Tax-Free Income: A Guide to Reducing Your Taxes Legally While Going Green (Part 2)

Only you have the power to reduce your taxes! This is because you have to know which actions will result in the ability to write off a cost as an expense. You have to know enough about how to apply the tax code to your situation in order to use it to your benefit.

For example, you don’t have to know all of the rules of a 1031 exchange, just that you know what one is and when you might be able to take advantage of one.

 

Tax-Free Income_ A Guide to Reducing Your Taxes Legally While Going Green (Part 2)

Similarly, you don’t have to know the exact tax form you need to write off a recent home energy efficiency purchase (e.g.insulation). You just need to know that you can lower your tax burden and reduce your utility bill by adding insulation to your home.

In fact, adding adequate insulation is one of the most cost-effective home improvements that you perform on your property.

Tax Credit Amount: 10% of the cost, up to $500.

You can find plenty of ways to insulate your home at Eco Economic’s Sustainability Shop.

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You Are Your Own Bookkeeper:

 

To take advantage of this tax credit, all you have to do is keep track of the expense on a spreadsheet and give it to your tax accountant at the end of the year. You are your own bookkeeper, which can be a good or bad thing.

It’s great if you know which expenses to keep track of or terrible if you don’t know what you are doing.

If you don’t know what you are doing, the result will be that you will pay the most you can possibly pay in taxes.

 

Why You Need to Understand the Principles of the Tax Code:

 

The government uses incentives to get the free-market (entrepreneurs, homeowners, and investors like you and me) to focus on projects that it wants us to invest in, build, and/or fund.

The government wants people to “go green”, which is why they provide a 30% tax credit for installing solar panels and offer a credit of 10% of the cost, up to $500 for adding insulation to your home.

When we do want the government wants, the government rewards us with tax breaks!

Luckily, you don’t have to memorize all 2,600 pages of the tax code. You just need to understand the principles behind them.

Once you understand the tax code principles, you’ll know when you may be in a situation to write an expense off. When you get good at recognizing these kinds of situations, you will edit your actions so that you purposely take the path of putting yourself in more of these kinds of situations.

The saying, “You don’t know, what you don’t know” rings true in this situation.

If you spent time learning about the principles behind the tax code, then when you find yourself at a crossroad, you can ask your tax advisor how to navigate the situation to your advantage.

With the tax code principles in hand, you can apply this knowledge to your daily actions.

For example, you can write off meals with a business partner or a friend who consults in your industry.

You just have to write down:

  1. What you talked about
  2. Who you eat the meal with

 

Then you can write it off as a marketing or consulting expense.

The two areas that our government gives the most tax incentives are in the areas of owning a business and in real estate. This is because these two areas provide jobs, housing, products, and services.

 

 

Sustainable Business Practices: Upcycle, Recycle, and Downcycle

 

 

It is becoming an indisputable fact that the future of business prefers ESG companies.

The world’s economies are slowly moving from a linear to a circular economy. The main driver is due to the fact that the “old way of doing things” is just no longer a viable option.

The transition toward a circular economy has to occur because our linear economy of “make, use, and dispose” is unsustainable.

The goal of a circular economy is to use raw materials more efficiently, resulting in a reduction in waste. When a product reaches the end of its life, its materials are kept within the economy wherever possible. By doing this, we can continue to use the same materials over and over again.

In a circular economy, we would “make, use, and return”. Here is a great video by CNBC that quickly explains how a circular economy works.

 

Upcycling:

 

Upcycling, also known as creative reuse, is the process of transforming by-products, waste materials, useless, or unwanted products into new materials or products of better quality or for better environmental value.

In other words, upcycling is the process of converting old or discarded materials into something useful and often times more beautiful with more value.

Downcycling: 

 

Conversely, downcycling is a recycling practice that involves breaking an item down into its component elements or materials. Once the elements or materials are recovered, they are reused if possible. Usually, the reused materials are created into a lower-value product.

The main take away is that resources are limited because our planet does not have the capacity to produce an unlimited amount of natural raw materials.

For example, not only is the amount of copper in the ground is finite. But, pulling new copper out of the ground results in deforestation and the use of transportation fuel (which is bad for the environment and our Global Warming problem). Instead, it would be better for us to reuse the copper that is already in circulation.

 

 

Why We Need to Move to a Circular Economy:

 

The human population continues to grow at an incredibly fast rate. In fact, the UN reports that “roughly 83 million people are being added to the world’s population every year”.

The latest world population projections indicate that the global population will reach 10 billion people in the year 2055 and 11 billion in the year 2088.

To see a website dedicated to the global population growth visit worldometers.info. It is pretty scary to watch how many people are born every second and know that each one of those people needs to be fed, clothed, and bathed. Now imagine that each one of those people wants to buy a house, car, and iPhone.

 

 

How to Reduce Your Carbon Footprint While Increasing Your Income?

