R^4® defines a Qualified Retirement Plan (QRP) as an accredited investor if the QRP has total assets exceeding $5 million with the mean account value exceeding $100,000 per participant.

CORE VS. SURPLUS ASSETS:

R^4® concentrates on the differentiation between core assets and surplus assets. Core assets are those that the investor may need during their lifetime to provide sufficient cash flow to support all necessities and lifestyle desires. Surplus assets are simply all assets in excess of the core amount.

When quantifying core assets, R^4® utilizes its proprietary systems to design an investment portfolio to exceed the client’s projected cash flow objectives by 25% and builds in a 4% annually increasing inflation factor to age 115. Core assets are routinely structured with the goal of providing safety of principal, low volatility, and growth that moderately exceeds the rate of inflation. Our Risk & Wealth Solutions^® approach is to structure an investor’s holdings, using a variety of financial tools, with the goal of protecting core assets.

Surplus assets are routinely evaluated for gifting leverage and advanced risk adjusted growth potential. This seeks to extend appreciation during expansionary market conditions and to help reduce losses during contracting market conditions.

THE LOST DECADE:

Almost every magazine, newspaper, and television financial reporter has accurately stated that the S&P 500 had a negative return on investment (ROI) that exceeded 9% for 2000-2009*. Thus, a $10 million contribution into the S&P 500 on January 1, 2000 was worth $9,086,000 on December 31, 2009.

However, the financial reporters rarely reflect on the four previous decades that had also experienced a negative ROI.

POTENTIAL EXPANSION:

As a student of financial cycles, R^4® knows that the S&P 500 achieved a 14.7% average annual growth rate in the decade that followed the four previous negative ROI decades*.

R^4® understands that a client’s focus or perception becomes the client’s reality. The firm is poised to help clients focus on the next decade’s potential expansion instead of being paralyzed by the past decade.

INVESTMENT PHASES:

Business owners, accredited investors, and R^4® inherently understand that ALL investment recommendations have both advantages and disadvantages. Additionally, upside potential and downside risk may be different during each of the three primary phases of investments:

1. Contribution (“Seed”)
2. Accumulation   
3. Distribution (“Harvest”)

The contribution and accumulation phases seem to be the main focus of most financial advisors. By contrast, R^4® believes that the distribution phase should be the ultimate priority.

After all, why invest resources that you could otherwise enjoy today, if you weren’t eventually taking distributions and/or gifting such assets in the future? Accordingly, our Risk & Wealth Solutions^®  approach is to address the tax ramifications of future distributions and gifting objectives of our clients.

TAXATION:

Taxation is the single largest expense for most business owners and accredited investors. Most people do not characterize taxation as an expense since they do not fully realize that various strategies can greatly reduce this “leakage of wealth”. The firm’s structured process always evaluates tax ramifications when designing Risk & Wealth Solutions^®, though you need to seek specific tax advice from your own tax professional, as R^4® does not offer specific tax advice.

TAX BRACKET ARBITRAGE:

For tax years 2020, 2030, and/or 2040, what will be the highest marginal tax bracket rates for ordinary income taxation and capital gain taxation?

Although most business owners and accredited investors know the federal and state tax bracket rates for 2010, nobody really knows what it will be in ten (10), twenty (20), or thirty (30) years. If a client will be taking distributions and/or leveraging gifts in the future, it is critically important to establish three (3) separate buckets of financial assets. Each bucket will be taxed at either:

1. Ordinary income tax rates,
2. Capital gain tax rates, or
3. No taxation

Depending on the tax rate environment in the year of distribution and/or gifting, R^4®  will analyze that year’s tax bracket environment to determine which bucket will generate the most efficient “after tax” distribution. Each and every year this structured process will be repeated to determine if the distribution and/or gift should come from assets that are subject to ordinary income taxes, and/or capital gain taxes, and/or no taxation.

Although “asset allocation” diversification is very important, “tax bracket” diversification may prove to be even more important. After all, there is no greater confiscation of wealth than income and estate taxation.

ACTION STEPS:

Business owners, accredited investors, and trusted advisors are invited to contact R^4® to receive customized Risk & Wealth Solutions^® as well as references.  Since confidentiality is at the apex of the firm’s priorities, client references will only be released with the direct permission of each respective client.  For additional information regarding the operational structure and resources of R^4®, please visit www.R4RWS.com

*Bloomberg 12-31-09, Ned Davis, 12-31-09

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