Wealthy Americans Lie About Charitable Giving

In 1973, Pew Research asked the typical American whether it is okay tell “white lies” or “harmless lies” that were intended to spare the feelings of the lie’s recipient. Over 79% said that this type of lying was morally wrong.

In 2015, the question was asked again. This time, there was a steep drop, as only 43% said that this type of lying was morally wrong.

Unfortunately, America’s wealthy seemed to do its part to tilt the trend. In 1973, wealthy participants weighed in at 89% to say that this type of lying was wrong. By 2015, only 27% of the wealthy considered this wrong.

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Why The Wealthy Own Timberland

Other than oil and natural gas, guess what is the most widely owned commodity by the wealthy? As the headline gives away, it is timber.

Among households with over $2.5 million in investments excluding their primary residences, the average allocation to timber is almost 8%. Although timber does seem to be something of an all-or-nothing investment selection. A slight majority–about 62%–own no timberland rights at all. But of those that do, the average allocation to timber investments in their portfolio is almost 17%.

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How Mutual Funds Are Taxed

Similar to partnerships, mutual funds pay no taxes themselves and operate on a pass-through basis (technically, the IRS puts mutual funds in the category of “regulated investment companies”). For tax purposes, the mutual fund distributes investment income to the fundholders, and depending upon the classification of the income, the fundholder will then pay taxes on the income received.

Generally, a mutual fund makes one of the following six types of investment distributions to its fundholders: (1) a return of capital distribution; (2) short-term capital gains; (3) long-term capital gains; (4) qualified dividends; (5) unqualified dividends; and (6) tax-exempt interest dividends.

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Oil Stock Investments vs. Commodities Futures Trading

I do not understand how regular commodities trading can be part of any sustainable wealth-building plan.

A futures contract is when you agree to buy or sell a commodity at a certain price at a certain future date. Let’s say oil is trading at $60 per barrel. Assume that you think a year from now, oil will trade at a higher price than that. So you enter into a futures contract to take delivery of 1,000 barrels of oil in November 2018. By August 2018, you appear to be right–the price of oil has increased to $75. You decide to close out your contract, and rather than taking delivery, you pass on the rights for the 1,000 barrels of oil onto someone else and you collect your $15,000 less any fees.

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Multimillionaires Spend Way Less Than Their Passive Income

In a survey of 1284 households that have a net worth of at least $2.5 million, 1232 of the households indicate that their annual spending is less than the income generated by their private business holdings, stock dividends, partnership distributions, and rental income. Given that, at a minimum, this implies passive cash flows of at least $12,000 per month, it may not sound surprising to you that these families can make it work.

But what I find interesting are the reflections from these wealthy individuals about their habits on their journey from a point at which their financial resources were modest to the point that they had accumulated something substantial.

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