How to Regain Control of Your Finances: Understanding Diversification


Stop and take a moment to visualize your future. What would your days consist of, and who would be with you?

It may seem far away, yet when you neglect to consider important milestones in your life, you’re more likely to defer your dreams and passions. Don’t let “life” get in the way of living.

In fact, in Bronnie Ware’s book, The Top 5 Regrets of the Dying, the most common regrets expressed are:

  1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
  2. I wish I hadn’t worked so hard.
  3. I wish I’d had the courage to express my feelings.
  4. I wish I had stayed in touch with my friends.
  5. I wish that I had let myself be happier.

Noticing a trend?

At their core, the regrets expressed above are about relinquishing control. Don’t live with regrets because you handed the keys over to someone or something else.

And having a life free of regrets can pertain to our finances as well. It’s not about who has the biggest pile, but who has the freedom to live the life of their dreams. Having a clear picture of where you want to go enables you to live that life, without having to hoard wealth.

It starts, not with investments, but with squaring away your ready cash—that is, the cash used to seize opportunities and exert control over emergencies. You should always have money that is safe, and accessible at a moment’s notice. Too many people focus on their Net Worth only to be “cash poor,” unable to use their money because it is tied up.

Two Kinds of Ready-Cash

In reality, you’ll want to have two types of “ready cash” available.

  • Your emergency fund
  • Your opportunity fund

The former should be an account with up to six months of living expenses available at all times. This ensures that in the event of a job loss or other unexpected loss of cash flow, that you’ll be able to stay on top of your lifestyle. It’s also the perfect fund for unexpected expenses such as: medical bills, car repairs, and home maintenance. We’ve all experienced the phenomenon
where everything seems to break down at once—be in a position to take control without the stress.

On the other hand, your opportunity fund is for unexpected deals—things that might create additional cash flow or joy in your life. Maybe a limited partnership will fall into your lap, or a business goes up for sale. Perhaps a once-in-a-lifetime classic car becomes available. Regardless, be in a position of cash so that you don’t have to live with regrets.

The Ideal Place for Ready Cash

In my experience, the best place to store this cash is in a participating whole life insurance policy. Imagine, for a moment, that you’re able to earn three or even four times what the banks typically pay, with tax-deferred or even tax-free access. On top of that, you’re guaranteed a cash value build-up, a tax-free death benefit, and access to the funds, no questions asked (unlike qualified plans or bank loans).

It’s a financial vehicle backed by certainty, a claim few products can make. When building your financial strategy, this is one of the best foundational tools in your arsenal. It makes everything else perform better, because its guarantees act as a permission slip to otherwise use your other money and replenish funds when you pass.

Don’t Put Your Eggs in One Basket

And because whole life insurance is a product backed by certainty, it’s also a key player in good diversification strategies. You’ve probably been advised to diversify if you’ve done any investing in the stock market, and that much is good advice. But I recommend starting in a position of cash, much like the emergency and opportunity funds.

Because diversification is not merely about owning a variety of stocks and bonds. To me, true diversification is coordinating your assets in such a way, that your financial success is all but assured no matter what the economy is doing. That means positioning assets in a way that protects you from volatile markets, taxes, interest rates, government regulations, and any other economic headwinds.

Most portfolios only consider one or two of those factors. Gold, collectibles, real estate, and other hard assets can actually be very beneficial to your portfolio. But for many successful people, the term “asset classes” is an abstract term. Moreover, they classify these hard assets as risky.

Redefining Risk

In financial-analyst-speak, hard assets and even whole life insurance are non-correlated assets. Meaning, they’re not tied to what happens on Wall Street.

Owning such assets creates a level of certainty that the stock market just does not have. I’m not saying that you should avoid the stock market. However, I am saying that you should consider a portfolio of stocks to be the same as putting your eggs in one basket.

Yet most people own these “accumulating assets,” which means the value can increase or decrease on paper, but won’t show up in your bank account. Conventional wisdom suggests that you should wait until retirement to create cash flow from your assets. But diversification can balance out accumulating assets in a way that actually supplies you with ready cash. Why not start learning how to do that today?

Diversifying Tax Obligations

Diversification also balances out your tax obligation. For instance, putting all of your excess income into tax-deferred retirement accounts, such as a 401(K) or IRA, has no guaranteed tax benefit. You’re merely pushing your taxes off to a later date, with no way of knowing whether they’ll increase or decrease. But if you had to guess, which way do you think taxes will go?

Shifting the risk is as simple as allocating your money in products that have you pay tax today, while growing tax-free for the rest of your life. Roth’s and whole life insurance are examples of such vehicles, and will give you more flexibility when taxes and tax laws inevitably change.

As the old saying goes: “Pay taxes on the seeds, not the harvest.”

Control is Freedom

It’s important to invest in things over which you have some control. Without it, you’ll be hard-pressed to have complete financial freedom. Although investing in a stock market technically makes you an owner of a company, you don’t have control over the company’s affairs, or how the stock market operates. I’d rather see you put your biggest chunk of change somewhere that gives you that control.

The first step is to create a strong foundation of ready cash while investing in your personal and professional development. Doing so will likely pay off in the form of a promotion, a raise, or a job that gives you more fulfillment.

Rental real estate is another good asset in which to invest, because you own the property and can control how it’s operated. The benefits are: increased cash flow, capital appreciation tax benefits, debt reduction, and greater leverage—among other benefits.

The same goes for directly investing in a privately held business. Unlike public corporations, in which you’re likely a tiny player, private companies grant you much more control over how the investments are run and managed.

The more your money is tied up in things you don’t control, the greater your exposure to risk.
Maintaining assets that allow you to manage directly how your money is handled, is far less risky than the “set-it-and-forget-it” mentality of the market.

True Diversification

My hope is that the wheels are turning, now that you’ve read some of these ideas. You don’ have to give up control of your cash in order to diversify effectively, and in fact staying in control gives you the financial freedom that you crave.

Working from a strong financial foundation, such as whole life insurance, you can be in a position of cash, which enables you to seize more and more opportunities for growth. This is true diversification, insured by an asset that provides certainty. Use it to position yourself favorably against taxes, regulations, and volatile markets.

Don’t live life with any regrets, financial or otherwise. Take control of the reigns and live the life that YOU want.

To discuss how diversification can best be utilized in your financial and retirement plan, schedule an appointment today.

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Prosperity is within your control.