Welcome to the weekend everyone!
Earlier this week, a group of folks (I have a hunch they are mostly young and well-meaning), published a bombshell revelation:
“The Secret IRS Files! Trove Of Never-Before-Seen Records Reveal How The Wealthiest Avoid Income Taxes!”
The bolding and emphasis in the above are entirely mine.
If you are so inclined, you can read this “bombshell” here but the below picture tells you everything you need to know:
Now, there’s a reason why I am being semi-sarcastic here, but it’s not the one you might have in mind.
What always shocks me when it comes to these kinds of “revelations” is the absolute ignorance the vast majority of people seem to have when it comes to taxes.
And, of course, the absolute mastery the really wealthy people (and their accountants) possess on the same topic.
Yes, we live in a world where governments tax income, not wealth (for now, anyway).
There are good reasons for it, too.
Imagine being served with a tax bill because your house has gone up in price over the past year – all while you were unemployed!
But minor points like that tend to escape the sensationalist headlines and articles.
Now, to be very clear, I am all in favour of re-jigging the tax code.
Not least because I am in the 45% tax bracket myself, and I know that any income tax increases will have an outsized, negative impact on my own “bottom line”.
I also happen to know a thing or two about taxes and how big tech (and other companies) pay negligible tax rates by taking advantage of tax-friendly jurisdictions, complicated transfer pricing policies, and a host of other methods.
But in yet another “shocking” revelation, I also know that wealthy people (and corporations) have a way of influencing tax policies to their advantage.
So I am not holding my breath – and I suggest you don’t either.
Yes, making the big bucks is very important.
However, if you want to get rich, the only way to do so is to invest your hard-earned (and hard-taxed!) money into productive assets like equities and real estate.
Ideally, you would do so through tax-advantaged vehicles like your workplace pension / 401(k), ISAs, and Lifetime ISAs.
In the meantime, you can (and should) form an opinion on the right tax policy – and vote for the politicians who share your view.
But whatever you do, please don’t rely on them for your financial well-being.
As history shows, that’s not a good idea.
With that in mind, let’s jump into this week’s collection of posts on building, retaining, and enjoying your wealth.
Have a wonderful weekend all!
From Yours Truly
A Bear Case For Future Stock Market Returns
An Introduction To Investing In Bonds
A Mental Framework For Leveraged Investing
Building Wealth
Let’s kick off with one of the best-written personal finance posts I’ve read in a long time:
“Remember when stocks traded on fundamentals? Or at least they traded based on people’s perceptions of the fundamentals.
What do they trade on today? It was always a popularity contest.
Now it’s a three-ring circus.”
Guess what: Your Father’s Stock Market Is Never Coming Back – Josh Brown for Fortune
The Purpose Of Frugality Is To Get Your Stake Money Together – The Escape Artist
Worried about the rise in interest rates? Ben Carlson offers a contrarian view:
Why Interest Rates Have To Stay Long For A Very Long Period Of Time – A Wealth Of Common Sense
Can one get to a point where building wealth takes a backseat to other priorities in life?
Absolutely.
As I near the 4-0 mark, I am acutely cognizant that the next 5-7 years is the period of time during which my wife and I are still everything to our children.
Their superheroes. Their best friends. Their guardian angels.
And so, I’ve been grappling with a way to design a life that will allow me to balance earning and parenting.
As it turns out, I’m not the only one. The ever-poignant Indeedably offers his perspective in Ridiculous.
New Blogger Feature
Cutting Through Chaos isn’t technically a new blogger.
On the contrary, I’ve been enjoying his posts for a while now (and he is one of the few folks who made it onto my blogroll).
Hence, I was quite excited to see that he is back to writing after a bit of a self-imposed hiatus.
This is a family that isn’t afraid to live an awesome life on their own terms – a true inspiration for all of us.
Here’s a fantastic post on how A Sabbatical Could Change Your Life
Lifestyle Design
Can one really enjoy life knowing that we are all going to die anyway?
As it turns out, it’s an emphatic yes.
“Research suggests an awareness of death can help people identify and nurture the things that will lead to a more meaningful and healthier life.”
