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5 of 5 people found the following review helpful:
4.0 out of 5 stars
An Examination of How We Fail at Wealth, and How to Suceed., April 18, 2010
This review is from: Ivy League Wealth Secrets: That the Master Planners don't want you to know! (Paperback)
Ken Soltis' book on wealth secrets comes down to one key point. It is all about the opportunity cost of your actions. If you buy a home with cash, for example, you save on interest payments (a portion of which are tax deductible) but you forego the opportunity to invest that money elsewhere. If you buy cigarettes, or a new car, the same logic applies. The concept of opportunity cost is nothing new. Economists have discussed this idea on both a macro and micro level for years, but few have used this sort of analysis in personal finance to the degree that Soltis has. His (partly self serving) advice, get a financial coach so that you can coordinate your wealth building attempts.
There is much to praise in this book. Soltis rightly distinguishes between saving and investing. The former protects principal and provides a cushion in the event that you should lose your job or an emergency should arise immediate cash. I might add that sometimes this money can be used to fund an opportunity as well, but if used in that fashion, it should be replenished as quickly as possible. Investments on the other hand involve significant risks but offer the opportunity for future growth and savings. You need both. You also need to coordinate your savings, investment, insurance, and estate planning. To his credit, Soltis does not hesistate to also discuss the various ways you can sabotage your financial future by noting the effect government taxes and corporate interest rates and a consumer driven economy have on destroying your wealth.
There were two big surprises for me while reading this book. Soltis goes against much of the current advice for consumers in urging that they take longer (30 year) mortgages and that they buy permenant life insurance. I read and re read these sections carefully as they go against most of the advice I have read and my own gut instincts on the matter. In general, Soltis supports longer mortgages for their cash flow options and because they defer payments to the future with dollars that will generally be worth less than they are at present. Home equity loans also offer an alternative to many forms of consumer credit and may also be tax deductible. On the other hand, Soltis supports permanent life insurance because it provides a type of guarenteed return that can better protect retirement income than the more commonly prescribed suggestion that you "buy term and invest the difference." After due consideration, I have come to the conclusion that he is partially right with regard to home mortgages, and mostly wrong about permanent life insurance.
Mortgage interest is, as Soltis notes, tax deductible. It is also usually lower than interest rates on other forms of credit, but does this add up to the argument that you should extend your mortgage for as long as possible? Not necessarily. First of all, Soltis fails to note that mortgage interest is not, in fact fully deductible. If you were not itemizing deductions, you would take a standard deduction, so actually your mortgage interest is only deductible above the standard deduction you could have already claimed. Beyond that, however, Soltis really only considers the case in which someone puts down 20% on a house. He notes you can buy a house for less money down, but doing so requires (in most cases) that you purchase mortgage insurance. He correctly notes the cost of this insurance is not tax deductible. The problem is, a large number of people do in fact purchase with significantly less than 20% down; FHA loans which require only 3.5% are common. But when you factor in the cost of the PMI (effectively an increase in your interest rate) and the relative lack of tax advantage (your PMI is not deductable and the full mortgage interest never was) suddenly all the charts Soltis offers to prove that, from a cash flow perspective, you are better off not paying extra on your mortgage, seem less convincing. When you also consider the fact that many banks will not offer a home equity loan with less than 20% equity, you quickly realize that, at least for a time, making extra payments may be beneficial. In general then, I agree that, with 20% equity in your home, you can afford to extend terms on your mortgage, especially if you can find an alternative use for your money. Keep in mind, however, that 15 year mortgage rates are generally at a lower interest rate than 30 year rates (a fact Soltis ignores in his charts) and you will want to consider that opportunity cost as well when you make your decision. And if you are paying PMI every month, pay extra to get rid of that expense as soon as possible.
