Basic Asset Protection - Low Seven Figures. Short GME Note as Well.

Level 2 - Value Investor

Welcome Avatar! After this latest run up, we’re noticing a lot of commenters are in the low-seven figures now. Before people jump in and say “$10M is not enough to retire”, we’re going to remind everyone the age band is 20s/30s for the majority. Seven figures in your 30s suggests you’ll get to $10M+ through compounding alone so it is certainly a real achievement.

For anyone who has “made it” you know that every single level up results in more scams/opportunistic people showing up. If people know you have money it can range from “can i get a $100K a year job i know its nothing to you” or it could be “let me manage your money for a 2% fee” - despite them underperforming your own investments.

Since this side of the web attracts a ton of highly intense people we’ll also include some small things you can do to be prepared in an emergency situation.

Part 1: Home/Condo

While we haven’t touched housing for about 2 years now, we’re never going to say a primary residence is a bad idea. *Only* if you will stay there for over a decade. If you’re sure that you want to live in Dallas, Texas for the next 10-20 years, it’ll be hard to lose money by buying a home there in a nice neighborhood. All you have to do is run the rent to own math and you’ll hit a cash flow positive point in 10-20 years.

Some Tricks: Generally speaking, you want to have some sort of loan on the property. Even if interest rates are high (like today), it’s good to have some sort of mini loan on the asset. If the home is worth $500,000 and you can easily buy it cash, then you can buy it for $450,000 cash and a $50,000 long-term mortgage.

The reasoning is? Lawsuits.

Over long time frames people *typically* trend in one direction: changing for the worse, envy and ungratefulness.

This means you have a high chance of being targeted. If someone wants to sue you, if they see the bank owns the property, you will get rid of a bunch of headaches. It’s a simple way to size you up. If records show you own it and there is no debt on the property people assume (rightfully so) that you are a millionaire.

Basic Living Trust: Assuming you are in the low 7-figure range and own a primary residence, place the asset into a living trust. Yes it is annoying to set up but it will benefit you long-term. If you have kids and plan on handing assets down to the next generation (or someone else) a trust is much more fool proof when compared to a Will.

A Trust is harder to challenge in court (when compare to a Will) and it still gives you flexibility to amend it while you’re alive.

Note: Irrevocable trusts are even safer in court, the problem is in the name “irrevocable”. We’re guessing that someone with “new money” wants flexibility to amend it. If you’re 100% sure about how you want the home to be transferred then go ahead and use an irrevocable trust. Just be warned, it can’t be edited.

In short, you want to put the primary asset into a living trust and you want to have some sort of loan against it. If you can pay cash that’s great but still better to have a bank name shown.

Part 2: Other Extreme - Escape

On the other extreme, the worst case scenario, you should have 2-3% of net worth into “escape assets”.

While we’re not big on material items at all, there is value in a lot of the collectable items. If things get really ugly, you can get out of the city/state/country with a carry on luggage.

Basic Luxury Watch: Names like Rolex work, but if you have an interest in another brand that’s fine. You will want one maybe two of the most liquid style. If you have a $10,000 Submariner that you practically never use, you can put it on your wrist and jump on an international flight. Doesn’t count as part of the declared asset rules. No one will ask and if someone actually bothers you, just say its fake.

Basic Luxury Bag for Women: This is becoming a real thing, while they won’t retain value as well as a well known luxury watch, a single bag or two will be easy to sell. If you have a spouse they can own a couple. If you’re single just go back to square one with the watch idea and get a second one.

Stamps: This is an extremely popular collectable and is extremely small. The last part is key. It won’t show up on any sort of metal detector so you can travel with stamps on a carry on without taking any space at all. Bigger items like Comics do work, but they take up a lot of space.

2-3% of Assets: If you’re worth $1 Million, having $20,000 to $30,000 in easily sellable physical items is reasonable. If you have a $10-15K watch and another $10-15K in rare stamps, you’ve taken no space and yet you’re transporting $20-30K in value. No one at TSA is going to open your bag for stamps and even if they did there is no way they’d know the value of said stamps.