Prioritizing Goals With Death – Incognito Money Scribe
And while we are on the topic, here’s a great one on how to get the most out of the time we do have:
How To Be Productive At Work – Washington Post
All Around
As we are coming out of lockdown, many of us are suddenly realizing our friendships aren’t as strong as they used to be.
A year of being holed up indoors, with digital-only contact, will do that.
Here’s some good advice to help reinvigorate old friendships – and establish new ones:
A Common Habit That Costs Us Friends – Raptitude
Recommended Books
As always, let’s finish off with some top-notch books on life, money, and happiness:
How To Get Rich – Felix Dennis
Liar’s Poker – Michael Lewis
More Money Than God – Sebastian Mallaby
Happy weekend all!
P.S: Attention New Bloggers:
if you are a personal finance blogger who hasn’t yet been featured on Greatest Hits, I would like to hear from you.
Please send an email to bankeronfire at gmail dot com with a blog post you would like to submit for consideration.
The key criteria for inclusion are as follows:
(i) Content that will be interesting or beneficial to the readers of this blog (I hope you will forgive me for reserving judgment on this one)
(ii) Your blog must be at least 6 months old, with regular posts. Too many bloggers flame out early, and I don’t want the readers here to follow a bunch of dead links.
I look forward to hearing from you.
Note: the above post may contain affiliate links. You can read up about our affiliate policy here.
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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Thank you for the inclusion Mr BoF, and for your kind words.
Meant every word.
Always refreshing and inspiring to read your blog!
“As I near the 4-0 mark, I am acutely cognisant that the next 5-7 years is the period of time during which my wife and I are still everything to our children”
Very relevant sentence given we are at a fairly similar juncture. I’ve a net wealth closing in on £5m now with only a small portion of that in prime residence and so on the face of it could comfortably walk away from the IB lifestyle given our fairly frugal lifestyle.
But….the house is getting a bit small for our growing family (£1m doesn’t buy much around here), anyone who isn’t concerned about their children being able to afford a place when they are older is more relaxed than me, the job market gets ever more competitive, much of the wealth seems pumped up by low interest rates, inflation is a risk, is another job really much less hassle, once you leave banking you are never coming back probably, switching the engines off and gliding requires a strong leap of faith etc etc etc. There’s always something. Plus I can stash away a circa five figure sum every month from the salary alone and watch the portfolio grow over time thus increasing the margin of safety. But I can’t really watch the children grow over time as you aren’t there so much and friends / family / hobbies all take a back seat don’t they. At least not if you are doing the job properly. And there is the great imponderable.
I fully realise that this is a high quality problem to have and not available to 99% of the population including even many bankers currently spaffing their earnings up the wall so tiny violins all round please.
Interested to know if you figure it out. One thing for myself is whilst I could run leverage in a high paying job I don’t think I could do it in a low paying job & wonder if you’ll feel the same, which has implications for your real estate portfolio possibly.
Hey BnF, it is always difficult to find a balance with kids. Particularly when you are in a job that pays well, and where you know if you walk away you will lose many options (like leverage on some real estate as you mention).
A few questions to think about (no right answer)
* If you keep going for another 5 years what does your life look like (net worth, relationship with kids / will they still be young enough to want to hang out with you, connection with your partner, health)
* When your kids are your age, and have kids of their own with the same options you have, what choices do you think they’ll make? ie, do you think they’d opt for pulling the trigger and spending more time as a family?
* What number would allow you to walk away?
* Having worked in M&A, I appreciate IBs are not the most flexible, so I’m assuming that a 3 month sabbatical is out of the question to try before you buy? If it was possible, what would those 3 months look like?
Like your questions Mr. C.
For what it’s worth (acknowledging the comment wasn’t addressed to me), I had two gardening leaves (both 3 months long) and both rank amongst the happiest / most relaxed stretches of my life!
I think a key when you’ve been in an intense work environment is to allow yourself the space to relax for a few months. That doesn’t come naturally and can feel like a waste of time.
Can’t say I disagree with your points and you are spot on about leverage.
When I step away, I will certainly calibrate my LTVs down, though I wouldn’t say they are off the charts today.
A question I do have for you, however, is whether you have a “number” in mind that will give you the comfort to step away.
Reason I’m asking is because objectively speaking, £5m puts you in the top 1% (if not top 0.5%) of the population here.
