Using football as an analogy, it doesn’t matter how much money you make at work, or the rate of return your money is earning, if your financial plan does not protect you from events that can take away your income or your assets then you are at risk of scoring lots of points and still losing the game. After a statement like that you may be asking: “What do I need to do to win this game?  The answer:  Implement a perfect defense in your financial plan.

What are the risks?  When I say risks, for the context of this article I am talking about events that, if they occurred, would be very difficult if not impossible to come back from with your own resources. These events would, for most of us, cause a financial hardship so significant that it would make winning the financial game all but impossible. The good news is that there are only a handful of such events and you can take steps to protect yourself from being financially ruined if any such event were to occur in your life.  Here is a list of events that, if they were to take place, have the potential of significantly derailing your financial future:

1. Lawsuit
2. Significant Medical Expense
3. Partial or Complete Disability
4. Premature Death

Lawsuit – The biggest risk that we take every day is driving a car. With cell phones, texting, GPS, IPods, and all the other gadgets that we can no longer live without there are now plenty of things that can distract us while driving.

I don’t know if this has ever happened to you but there are times when I have looked down at my phone to do something “really quick” only to look up and realize that I have gone a block or more. If there happened to be someone crossing the intersection at this time it would have been a bad day for him and me. If I was found to be at fault in this accident which would certainly be the case because I was not paying 100% attention, I would be completely liable for the injured persons’ medical bills, pain and suffering, and lost income.

Let’s say this person was a 35 year old married father of two children that makes $100,000. / year.  This individual, because of the accident, is now permanently disabled and unable to work.  I don’t think it would be too long before I would find myself being contacted by his attorney suing me for his medical bills and the $100,000. annual income he used to bring home before I took him out while looking at my blackberry.

As a 35 year old man he would have 30 more years of working before retiring at the age of 65.   30 Years at an annual income of  $100,000 = $3,000,000 of lifetime earnings that I have taken away from his family, assuming no raises or promotion over that time.  This would be an open-and-shut case for the prosecution and every jury in America would find for the plaintiff and I would find myself looking at a $3,000,000 judgment.  Since I don’t have $3,000,000 just sitting in my checking account I would be forced to liquidate everything I owned and then have my earnings garnished for the difference until the judgment has been satisfied. It is going to be very difficult if not impossible for me to accomplish my financial goals and wealth plan given that I will now spend the rest of my life funding a wealth plan for the family of the accident victim.

How do you prevent this from ever happening to you?  In my next article I will discuss strategies that give us a strong defense against the unexpected.  At Invesdoor™ I advise professionals from all walks of life to do just this and now I am happy to reveal some of my favorite tips.  Stay tuned.

Recently I wrote about winning through bulletproof defense rather than focusing solely on offense.  Taking that same football analogy, let’s explore one defensive tip I like to share with business people who either are or will soon have assets to protect.

Defense Tip #1- Purchase a personal liability or umbrella policy. This insurance policy can be purchased from your auto and homeowners insurance agent. This policy is called an umbrella policy because it acts like an umbrella over your car and your home which are where you are most at risk of being sued. Landlords, this policy would also cover you in the event of something occurring at one of your rental properties. If an event like this occurred the umbrella policy would kick in and provide coverage for your negligence or any other unpredictable liability (say a $3,000,000. judgement) so you don’t have to.

You may be surprised at how affordable these policies are. A policy like this will range between $30 and $50 a month. I don’t know about you but I can certainly budget for an expense like that. What I can’t budget as easily is a $3,000,000 judgment.  I encourage those of you who do not already have a personal umbrella policy to take action now and contact your auto and home owners’ insurance agent and ask for a quote.

This is the first in a series of articles that will be walking you through how to implement a perfect financial defense.  If you are serious about implementing such a plan and do not want to wait for the subsequent articles contact a qualified Wealth Planner to request your Perfect Defensive Plan.

Finding a qualified “Wealth Planner” is a subject for yet another day.  Suffice it to say, I am NOT talking about the “Financial Planner” whose function is primarily to sell mutual funds and other commission-driven investment vehicles.  When I talk about Wealth Planning I am referring to something that I do through reputable Investor Resources like www.invesdoor.com

An Investor myself, I know what the Investor needs in order to establish him/herself as financially independent and that is why I follow a different direction entirely.  My approach is results-oriented and not driven by commissions.  That is one important means by which you can qualify a Wealth Planner.  In subsequent articles I will provide more tips on finding the right one for your portfolio.