Part 3: What is “De-Risking” (Everything After Tax)

De-risking gets thrown around a lot on the internet. The real concept of de-risking is based on how much you are making. It’s all relative.

If you are now worth $1-2 million but it’s because your business started making $500,000 a month, it makes no sense to “de-risk”. Your current stock/crypto exposure is fine. You’re going to have $500,000 in cash by the end of the month so that is going to completely de-risk your portfolio.

De-Risk Based on Percentages: If you are worth $2 million as an example and you earn $200,000 after taxes, this means your efforts are only going to increase your net worth by 10%. This is pretty small. You don’t have an ability to increase your quality of life significantly without going cash flow negative.

In this situation, you want to go to the first step (homes) because it will decimate your cash flow situation. If you spend $15K a month but can afford a house outright, it likely drops you into the $10K a month territory with haste.

Erase the home value as part of your net worth and you’ll be motivated overnight.

Here are some quick baseline numbers based on percent of net worth:

1. Cash flows <10% of Net Worth: You’re forced to de-risk into homes to increase your cash flows. Unless you live in an area with horrific rent vs. own math, it usually ends up this way. The other reason is if you absolutely hate the city you’re living in. In that case, you’d be de-risking into QQQ/VOO/Bonds. Boring stuff so please don’t get caught in this situation

2. Cash flows 10%+ to <25% of Net Worth: In this range, all you’re looking to do is reduce volatility. If your net worth is swinging 20% in a month it’s probably going to create a lot of stress in your life. We’ve already seen multiple people run up a large bag only to give back 20%+ due to leverage or other greed based decisions. Instead of going into full risk-off mode, you can just rebalance by moving some money from alts to BTC or BTC to QQQ or QQQ to VOO. It won’t take much to remove the volatility to a point where your cash flows are buying risk assets again

3. Cash Flows >25% of Net Worth: In this range, you are making enough to fight off any volatility. Maybe you want to move a little bit out of dangerous alts, small caps or leveraged positions. Beyond that you can pretty much do what you like since you have a 25% increase in net worth lined up for the year.

Part 4: Set up an Estate in Reverse

Once you’ve got your baseline set, you can then calculate various ways to reduce your tax burden. Here are some examples on an extremely small scale that no one will notice, yet, will return huge dividends.

Gift Out: If you have relatives you *trust* you can gift $18,000 per person. This person can then put assets into a trust, crypto account or brokerage account. Simply doesn’t matter. If this grows to $500,000 and the person passes away, this can then be sent to you. Guess what no taxes.

The current tax system is based on a step up basis. If you inherit $500,000 today and this was based on $300,000 worth of investments from 10 years ago, it doesn’t matter. Your cost basis is $500,000. If you click sell you don’t owe any taxes (vast majority of the time - per usual not financial advice see an accountant).

Estate Tax: As of today, the estate tax is $13.6M. This means you have quite a lot of runway. You can inherit life changing money with near zero in federal taxes. We’re not going to go into complicated set ups like international trusts or anonymous companies. For the majority these two items alone will protect you from outrageous amounts of taxes.

Example: Say you want to own 1,000 shares of QQQ but won’t be selling for at least 10-20 years. Better to have a relative own the $450,000 worth and you inherit the shares in 2040. As a gesture you can have them keep the dividends (you already get the idea). The value goes to $1.5M, you inherit it and ta da, no capital gains tax.

Example: Your parents want to retire in Florida. They own a house with an extremely low cost basis and don’t want to get capital gains taxes. Well you can both put your names on a mortgage for a 1-2 bedroom condo in Naples. The house is rented and when their time comes, you inherit both assets. While there is some cash flow organization here, you’re free and clear on capital gains for both the home and the condo.

Part 5: Plan for the Next Phase

At this point you should be close/near financial independence. After you are financially set you begin playing a completely different game vs. everyone else. You’re getting in on private deals, you are able to buy assets at discounts (long vesting periods) and you can entertain various ultra high risk positions.