If you cannot step away (even into a lower-paying job), then who can?
So let’s say you had a net worth of £8m, or £10m. Would that change your perspective?
Another available tool is geographic arbitrage. There are so many amazing cities within the UK that are a fraction of the cost of London when it comes to property.
Assuming family is not keeping you in London, you have so many options.
I don’t know what age your kids are, but assuming they are not in their mid teens with big exams around the corner, then moving them once, when that means they see a lot more of their dad could be a net positive.
I appreciate I say this as someone who moved extensively during my childhood and who has moved several times as an adult. And although my wife may disagree, I turned out relatively normal.
Moving is really stressful, as opposed to ongoing additional stress of continuing to work. Kind of like choosing whether you buy a car outright, or lease a car with a lower but ongoing cost.
Whatever you decide, you’re in an enviable position. Well done!
Replying with apologies for the delay.
Mr C. Nice blog, thanks for insightful comment and some useful questions here. Some detailed discussions currently ongoing with other members of the family. A sabbatical is largely a non-starter on M&A but not impossible. More likely a 3 month break if you move roles. I haven’t not worked for 20 years now and a break would be good!
Banker on Fire. Thanks for your comment and this is a tough one. From banking, I think now ish but I’m not certain. I am reminded of two film scenes – Money never sleeps where the lead character asks the evil hedge fund owner whats your number to walk away and he replies more! And then Lord of the Rings where the hobbit can’t give up the ring! Hopefully I am not that bad as I have zero materiality. Although Buffet liked collecting money didn’t he….There’s lots going on in my head at the moment given the options that are flying around. For immediate now I’m sticking put. If i had £8m I would definitely be gone but then people always say that don’t they. I really think I would though..I mean honestly..er 🙂
Am keen to see how you navigate the next stage, as obviously will draw personal lessons from it also.
Best of luck and please keep us posted on your decision process! Always enjoy reading your musings in the comments section.
Funnily enough we’re having similar conversations atm. Current place fine size wise value 500k to 575k If I moved to make it worthwhile in my opinion looking at 700 to 900 which would massively stretch me and id have to sell most of my investments
I’m just not sure I want the stress of running a half mil mortgage. I think my brains wired differently to alot of people
. I said to my dad if I lost my job I wouldn’t get the same salary and I’d be struggling to pay that kind of mortgage. He said well you can’t go through life planning for the worst. Surely that’s exactly what you should do!
I could wait till littlun is 5 and I’d have x amount more invested but then the house I want is 20% more (though I suppose current house would also be 20% more so relative). I’d be 45 so should be able to still get a 25 year mortgage. Decisions. Definitely lifestyle inflation but then I could run a big mortgage and downsize in the future
The other challenge is that moving around too often decimates your capital through fees, stamp duties, and moving costs.
Now that we have two kids, we know precisely how much space we need. Am really hoping that the next place we move to (which we will buy as opposed to rent), we will stay in for the next 20 years or so, until it’s time for the kids to move out.
Hello!! Absolutely love the blog. Had a query on one topic.
I’m in the fortunate position of being able to max out my ISA within 6-7 months for the year. What would you suggest I do for the rest of the year till the ISA limit is reset again. I don’t like having money just sitting around
Thanks for the kind words!
Depends on your objectives.
Are you maxing out your pension and / or your Lifetime ISA?
Do you have a spouse and can you max out their allowances too?
Did you consider Junior ISAs? https://bankeronfire.com/junior-isa-is-it-as-good-as-it-seems
What about your workplace SAYE and SIPP plans?
If you have (or for whatever reason you’d rather not), sadly you are really only left with taxable investment accounts
That sabbatical post is the most relevant to my life right now. I literally went through an interview just today and the interviewer told me how after he worked 7.5 years, he took a 1.5 year sabbatical before joining the company that he’s currently at.
Sabbaticals just can’t be underestimated.
Hey David – good luck with the job application process.
Thanks for reading the sabbatical post. Was definitely the right choice at the right time for our family.
I would LOVE an opportunity for an 18 month sabbatical.
I did take 12 months but that was a long time ago and i used the time to start a business, so it certainly wasn’t relaxing!