As the start of the NFL season is upon us I thought I would take this opportunity to write on one of the most important lessons of wealth planning using the sport of Football as an example. Football like most sports has an offense objective whereby the purpose is to score points and a defensive objective whereby the purpose is to prevent the opposing team from scoring. Most of the time it is the offensive players, quarterbacks, running backs, and wide receivers that receive much of the recognition when teams are doing well while the defensive players go unnoticed. The truth is that the defense plays a more significant role in the success of team then the offense.

This may come as a surprise to you and you may find yourself not agreeing with this statement, so to test this I will pose the following question. If a football team has a perfect defense, by perfect, meaning that they never allow the opposing team to score; could that team ever be defeated?  The answer is No. The worst that team could ever do is end up in a tie.  Even if that teams’ offense is miserable, as long as it scored at least once by either touchdown, field goal, or a safety they would win the game. This team could afford to be very aggressive with its play calling because even if the ball was intercepted by the opposing team it would not matter because the defense would shut them down.

The lesson here is that with a perfect defense it is impossible to lose the game.   A tie is the worst case scenario and a win is extremely likely because as long as the team only scores once it will be victorious.  While achieving a perfect defense has never happened in football history it is very possible to create the perfect defense in your personal finances and wealth planning.  How would you like to have the peace of mind of knowing that your personal financial plan was fail proof, that it provided a perfect defense…one where you couldn’t lose?

This area of wealth planning is by far the most misunderstood and ignored. The personal finance industry which is so completely dominated by its focus on mutual funds has distracted the masses by having them focus on mutual fund rates of returns, dollar cost averaging, and other topics that get us to continue to just blindly, month after month, throw more and more money into their funds.  The mutual fund industry would have you believe that as long as you put money away each month and pick the “top rated” funds everything will be great.

The truth is it doesn’t really matter which funds you have and what percentage you’re earning on your funds because it only takes one incident of bad fortune to have your savings program wiped away. Just like in football you can score 50 points which is a very impressive offensive performance however if the other team scores 51 points you lose. The 50 pts you scored don’t count for anything. The game goes down as a loss.  The point: It doesn’t matter how many points you score on offense because if your defense gives up more then your offense scores you lose.

In my next article I will discuss what this means in a financial context.  Stayed tuned as we explore intelligent wealth planning with Invesdoor™.

As you probably already know, I am a leading REI (real estate investing) Mentor….so I am biased.  However, what I am going to share with you today may convince you why I am.  When we talk about paper assets I am referring to stocks, bonds, mutual funds, etc.  They are different from real estate investment as (for one thing) the Investor has no control of that asset. These assets must be traded through Stockbrokers who, are not always in a position to put your interests above their own. The grim reality is that the entire brokerage industry is in a panic with conflicts of interests.

In this article I want to discuss something called the “Preferred List”. This is a list of the funds that a brokerage recommends to their clients.  It is the selection of funds that their research has determined are the absolute best in the industry for the firm’s clients. Sadly, in a lot of cases this list is made up of fund families that paid some sort of extra consideration to be on the list.  It’s also interesting how often the firm’s proprietary funds end up on that list. Hence, if you are a client of Merrill Lynch, let’s say, you will typically see quite a few Merrill Lynch funds on that list.  This is a simple case of allowing how much you get paid to drive your decisions on what funds to recommend.

Another issue that arises in that industry is that many savvy Financial Advisors will leave their large firms to go out on their own as independents.  The main reason for this is to increase their “payout” on commissions. The payout can easily double what they earned working for the big Brokerage house.  Interestingly, many Financial Advisors, as well as their clients, think that they have access to more products by working with a major firm. That is a huge misconception.  In fact, the opposite could be more likely.

The fact is that today, there exist an enormous amount of conflicts of interest in that industry.  When you invest through a major Wall Street firm, you probably assume the funds that are on the “Preferred List” are there because the firm’s research department did extensive due diligence and arrived at the conclusion these funds are the absolute best investment vehicles for your money.  This is just one example why the small player in the stock market may not be making any significant gains.

Real estate, on the other hand, offers a wonderful thing called “leverage.”  We can discuss that another time.  Meanwhile, give me my “brick and mortar!”