While we’re primarily focused on highly liquid investments since we absolutely loathe trusting people with money, there are always illiquid options out there.

Growth Industries: As of this writing (June 3, 2024), it would be the following markets: 1) tech, 2) crypto, 3) fitness/diet, 4) skin care, 5) mental health, 6) pets, 7) mental health and 8) vanity/anti-aging as older childless men/women pay millions to try and stop the hands of time. If you’re involved in those markets they will be stable to growing over the foreseeable future (if something changes you’ll hear it here first as always).

The Pets Market Remains Stable!

If you’re not in one of these industries that’s also fine. You can build a focus around industries that will always be around (real estate and medical for example). The point is largely the same though. When you’re financially independent the game switches to making more concentrated investments/decisions since you’ve already diversified out your financial independent assets.

Conclusion and Put it Together

As you can see from these basic moves you can legally avoid a ton of taxes and headaches without uprooting your entire life and moving to a tax haven. During a crypto bull run tax havens become popular but more realistically, the vast majority do not need to utilize them.

When you are close to being set for life we *strongly* suggest de-risking immediately. Lady luck punishes the greedy and we’ve seen a boatload of examples where someone hits their first $1M and is sitting on $300K 6 months later. Each individual has a different number but the point should be clear. Close is good enough particularly when you still have an income stream.

In Order: 1) look at monthly expense reduction which typically requires a primary residence, 2) if this is not an option because your area is over-priced or you hate it, look to rebalance your portfolio to lower volatility stocks/bonds/computer coins, 3) buy some liquid luxury items to get rid of the fear of losing everything - trust us you’ll get this feeling as the numbers get bigger, 4) begin chopping off part of your cash flow into extremely long-term items. Inheriting money is better than a taxable retirement account because you get stepped up! and 5) if you made it financially (25x annual earnings in assets) chances are you have a significant skill to drive outsized returns.

Our main focus is on tech stocks/crypto but you can do it in your own way. Just don’t kid yourself about career advancement. Those days are done. You need to build equity and find a way to create asset/equity value, sell and make it repeatable.

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GameStop

We have no position in GameStop. That said, we’re rooting for Keith to pull off another mega return on the stock.

The reasoning is pretty simple. Hedge funds and other institutional investors go on TV to pump their bags all the time. Some of them even sell the same bags shortly after. While he’s certainly dumping on his audience (people blind buying), the way he is doing it is not illegal.

If you announce you own $120 million worth of call options on *any* stock and hold it to maturity there is absolutely nothing shady or illegal about it. If people want to pump the stock and make you rich that’s their prerogative.

It’s an interesting move because there is no way for them to shut his trade down or say he is doing anything illegal. If they tried to do something like that, the lawsuits would be massive and he would likely win.

While pump and dumps are illegal for stocks (market manipulation), saying you own a call option and holding it is quite literally checkmate. The funniest example was probably the Enron executive who was forced to sell his shares because he had a divorce and married a stripper (the rest of the execs were sued for insider trading if they sold). It’s a similar set up but 100x cleaner than getting a new stripper wife.

“I bought $120M of call options on the stock that expires after earnings - lets see how i do”.

If they try to close his position or they don’t allow him to execute it, this would be the biggest and easiest lawsuit for him to win.

Per usual this is our opinion on it and not legal or financial advice. We’re just taking a look at how he is marketing his position and can’t see a way they will be able to shut him down without losing in court (all of our opinions are based on our background in finance).

On that note, we’ll watch on the sidelines as this plays out. If it breaks below $25 or so (the $20 strike + premium he paid), he’s absolutely cooked. Will be a fascinating social experiment to see how much clout he has.

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On that note, if you’re interested in crypto/tech investing (and some macro/real estate once and a while) we suggest signing up. Thank you all for all the support and as Gary Gensler said before the ETH ETF approval… Stay Toon’d! (Note - he verbally said “stay tuned”)

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.

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