1. MISSED
FORTUNE.
Dispel the Money Myth-Conceptions-
Isn't It Time You Became Wealthy?
DOUGLAS R. ANDREW
BUSINESS
PLUS
NEW YORK BOSTON

2. :e
J-
Author's Note:
The materials in this book represent the opinions of the author and may
not be applicable to all situations. Due to the frequency of changing laws
and regulations, some aspects of this work may be out of date, even upon
first publication. Accordingly, the author and publisher assume no
responsibility for actions taken by readers based upon the advice offered
in this book. You should use caution in applying the material contained
in this book to your specific situation and seek competent advice from a
qualified professional.

3. MISSED FORTUNE
y now you should be somewhat convinced separating
equity from your property can be a wlse strategy for increasing its
liquidity and safety. Managing equity properly also increases the rate of
return on what would otherwise be idle dollars. Also, you should be
somewhat convinced that possibly repositioning some or all of your
qualified plan contributions or distributions to a non-qualified private
status can be a wise strategy for achieving the highest net spendable
retirement income. Having ga,ined this insight, the only question
remaining should be: "vVhich investment vehicles are the best choices in
which to reposition serious cash?",
SERIOUS CASH
What type of an investor are you with regard to serious cash" such
U
as home equity or repositioned retirement funds? 'Which of the following
categories of investments would you be more inclined to invest in:
1) high risk, high potential yield investments}
2) moderate risk, moderate yield investments,
3) or low risk, safe investments?
~-RECOMMENDED.PERCENTAGE'jN ~~-',:.~: ....." ,,::.;..
..·~iI~'Ic;PI'~Jlf~.Ef"-STME}-m..
.~ ~.'>2~
75 100%
270

4. ACCUMULATING, ACCESSING! AND TRANSFERRING YOUR MONEY TAX FREE
As shown in figure 17.1, the closer we approach retirement, the
greater the percentage of our assets that should be invested in safe and/or
guaranteed investments.
Let's go through a risk versus return model to determine which cate-
gories of investments are most advantageous for capital accumulation or
the repositioning of serious cash such as home equity and IRA. and 401(1<)
monies. In figure 17.2, I have listed sixteen general categories of invest-
ments ranging from highest risk at the top of the pyramid to lowest risk at
the bottom. When choosing a place in which to save, invest, or store cash
for conservative, stable returns, we want to ask ourselves the four same
questions we ask with regard to our home equity:
• Is it liquid?
••Is If safe (guaranteed Or insured)?
• What rate of return am I likely to get?
• Are there any tax benefits associated with this investment?
You see, I regard my home equity and my retirement funds as seri-
ous cash! I don't want to hinder their liquidity, safefY, arid rate of return:
I want to enhance these features!
1. Commodities
2, Business Ventures
3, limited Partnerships
4. Raw Land
5, Speculative Common Stocks
6. Lower Quaiity Bonds
7, Investment Real Estate
8, Blue Chip Stocks
9. High Grade Bonds
10. Mutual Funds
11. CDs
12, Investment-Grade Insurance
13. Money Market Funds
14, U,S. Treasury Bills
15. Annuities
16. Equity in House
271

5. MISSED FORTUNE
..
.. , ,
Which investments
Commodities
do not pass the:
Business Ventures
• Liquidity Test?
Limited Partnerships
I! 5.
Raw Land
Speculative Common Stocks
6. lower Quality Bonds
7. Investment Real Estate
8. Blue Chip Stocks
I 9.
10.
High Grade Bonds
Mutual Funds
11. CDs
12. Investment-Grade Insurance
13. Money Market Funds 11 13
14. U.S. Treasury Bills
15. Annuities 14 1~
16. Equity in House
When we apply the liquidity test, you can see in figure 17.3 we must
eliminate several of the investments. They do not pass the liquidity test
because we may not be able to obtain cash when we may need it (vlith-
in the time frame we would define for a liquid investment). As seen from
the chart, investments such as business ventures, limited partnerships,
raw land, investment real estate and equity in your horne do not allow a
quick conversion into cash under normal circumstances.
Commodities . Which investments
Business Ventures I'. do not pass the:
I ." •
Limited Partnerships Liquidity Test,
4.
5.
6.
7.
Raw land
Speculative Common Stocks
Lower Quality Bonds
Investment Real Estate
Ii( ~ X X
i~
I
and lor
SM'o/ T'rt?
.
8. Blue Chip Stocks
9. High Grade Bonds
it. Ii{
10. Mutual Funds
11. CDs
12. Investment Grade Insurance
13. Money Market Funds 11 / 12
14. U.S. Treasury Bills
15.
16.
Annuities
Equity in House
14 I 15
272
~~~.~~.-~.-- ... -- .. --._ .. ----_.

6. ACCUMULATING, ACCESSING, AND TRANSFERRING YOUR MONEY TAX FREE
When we apply the second test-csafety=we eliminate five more of
the investments (fig. 17.4). Most financial planners agree that com-
modities, speculative common stocks, lower quality bonds, and even
blue-chip stocks and high-grade bonds are not adequately safe invest-
ments because they lack some type of guarantee with regard to monies
involved (prirtcipal or interest) .
• t. Commodities
2. Business Ventures
3. Limited Partnerships
4. Raw Land
THE R"K-RITURt< MODEl
!
I e,
! lA
XI A
Fin,liy, whim investments
do not pass the:
• Liquidity Test,
• Safety Test,
I
·, .• l
5. Speculative Common Stocks I:~ and I or
6. Lower Quality Bonds / ~ I .~ • Rate of Return Test?
7. Investment Real Estate
8. Blue Chip Stocks
9. High Grade Bonds
10. Mutual Funds
. "i ~lt
11. CDs
12. Investment-Grade Insurance
13. Money Market Funds
14. U.S. Treasury Bills
1fo1
15. Annuities
16. Equity in House
1~
In applying the third test, remember we must earn a rate of return,
net after tax, that will be in excess of the net cost of the funds used, in
order to maximize their growth potential. Applying the third test, we
eliminate three more possible investments (fig. 17.5). You may ask why
I have eliminated certificates of deposit. The main problem with CDs is
:
interest is faxed as earned. Thus, a CD with a 6 percent yield in a 34 per-
cent tax bracket only nets a 4 percent after-tax return. Also, CDs gener-
ally do not have a very high rate of return relative to interest rates
charged on mortgages. Money market accounts have the same draw-
backs. A money market account may only credit 2 or 3 percent after-tax
yield (assuming about a 4 percent before-tax interest rate in a 30 to 40
percent tax bracket) while net after-tax mortgage rates are around 4 or 5
percent (assuming a 7 or 8 percent mortgage in a 30 to 40 percent tax
bracket). If the side fund containing your separated equity were a money
273

7. MISSED FORTUNE
market or CD, it would be hard pressed to earn a.net.after-tax.return. that
would exceed the net cost of the tax-deductible, simple-interest, declin-
ing mortgage balance. u.s. Treasury bills fall into the same category; the
net return cannot be deemed sufficient to pass the rate of return test.
Thus weare left with three remaining possibilities in which to con-
sider investing our serious cash: annuities, some mutual funds, and
investment-grade life insurance contracts. Let's go through a simple
analysis of each of these remaining investment alternatives.