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The 5 Golden Rules of Investing and the 2 Golden Rules of Advanced Estate Planning

By: Craig Kirsner, MBA, published author and President of Stuart Estate Planning Wealth Advisors

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The 5 Golden Rules of Investing and the 2 Golden Rules of Advanced Estate Planning by Craig Kirsner, MBA, published author and President of Stuart Estate Planning Wealth Advisors

We’ve seen this movie before… sky-high stock prices, sky-high real estate prices, and the Fed raising interest rates. And you saw how those times ended in 1992 and 2001 and 2009.

At this point my clients are looking to preserve and protect their wealth, so these are the five golden rules of investing and 2 golden rules of advanced estate planning I’ve learned over the past 25 years. I focus on working with retirees with over $1,000,000 in net worth, however these rules apply to everyone:

Rule #1: Diversification is the most important part of a retirement plan. The central measure of diversification is to never have more than 5% of your portfolio in any one position.

This is crucial because you never know if one piece of bad news, or some new technology could come along that could seriously disrupt one company’s performance and stock price. Last year famous financial giant Equifax had a computer patch update issue and dropped 35% in just a few days!

Rule #2: There are 11 sectors in the S&P 500, so you should never have more than 20% of your portfolio in any one sector.
This was a big problem in the late 90’s when tech stocks did amazing and without rediversifying your portfolio when the tech bubble burst in the early 2000s anyone with too much exposure to tech really took a beating.
We’re seeing that again now because the FAANG stocks, Facebook, Amazon, Apple, Netflix and Google(Alphabet) have been the best performing and most widely held stocks around! In total for 2018, those six stocks including Microsoft make up 98% of S&P 500 returns and 105% of Nasdaq 100 returns!
The alarming part of this is that Amazon, Netflix and Microsoft together this year alone are responsible for 71% of S&P 500 returns and for 78% of Nasdaq 100 returns!1

If you own any highly valued stocks at this point and don’t want to have as much risk, some ways to protect yourself include:
1) Sell some of your position to lock in profits on the way up
2) Put in a “limit sell” order with your broker so that if it goes up to a certain price it will sell some or all of the stock for you automatically
3) Put in a “stop market sell order” with your broker so that if the stock goes down to a certain price it will sell some or all of that stock for you automatically
4) Buy some “put” options with your broker so if that stock goes down the value of that “put” position should go up to offset your stock losses

The 11 sectors of the S&P 500 include (Remember to never have more than 20% exposure to any one sector):

• Energy
• Materials
• Industrials
• Consumer Discretionary
• Consumer Staples
• Health Care
• Financials
• Information Technology
• Telecommunication Services
• Utilities
• Real Estate2

Rule #3: Positions that pay a dividend are generally preferable to those that don’t. This means your money is working for you and paying you money along the way. On the other hand, what’s important to a retiree is to make sure they’re not taking too much risk at this time as most stocks have a tremendous amount of risk to your principal. Keep in mind that while AT&T pays a 6.1% non-guaranteed dividend currently, in 2008 and 2009 AT&T lost 46% of its principal!
That’s why I prefer using ETF’s and Institutional Mutual Funds to achieve great diversification with low fees.

Rule #4: Own at least 40% fixed income at all times including real estate investments. Most retirees don’t want to have as much volatility in their retirement plan and this helps them achieve that goal. Also keep in mind that we are 9 years into this bull market in real estate, so be careful of the risk present in the real estate market because as you’re well aware markets don’t go up forever.

Rule #5: Keep 5% of your assets in cash because challenges happen in life! Most of my clients always have $50,000 or $75,000 of cash in the bank. It makes sense to have at least 6 months of expenses in your savings account.

In addition to wanting to preserve and protect their wealth, my clients want to leave a legacy to their children and grandchildren after their gone. So here are 2 estate planning golden rules:

Estate Planning Golden Rule #1: Use a dynasty trust to protect the assets you leave to your family. I’m not an attorney, but the attorneys we work with set up revocable living trusts with dynasty provisions. This means that after you and your spouse are gone, a bulletproof trust is set up for each of your children that’s designed to be 100% divorce protected, 100% creditor protected, and 100% lawsuit protected. These trusts are intended to protect the assets you leave to your children after you’re gone.

What’s also imperative to my clients is that these trusts keep their assets in their family bloodline. After your child passes away, the funds in the trust don’t go to that child’s spouse (at that point they are no longer the “in-law” but become the “out-law”), those trust assets only go down to your grandchildren in the same bulletproof trusts for their benefit. This gives your grandchildren divorce protection, creditor and lawsuit protection as well.

Estate Planning Golden Rule #2: Fund that dynasty’s revocable trust! After you set your trust up, you must fund it by either retitling your non-IRA assets into those trusts or changing the beneficiary of your assets so that your spouse is the primary beneficiary (if applicable) and then your trust is named as the contingent beneficiary.

If you name your children as contingent beneficiaries, your assets won’t go into those protected trusts, they will go directly in your child’s name with no asset protection or bloodline protection.

What’s even worse, if you named your ex-wife as beneficiary and never changed that when you die she’ll receive those funds even if your trust dictates otherwise. Beneficiary designations trump trust directions.

It’s imperative to find an attorney that specializes in advanced estate planning. They might be expensive, but as my dad always says with an estate plan you can buy expensive and cry once or buy cheap and cry forever! Isn’t that often true with many things in life?

Craig Kirsner MBA, is a nationally-recognized Author, Speaker and Fiduciary Retirement Planner, who is the Forbes #179 Top Financial Advisor in the country for 2021, whom you may have seen on Forbes, Kiplinger, Fidelity.com, Nasdaq.com, US News & World Report, Wealth365, MSN Money, ABC, Bankrate.com, Yahoo Finance, Newsmax, and others.

Craig is the author of Retire With Confidence: Preserve and Protect Your Wealth And Leave A Legacy and the creator of the Preserve and Protect Retirement System.

He has undergraduate degrees in finance and risk management from the University of Florida, as well as an MBA in finance from the Chapman School of Business at Florida International University. He has passed the Series 63 and 65 securities exams and has been a licensed life insurance agent for 28 years.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Stuart Estate Planning Wealth Advisors are not affiliated companies. Stuart Estate Planning Wealth Advisors is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. _______
Craig Kirsner is a retirement planner and an Investment Adviser Representative. Craig’s book, Retire With Confidence: Preserve and Protect Your Wealth and Leave A Legacy will be available on Amazon shortly. He has been seen on Kiplinger, Fidelity.com, Yahoo Finance, MSN Money, CBS, ABC, FOX and NBC He holds undergraduate degrees in finance and risk management from the University of Florida, as well as an MBA in finance from the Chapman School of Business at Florida International University. He has passed the Series 63 and 65 securities exams and has been a licensed life insurance and fixed annuity agent for 28 years

https://www.cnbc.com/2018/07/10/amazon-netflix-and-microsoft-hold-most-of-the-markets-gain-in-2018.html
2. https://www.investopedia.com/terms/s/sector-breakdown.asp

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