Using dividends to accelerate wealth

Nate Crosby |

This week we were doing some fine tuning for an income plan. The client’s basic needs were already met by a combination of a hobby job and systematic distributions from his retirement account. He had premium due on his dividend paying whole life policy and he wanted to know if he should pay it with his retirement assets or simply use the cash value in the policy. The policy provided permanent tax-free protection for his spouse, so either of his proposed options would have been a positive move, however there was a third option which enhanced his wealth creation.

Dividend paying whole life policies grow at both interest and dividends. As the policy matures, the annual dividends of financially stable companies grow larger. Rather than deplete the cash value in the policy, the dividends, which in the beginning typically buy more insurance, can be moved to pay premium. In this case the policy is funding tax-free growth and protection on its own, allowing the policy holder to shift premium dollars to additional investments. Wealth accumulation can now be accelerated.

Using dividends to fund or pay for expenses is common practice that we use in retirement but is not limited to retirement. My passion, in the financial world, has always been passive income. The idea of growing wealth without trading my hours fascinated me from the beginning. I especially like the idea of taking taxable dividends and using them to purchase a tax -free asset. Dividends from your non-qualified account can help fund a cash value life policy or Roth IRA. Both are outstanding tools for present and generational wealth.

Growth and Income with downside protection through structured notes

Structured notes are debt securities that have both a bond and derivative component. In times when markets are trading down to sideways, structured notes can give investors the ability to earn high income or achieve long-term growth with limited downside risk. Morgan Stanley currently has a structured note that offers investors the ability to earn up to 11.75% annual interest over a three-year period. The note is linked to the S&P 500 and offers 70% downside barrier protection. Since the ability of the security to perform is in part linked to the financial stability of the issuer, it is highly important to know the financial rating of the issuer of the structured note.

Contact our office to see if structured notes have a place in your wealth accumulation plan.

July 4th Fun Fact

  • Did you know that only two signers of the Declaration actually signed on July 4th, 1776?  Charles Thompson and the infamous John Hancock were the only two men who actually signed the Declaration of Independence on July 4, 1776. The other 54 delegates signed over the course of the next month. 
  • 50 years after July 4th, 1776, Both Thomas Jefferson and John Adams died on the same day, July 4th, 1826. 
  • The designer of the 50-star flag lived in Lancaster, Ohio. He was 16 at the time and his designed earned him a B-.  The grade was later changed to an A when it was made the official flag. 
  • There is something written on the back of the original Declaration of Independence, but it's not a map.  

ATTENTION: Crypto Yield Platforms, Derek Ballinger

If you are a crypto currency investor, and haven't already, it might be a good time to get your crypto off of yield-generating platforms like Celcius, Blockfi, and others. We had recommended Blockfi in the past, but these platforms have been less resilient to major market pullbacks than originally anticipated. I would not classify this as an emergency, Blockfi appears to be well suited for further market turmoil, but their yields are no longer worth the risk of using the platform in our opinion. It was announced on Thursday of this week they are partnering with FTX, a major crypto exchange, to have access to a revolving credit line in case of worst-case-scenario events. The deal involved a significant reduction in the valuation of the company which indicates there was reason to strike the deal at a significant discount relative to previous funding rounds. Just like we expect more negative moves in stocks, especially growth stocks, we also expect crypto to continue to decline until the Federal Reserve ends QT (Quantitative Tightening) which could potentially go into 2023. The safest way to hold crypto and eliminate counterparty risk is to own your private keys and buy a hardware wallet.

To reiterate a point made previously on the podcast, large institutional investors may hold bitcoin as a part of their riskiest allocation of a portfolio. When risk assets sell-off, these large investors look to reallocate their risk budget into other asset classes leaving tech stocks and bitcoin first on the chopping block. Many investors weren't prepared for this severe of drawdown and over-leveraged on Bitcoin and other cryptocurrencies. These two factors are a positive feedback loop that causes a cascading price for bitcoin. I am not in the business of predicting a bottom for crypto, but it seems unlikely to me that bitcoin has hit a bottom. Personally, I’m preparing for more volatility, but my long-term bullish thesis remains unchanged.

We don't know who is over-leveraged and who is vulnerable to a further drawdown in the price of Bitcoin. Crypto exchanges are not banks, they will not be bailed out in a worst-case scenario. We recommend you take efforts to protect yourself and make sure you are with a reputable custodian of your assets or take them into your own custody. If you want assistance or advice on how to self-custody your crypto assets give us a call.

Disclaimer: Crosby Advisory Group, LLC provides investment management, insurance services and business growth strategies. This newsletter represents the opinions of Crosby Advisory Group, LLC.  Investing involves risk including potential loss of principal. Not all investments are suitable for all investors and this newsletter does not replace individual consultation. Crosby Advisory Group, LLC has ownership interest in NMD Insurance and CAG Marketing.

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