethel, Wilson, then Norwood. It’s absolutely beautiful up there. I love spending time up there. There are a lot of things going on up there. Where did ConocoPhillips get the money to lease this land or put a bid in? It’s from their stockholders. Their shareholders. They’re a publicly traded company. The company I work for, I’m a salaried employee for them. That’s how I make my money. Instead of me being in Dallas, I’m down here in Baton Rouge. I have a law office off of Siegen Lane. Where do we get the money to go to lease the land? We get lenders to lend us money, $50,000 to $250,000, $500,000, $1 million from individuals, private equity. It’s a private equity deal.
Once that land is leased, there is a separate raise for the oil well side. Once you invest money in the oil wells, you potentially could deduct up to 100% of the money you invest the next year when you do your taxes. It’s a separate investment. The return on the oil wells, number one, are we going to hit oil? Number two, the price of oil per barrel. Number three, how many barrels are being pumped per day? Right now oil is around $56 a barrel. We like it about $65, $70.Publicly traded companies, ConocoPhillips, Marathon, EOG, they leased a bunch of lands, thousands of acres in East and West Feliciana Parishes, Pointe Coupee Parish, some Saint Helena, some Northern East Baton Rouge Parish, Wilkinson in the mid-counties around Centreville and Woodville, Liberty, Mississippi.
Where are they getting the money to lease? They’re publicly traded companies. We are a small company. We look for private lenders to lend us money to go lease. We pay them 8%, 9%, possibly a 10.28% rate of return. Once the lease is locked up, then we go drill for oil and that’s a separate raise. We raise the money for that. Again, a little bit riskier there when you’re sticking a drill bit in the ground 5,000 feet deep. These big companies do the same thing. We’re on a much smaller scale. You got to decide what is a good comfortable rate of return for you. If you enjoy getting ripped off by the banks, paying you a 1.5% interest on your CD, that’s a joke. They say it’s FDIC insured. I know too much about that to believe that. I’d rather take a little bit more risk with a private company who has a stellar track record and go do this. In fact, there are clients here in Baton Rouge that have flown out to the company’s headquarters in Irving, Texas to go meet and see the headquarters. They encourage people to do that. It’s about getting educated and knowing what else is out there other than what Wall Street wants you to know about. The fix is in.
We all have the same amount of time in a day. I choose not to worry about my money in the stock market. I feel like the stock market is for insiders. The kind of money I want to make anyway is for insiders. I don’t have any insiders in Wall Street. Even though I do have a college roommate who is the right-hand man for T. Boone Pickens running his company, GE Capital. That’s more energy. Everybody knows who T. Boone Pickens is. A college roommate of mine is running the show for him. I do bounce things off of him. He does know exactly what I do. He knows that. It’s nice to have that connection sometimes. They do a lot of energy. We’re a small oil and gas company. Most of our wells are on the Permian Basin. We do have some in East Texas, Cherokee County, but we’re mostly in the Permian Basin. Again, when you drill for oil, there are a couple of things you need to know. A couple of things are based. A couple of things determine your checks every month. Number one, are you going to hit oil? Number two, what’s the price of oil per barrel? Number three, how many barrels are being pumped per day, BOPD, barrels of oil per day?
If you are more comfortable getting a fixed rate of return, a solid, consistent 8%, 8.5% or 9% rate of return, are you comfortable with that as being a lender? For the people who bought into ConocoPhillips, that money changes every day. You buy 100 shares of ConocoPhillips. All prices go down. They’re going to go down. You can get access to the website and get educated. What are you doing with your money? Are you tired? Do you know about other things out there than what Wall Street wants you to know about stocks, bonds, CDs, annuities, REITs and mutual funds? There are other ways for your money to make money. If someone’s going to encourage you and show you a place to put your money, they should have some of their own money as well.
For me, I don’t want the government dictating what I’m going to have to owe them down the road, so I choose to pay the taxes now. Where I put my money every month is very similar to a Roth IRA. In case you didn’t know, Senator Roth was a US senator from Delaware. He had an ego because he went to the current tax code and pulled out a couple of parts to make the Roth IRA. I’m going to where he went to make the Roth IRA by passing the Roth and went to the original part to make the Roth IRA.
Most people don’t know you’re going to pay taxes in Social Security. That’s part of my passion because my parents, me and my sister, we all got absolutely hammered and screwed. The government loves people like Hollis and June Day. Hollis and June Day were textbook blue-collar workers that were forced to pay into Social Security and Medicare their whole lives. My mother died at 54 years old of ovarian cancer. You have to be disabled two years before you start getting disability income or at least that’s what it was back in ’06, ’05. My mother died four months shy of being disabled for two years. My mother, who was a registered nurse, put into Social Security, Medicare, her whole life. She was forced by our corrupt elite, pompous politicians. She was forced to put in a Social Security, Medicare her whole life. She died. Where’s the money? Where did it go? Do you realize that? Do you have any people like my mom who had passed away, and my dad, they put into the system their whole life. They never got a dime. It wasn’t passed down to the heirs.
How’s the system still broke when you have a ton of people like my mother and father? My dad died at 64. It’s very unexpectedly of a pulmonary embolism. My dad never got a penny of his Social Security money, just like my mom who never got a penny. I can show someone how to totally avoid paying taxes on Social Security. If you’re at least three years away from retirement and you pay taxes on your Social Security when you do retire and you start drawing Social Security, it’s because you want to or either you don’t know how to avoid it because you can avoid it. You just got to know and it’s in the tax code. The IRS and the Social Security Administration, they’re not going to advertise about this because they want people like my mom and dad to die. I believe that. The government is counting on enough people like my mom and dad to die before they pull any money out. If you sit down for a couple minutes and think about the way the Social Security structured is theft. The government is terrible at managing money, but yet they’re going to say, “Hollis and June, we don’t think you’re good at managing your money, so you got to give us a little bit and we’re going to pay you a little bit every month when you retire.” Screw that. I don’t want to do that. We should have a choice, but we don’t.
The government, they like for people like my mom and dad to die before they get Social Security because when my mother passed away, the only thing my dad got was a $255 check to help pay for burial expenses. On my dad’s time for Social Security, six months before he died, he didn’t get any. They never got their money. At least if you have 401(k) or something, when you buy land, you at least pass it down to your heirs. My sister and I got nothing. Where’s the money? We’re one example. There are thousands and thousands of examples like this. You would think Social Security has a surplus for people like this. I also think there’s a big amount of people, who are receiving benefits who never put money in. Let me show you how to avoid paying taxes in Social Security. You can go to SageMoneyRadio.com. You can send me an email from there. God bless you. God bless the USA.