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Best Investment Accounts (Where to Accumulate Cash) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hey guys, this is Toby Mathis,
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one of the founders at
Andrews Business Advisors.
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And a question we get quite often is,
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"What accounts should
I put my money into?"
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Sounds very generic,
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but let me give you kind of your options.
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So first off in the world of
banking there's your typical
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checking account where you're
not getting paid anything.
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There's a savings account
where you might get
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these days less than
a quarter of a percent
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of interest on a yearly basis.
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And then we switch over
and you have things
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like certificates of deposit, CDs,
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where they pay you a fixed interest rate,
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but you can't touch the money.
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And then we switch over to
kind of the brokerage world,
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where we have money
market, where they have,
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or whatever the money
market rate of return.
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Again, it's gonna be better
than a savings account,
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but it's still gonna be fairly low.
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And then you have other types
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of investments you can
put your money into,
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like brokerages where you're putting it
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into an exchange traded fund.
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You buy your mutual funds,
which I would never suggest,
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'cause they have exchange traded funds
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which are a lot less and
more bang for your buck
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and more transparent.
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But there's lots of
different kind of accounts.
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And so I'm just gonna compare
and contrast two of those.
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Number one, you have
your traditional banking
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and then you also have brokerage.
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And you're gonna find
that the line gets blurred
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between those quite often.
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Then I'm also gonna talk about
doing things individually
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versus doing things as a business.
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And there is gonna be
quite a bit of a difference
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between those two treatments
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from an asset protection standpoint,
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from a tax standpoint, and
from a legacy standpoint.
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I'm just gonna touch on all
these things real briefly.
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And then I'll go over into
some specific companies
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that I like to work with.
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So number one, a lot of us are really used
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to having a checking account.
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We have our ATM card,
sometimes we write checks.
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A lot of us don't write checks anymore.
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You're gonna do electronically.
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You're gonna write your electronic checks
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and things like that.
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And that's typical for an individual.
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And I wouldn't say don't do that.
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Also typical for an individuals
is if they have extra cash,
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they'll probably put it
in a savings account.
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So they're earning something on it.
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Now keep in mind that
inflation runs somewhere
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between two and a half and 3% a year.
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So if your money is sitting
in a savings account,
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every day it's sitting there,
it's actually losing value.
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That money is becoming
less and less valuable,
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just because the cost of
items are going up faster
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than that money is growing.
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So in 20 years you'd
be pretty disappointed
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if you kept your money
in a checking account
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or a savings account.
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So as an individual you may wanna look
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at doing money markets or
investing in the broader markets.
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And there are these things called ETFs.
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So first off you have
multiple stock exchanges,
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the big ones kind of like
the Dow and the NASDAQ
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and some of these, those
are bigger exchanges,
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but there's about, I think
it's somewhere around 5,000,
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if not more actual exchanges.
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And there's tens of thousands of stocks
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that you could invest in.
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And I narrow it down and say,
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"Look, let's look at
certain sectors like staples
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and utilities and things like that."
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And maybe we could just
buy a bucket of stocks,
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different stocks in those,
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and that's an ETF where you're
buying a broader market.
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Some people would buy the Q.
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Some people would buy the XOY.
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all these things have different
names where you're buying
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different sectors in the market.
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Or you could just buy
specific stocks that you like,
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companies that have a
long history of success.
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And I use something called
Dividend Aristocrats
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and Dividend Kings to make
a preliminary decision
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because it narrows down
the entire marketplace.
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Let's say there's over 3,000
stocks on the stock exchange,
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the New York Stock Exchange or the Dow,
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and you're looking at it and
you narrow it down to something
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around 50 companies that
you're gonna focus on.
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Those 50 companies have been paying
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increasing dividend amounts,
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which is the amount of
profit it's paying out
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to the shareholders that
own it for the better part
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of 25 or 50 years.
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Kings are 50 years plus,
Aristocrats are 25 years plus.
