Where to Invest in 2007: The Cash Machine Version

Posted by: Lauren Young on December 28, 2006

As part of the Where to Invest in 2007 cover story, I asked a team of financial advisers to review the portfolios of real-life investors and make investment suggestions for 2007.

One adviser who took a very unique approach is Loral Langemeier, financial strategist, author of two best-selling books, and founder/owner Live Out Loud. (I recently interviewed Langemeier on our website.)

Langemeier is a big advocate of direct investing—owning assets rather than stocks and bonds. For example, she advises investors to own gas and oil wells rather than Exxon/Mobil stock. A direct investment portfolio can include real estate, truly self-directed IRAs, as well as private equity and businesses. Loral says direct investment portfolios will outperform a traditional equities model and provide significant tax breaks, like depreciation, especially for high-income earners.

I had Loral review the portfolios of three investors. Here are her offbeat but very compelling recommendations:

Investor #1 Ryan and Linsay Shirley

Risk Tolerance: High

Key Issues:

Investing conservatively. Does not match higher risk tolerance.

Not creating enough cashflow for Linsay’s loss of income – they have more talent than that

This is a 20 to 30 year plan at best – not sure how they will achieve financial success

They have no team

Core Investment Strategies:

Move to direct investment vehicles and diversify from the market and your 401K.

Match Use skill sets (IT and accounting) to open a business (Cash Machine)

As they move from traditional market accounts to direct investments – will need real estate or gas/oil to offset taxes with the depreciation

Recommended Investment Mix:

30 % Real estate (of that 10% international)

10 % Oil and Gas Wells

30 % cash-flow businesses

10% cash or notes @12%

20% stocks

Investor #2 Rick Spickelmeier

Risk Tolerance: Moderate

Analysis:

Too conservative with IRA dollars

At best a 20-year plan

Needs to leverage equity in house instead of pay it off

Not set for any cashflow if something happens with his job

Core Investment Strategy:

Needs to diversify

Move IRA roll-out into a “real” self-directed account where we can invest it directly

Needs a wealth team

Commit to putting more into investments on a monthly basis

Has little to no tax deductions to offset income

Recommended Investments

30% Real Estate (Half into cashflow and Half into appreciation)

10% gas & oil

30% cash-flow businesses (including his own consulting firm)

10% cash or notes @ 12%

20% stocks

Investor #3 David Patterson

Risk Tolerance: moderate

Analysis:

For the amount of money he makes needs his money working harder

Extremely conservative

In a great market for real estate – needs to capitalize on it

Not very liquid

Does not have tax strategy to plan against all of his W-2 income – needs depreciation

Core Investment Strategy:

Move into direct investment vehicles

Reduce the contribution to 401K

Stop paying off mortgage and leverage the additional money for better investments

Self-direct the IRA dollars

Continue to add to the 529 plans

Exercise a portion of the John Deere stock and offset it with direct investments in gas & oil

Get a Wealth Team

Recommended Investments and Mix

40% Real Estate – commercial, apartments, SF houses (2/3 appreciation and 1/3 cashflow)

10% gas & oil

20% appreciating business

10% cash and notes

20% stocks

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