On the question of permanent life insurance, Soltis makes the case that you can recover your principal and build cash value if you buy a whole life product and that your term life premiums will likely be wasted. This assessment is correct, but the cost of whole life is so much higher than term that I think you would be better served, if you are disciplined enough, to simply purchase the term and invest the difference in other places. The problem with my advice, which is actually the norm in the financial industry, is that many people simply are not disciplined enough. But that aside, Soltis is a little misleading in how he presents the relative advantages of whole life products. He notes, for example, that they pay "dividends." I think many readers assume these dividends are similar to what one gets quarterly from an equity holding. But that is not the case. The dividend in life insurance is a return of unused premium. Soltis rightly notes that a huge tax refund is not a good thing (it means you effectively gave the government an interest free loan for a year) but a life insurance dividend is essentially the same thing. You have overpaid your premium for a year and the insurance company graciously returns it to you, no interest included. On top of that, the cash value you build in a fund like this really is not all that accessible to you. You can "borrow" against the policy, but then you can also borrow against tax derred or advantaged retirement plans too, and those need not include quite as many fees as permanent insurance. The bottom line on whole life products is that, like a mortgage, they do provide forced savings for people who won't do it otherwise, and they are protected in the event of a lawsuit, but anyone disciplined enough to do the sort of cost benefit analysis that forms the basis of this book should also be able to do better than a whole life product. If after reading the arguments of this book, you still want some permanent life product, consider a compromise position. You could purchase a whole life product for retirement, but still have a term policy for the life of your mortgage, kids, etc. That way you have some investment product and still have full coverage at the time when your obligations are highest and assets relatively low.
Although I disagree to some extent with these two aspects of the book, on the whole I found the opportunity cost analysis of Soltis generally sound. He notes, for example, that you should make all the contributions you need to get your company match for your 401(k) plan (many advisors would say the same) but that you should be hesitant about investing more. Yes, you gain tax deferral, but you should also at least consider a) retiring consumer debt, b) funding a Roth account and c) investing or saving for shorter term goals. Indeed, throughout the book he offers this sort of analysis on just about every financial decision we make, from writing a will to packing a lunch at work. I find this approach to financial planning so powerful that even where I disagree with the specific recommendations of the author, I find myself in general agreement with his premise.
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1 of 1 people found the following review helpful:
5.0 out of 5 stars
Not a Get Rich Quick Book, April 27, 2010
This review is from: Ivy League Wealth Secrets: That the Master Planners don't want you to know! (Paperback)
Reviewed by Melissa Koltes for RebeccasReads (4/10)
Do not expect this book to tell you how to buy a house with no money down, create turnkey websites that will generate thousands of dollars or any of the other late night infomercial schpeels that you see every day! This book is about knowledge and how to use that knowledge to make sure that when you are finally ready to retire and leave the rat race, you will have a means to support yourself.
We have all heard that we need to save, that we need to contribute to our 401k, and that we need to reduce our credit card debts. But hearing it and doing it are not the same thing and unless someone can explain how we can pay Paul without robbing Peter, most people can't do it.
This is the explanation you need! The author spends the time to not only explain how to go about saving, he also explains how you are losing money every single month. By simply saving $20 a month, the long term gains are so significant that it actually shocked me. Everything from how taxes impact you to how paying off a credit card can benefit you.
I have always heard that you need to ensure you are diversifying but to the everyday person that means very little. Sure there is a high level understanding of what that means and what it entails but no one wants to break it down to the nitty gritty...until now. How you diversify (or should diversify) is spelled out in plain English with no jargon to get in the way. The author not only tells you how it should be done but why and you learn that these ebbs and flows that the market does are normal and should be expected.
This is a book that everyone should read and I am going to make my teenage children read it as well. It has information that I hope will open their eyes to their own financial independence!
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1 of 1 people found the following review helpful:
5.0 out of 5 stars
Combating the drains of wealth such as taxes, lawsuits, and more, April 9, 2010
This review is from: Ivy League Wealth Secrets: That the Master Planners don't want you to know! (Paperback)
Buy low, sell high is supposedly the secret to business, but there's far more to it than that. "Ivy League Wealth Secrets" is a collection of business tips and tricks from Keith R. Soltis, stating the ideas that all of the most successful people truly use to make the most of their money and keep it, combating the drains of wealth such as taxes, lawsuits, and more. "Ivy League Wealth Secrets" has many intriguing thoughts and ideas and well worth considering, highly recommended.
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