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So all Kings are Aristocrats,
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but not all Aristocrats are Kings.
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And I think there's about
25 companies that qualify
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as a King right now, Johnson & Johnson,
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Procter & Gamble, things like that.
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And then you have IBM just hit it.
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And then you have your Aristocrats,
which are the Walmarts,
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things like that.
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You actually, there's
a whole list of them.
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We do something called Infinity Investing.
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If you feel like it, we
do a free class on that.
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And we have all the
companies in there too.
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So by all means, feel
free to check that out.
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But that's where you're
actually putting your money
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into something that's
gonna pay you to own it.
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And the reason that I like
those Kings and Aristocrats is,
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they average, the dividends
pretty much keep up
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with inflation.
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They're between 2% and 3% on average.
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And there's some that are
higher and some that are lower.
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So for example, you may be
looking at a company Altria,
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I was just looking at, and it was
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about a 3.8% dividend rate.
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It's actually paying out
a pretty hefty dividend.
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So it's beating out inflation.
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So if all you did was to
buy some of these companies
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that have dividend rates over 3%,
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you'd be keeping up with inflation.
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It's just, you're in the stock market.
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And if you wanted to liquidate,
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there's two things that you
gotta be concerned about,
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is liquidating when
you're at a loss position,
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which shouldn't happen.
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But let's just say, if the market crashed,
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then you lose money when you liquidate it
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or you're liquidating it
as it's gone up in value.
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And you're gonna end
up paying a little bit
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of capital gains on it.
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When you receive the dividends,
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it's treated as long-term
capital gain, so it is income.
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So it does pay a little bit of tax,
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but it's greatly reduced.
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Long-term capital gains are
taxed at 0%, 15% or 20%,
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depending on how much money you make,
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you adjust your gross income.
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So if you're somebody who's modest,
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it's probably gonna be 0%.
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You're not gonna pay any
tax on that, which is nice,
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but that just continues
to grow in your account.
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When you sell a stock, it
usually takes three days
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to get the cash, it's called clearing
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and then the cash is
available in your account.
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And then you can spend
it out of your account,
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just like you would a checking account.
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So it's sometimes lost
on me when I see people
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with large amounts of money
sitting in a checking account,
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and I say, "Well, I mean,
worst case scenario you
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should move that into something
that's earning interest."
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And so that you'd go from,
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"Hey, at least have a savings account to,
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it's probably better to have
a money market account."
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And you could get these things for free.
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Robinhood is exceedingly
simple to open up,
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it's app based so, but
you could do it online
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through a regular browser as well,
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but it's easy to utilize.
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Schwab and TD Ameritrade,
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which Schwab just bought TD Ameritrade.
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They're exceedingly easy to use.
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You can trade for free.
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You can get check
writing, you can get ATMs,
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you can go E-Trade.
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You could go, if you're
an advanced trader,
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then on the TD Ameritrade
platform there's thinkorswim.
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Like there's basically, at
this point there's been a race
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to the bottom as far as price.
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And if you're paying
money to trade equities,
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you're probably in the wrong platform.
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You should go to something where it's free
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and Schwab, TD Ameritrade are easy.
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I have accounts with,
I've had it with E-Trade,
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but I have Schwab, TD
Ameritrade, Robinhood.
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I still have a Robinhood account.
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I have a Fidelity account.
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They're all pretty much
equivalent as far as ease of use,
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but then your money is sitting there
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and it's very easy to access.
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Now that takes us to the last leg of this,
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which is, "How should I own it?"
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If I own it in my
individual name, it's mine.
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So if I get into a car accident,
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or if one of my kids
gets into a car accident,
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that money is available to
anybody who's coming after me.
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If I have a business and
I have the money in there,
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anything I do in my business,
they could get to that money.
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So I tend to put these types of funds
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in their own little
something called an LLC.
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It's like a virtual safe
where you put the money
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into something where they can't touch it.
