Why Senior Life Insurance Rarely Works As Planned

I was recently reading about something called senior life insurance plans (in some parts of the country, they are called graded death benefit plans). This has nothing to do with life insurance for seniors, but instead, refers to a type of policy that has a gradual payout structure that takes three to seven years for the insurance company to pay the beneficiary. In theory, this type of insurance is appropriate for people who want to provide for a beneficiary that will have trouble handling large sums of money so instead, the insured makes arrangements for periodic payments over time.

There is some variety regarding plan specifics, but generally, a senior life insurance plan is one that has a payout term of anywhere between three and seven years and offers nominal payments upfront.

For instance, let’s say you elect for coverage that gives you a $500,000 payout upon your death. … Read the rest of this article!

Why Penny Stocks Are Bad Investments

You have probably read or heard someone express the following sentiment: “I enjoy investing in penny stocks. It seems so easy to make money quickly because it is so much easier for a stock to go from $0.25 to $0.50 instead of $50 to $100.”

More experienced investors can recognize the logical fallacy in this. Regardless of a stock’s per share price, any doubling of the stock requires a doubling of the market capitalization (unless there are stock buybacks). If General Electric (GE) stock rises from $31 to $62, it is because the investor community thinks that General Electric is worth $560 billion instead of $280 billion. Likewise, for Rubicon Technology (RBCN) to go from $0.62 to $1.24, the valuation of the business must go from $15 million to $30 million. Both shifts require a 100% increase in market value.

A lot of people probably look at Berkshire Hathaway’s Read the rest of this article!

Why A Holding Company Builds Wealth

Any time you encounter an investment concept that you have never heard of before, you can be pretty sure that it exists for at least one of the three reasons: (1) tax minimization; (2) marketability; or (3) liability. The use of the holding company structure is no different. A holding company is an investment tool of the wealthy that is useful if you want to lower taxes, transfer assets easier, or avoid liability.

For instance, let us that over the course of your life, you become one of those secret millionaires in Quincy, Florida that makes a lifelong fortune by investing in Coca-Cola stock. By the time you are middle-aged, you find yourself owning 10,000 shares of KO that pays out $14,000 in dividends every year.

Rather than reinvest directly into more KO shares, you decide that you want to buy a duplex to diversify and start collecting rental … Read the rest of this article!

The Tax Advantages Of Oil and Natural Gas Investments

In the investment arena of oil and natural gas partnerships, you see a lot of general partnerships crop up in areas that are being drilled (particularly Texas). You might wonder: Why don’t these people form limited partnerships so that they can shield their personal assets from liability in the event that an oil well has a massive tort or contract fallout?

The answer is that there is an extremely lucrative tax deduction called the “income of intangible drilling costs (IDCs) that enables general partnership investors with working interests in oil and natural gas ventures to deduct all of the income that comes from intangible drilling costs. You can also become eligible for this tax deduction if you agree to become a general partner without a working interest, but this comes with the humongous risk of subjecting your household’s balance sheet to personal liability arising from issues with your oil and … Read the rest of this article!

Why PAYX Stock Creates Vast Wealth

Paychex, Inc. is a payroll processor for 605,000 businesses in the United States and Germany that have between 10 and 200 employees. It is on the short list of stocks with excellent investment characteristics that I have yet to cover on the site. Since 1990, PAYX stock has created enormous wealth for its shareholders by compounding at a rate of 21.2% annualized—on par with the compounding rates of Warren Buffett at his best. If you invested $10,000 into PAYX back then, you would have $1.6 million today.

The investment thesis for Paychex relies on two factors:

  1. Paychex has a remarkably stable customer base.
  2. Paychex has extreme profit margins that have stood the generational test of time.

Low PAYX Customer Turnover, Steady Profit Base

The nature of payroll processing is such that Paychex only has a customer turnover rate of 0.8% each year. This makes intuitive sense. If you are running … Read the rest of this article!