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And when I say they it's lawyers, snoops,
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anybody trying to get things,
you fill in the blank,
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somebody trying to take
something from you,
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they can't see it,
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and they can't take it even if they could.
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And there's jurisdictions
where it's completely
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anonymous ownership, and I'm not talking
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about going to the Cook Islands
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or any of these crazy things domestically.
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You can just go to a state
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that doesn't report the information.
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And there's a couple that are easy.
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Wyoming and Nevada are the probably best.
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Wyoming being my personal
favorite right now, inexpensive.
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And you're able to put
things inside of a box.
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Now I wouldn't do that if I had $25,000.
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I would do that if I had over a 100,000
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and then it's kind of a
personal choice in between there
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as to what your risk to exposure is,
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and whether you any concerns.
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But it's not a bad idea, you know?
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So I might have a checking
account personally
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that I keep X number of dollars in.
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I may have a savings account
personally that I keep Y.
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And then when I'm accumulating cash,
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I push it off into an LLC and that's Z.
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And that's where I'm keeping
my cash where nobody can touch.
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And the easiest way to think
of this as if somebody was
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to go to your house.
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If I had cash just sitting
out right in the front window,
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where they could look in
and see a big pile of cash,
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it's probably not the smartest thing.
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That's gonna tempt somebody
to borrow your cash for you.
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If the door was open and the
cash was sitting right there
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inside the open door, you're
really begging people.
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And that's what you're doing when it's
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in your personal name and
everything's just right there.
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If you're running a business
as a sole proprietor,
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I mean, that's insanity.
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'Cause they could just
follow you around the rest
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of your life and they take your cash.
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Every time you try to get it,
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they're gonna garnish accounts.
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They're gonna garnish you.
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So one of the easiest things
to do is to close the door,
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close the blind so they can't see it.
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That's number one is making
sure it's not just sitting there
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in your name, maybe putting it
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into a different account, that's great.
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Moving it into another
entity, that's great.
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But the best thing is
to put it into a safe,
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and most of us would
have a safe in our house
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where we might keep a
small amount of cash,
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but that safe is still in your house.
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And if they break into your house,
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they could potentially take your safe.
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So we tend to look at
these things and say,
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"Hey, rather than just
like a safety deposit box
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and having actual cash,
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'cause it's losing value sitting
in that safety deposit box,
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we use what's basically a
virtual safe, a virtual vault.
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And we put the money into an
area that nobody can touch
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and I can take the money
in and out all I want,
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it doesn't even have to file a tax return
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if I don't want to.
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There's ways to set these things up
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where they're completely transparent,
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but it takes the money out of your name.
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Now, lastly, there's tax advantages
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and I'm just gonna touch on too.
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Number one, if you're gonna
put money aside in savings,
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don't do it in a checking account.
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Don't do it in a savings account,
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open up a brokerage account,
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but you might wanna open up
a Roth IRA brokerage account.
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If it's gonna be $5,000
a year, $6,000 a year,
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that's a tremendous tool.
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If you need the cash, you can take it out.
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But if you don't, it grows tax free.
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You'll never pay tax on that
money when you take it out.
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You just let it sit in there.
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And then when it comes to retirement time,
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you never have to pay any tax on it.
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Number two is if you put it
into an account like an LLC,
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there's a possibility of,
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depending on how much money is being made
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as using a strategy of
having a management entity,
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changing that LLC into a partnership.
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And now we have access to
some advanced tax strategies
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where we can save and we
can generate tax deductions
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on average of about 20 to $25,000 a year.
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So if you are making off
of your trading account,
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somewhere in the neighborhood
of 10 to 20 to on up,
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this is something you
definitely wanna consider,
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because we can take money
that might be taxable
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to you and shelter that
money for the future.
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There's ways to get money out
in a tax advantage manner.
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If you set this up as a business,
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and that's a whole nother
topic for another day.
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But you get the idea of
how we take something
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and how we hold different
investment accounts.
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(gentle music)
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