 

Eco Economics is devoted to helping you learn about personal finance while creating a more sustainable future.

Remember, saving is the core of investing. One way you can save money is by buying reusable and sustainable products. A second way to save is by insulating your home.

Start saving money today so that you can purchase income-producing assets to secure your financial future.

Becoming a minimalist will inherently help you save more money (because you are buying less). This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

How to View the Tax Code: 

 

By learning the tax code you can keep more of your hard earned money.

Think about your financial IQ, financial report card, and financial freedom like it is a game. Once you shift your perspective, you will love learning about how to win the Financial Freedom Game of Life.

Treat the tax code as if it were a treasure map. As you follow the map, your taxes will go down. In turn, you get to keep more of your money, which you will then re-invest to make more money!

The Financial Freedom Game of Life is exactly that… A Game, so use all of the tools you can to ensure that you have the best chances of winning.

Are you saving for retirement? Hopefully, the answer is yes. If it is “Great”!

Are you invested in mutual funds? Like a Target Date Fund?

If the answer to this is yes, you are likely paying too much in fees!

To quote Nerdwallet,

“A 1% Fee Could Cost $590,000 in retirement savings over 40 years.”

Want to learn more about how to create a diversified low-cost stock portfolio that will perform well in any market?  Want to reduce your taxes? Know the difference between tax incentives, credits, and deductibles? Interested in knowing how to tax defer indefinitely?

Sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

 

Be a Life Long Learner:

 

There are many ways to learn throughout life, all of which cost money, time, or a combination of both. Typically, there are 3 ways to learn. You can pay to learn a subject, ascertain knowledge from a mentor, or you can go through the-school-of-hard-knocks.

With a mentor, you are limited to the time that you are able to physically spend with them and you need to coordinate your schedules. Your mentor has their own life, so you will likely need to conform your schedule to theirs.

The difficult part with the “learn-as-you-go” through the trial-and-error method is that you may not know what you should have done instead.

More importantly, you cannot undo mistakes (you can only learn from them because the damage is already done). Typically, there is a cost for fixing a mistake, whether it be a monetary or time cost.

Another result of the “learn-as-you-go” through the trial-and-error method is that you will constantly get blindsided by obstacles and have serious feelings of uncertainty.

 

 

The Increase Your Financial IQ Course: 

 

 

For some strange reason, high schools don’t give you the tools to prepare you to face the world of finance. I got my B.S. in International Business and a Master’s of Business Administration.

After all of that schooling, none of the accredited curriculums taught about how to master your personal finances.

What did they teach instead?

How to manage finances for a company i.e. balance sheet, income statement, calculate the time value of money.

Everything was geared toward helping a company, and none of it was focused on how I can create the best financial springboard for myself.

Luckily, I have been passionate about wealth management since I was 19. This passion led me to read and listen to books written about investments, personal finance, retirement funds, estate planning, and taxes.

I was further shocked by the fact that none of these books have taken the topic of personal finance full circle. This is the reason why I became so passionate about creating a course that teaches personal finance from many angles and about the many subjects within the realm of personal finance.

What the Course Covers:

 

The first course that I will be releasing (soon) is called the “Increase Your Financial IQ Course”. It will cover the following topics:

  • Starting small by having $1,000 in savings
  • Budgeting (The 50%, 30%, 20% rule)
  • 5 methods of debt payment
  • Managing your credit
  • Roth/Regular IRA’s and 401k’s
  • How to create a diversified stock portfolio (ETFs)
  • A macro view of the economy (the Federal Reserve)
  • Purchasing your first home (the process, down payment assistance plans, PMI, etc.)
  • How to save for your children’s college fund (529 plan, Education IRA, UTMA/UGMA)
  • Long term care insurance

 

 

How to Get the Most from the Courses:

 

The first 3 sections from “saving $1,000 to the 5 methods of debt payment” will be covered rather quickly. Basically, saving is the core of investing. You have to learn how to prioritize every dollar.

If you want to save more money, you’ll have to either earn more or get creative and find lower-cost substitutes. If you make $1 million and spend $1 million you are still living month-to-month. You have to learn how to live below your means.

This being said, more attention will be paid toward the sections discussing “credit to long term care” (the modules will be longer with more in-depth content).

While my goal is to help you understand finance, I really want to help those who truly desire to attain Financial Freedom. To attain this goal, you have to have personal restraint and discipline.

 

 

Why I am Creating These Courses:

 

The Increase Your Financial IQ Course is designed for the person “renting a home and living month-to-month”, and getting them into a position where they can save enough to invest in income-producing assets and purchase a home.

The Financial Freedom Course is designed to help take you from owning a home to purchasing investment properties and focuses on tax-advantaged strategies of wealth creation.

The ultimate goal is for you to make enough passive income to quit your day job.

If you are interested in either of these courses, sign up for the FREE Increase Your Financial IQ Email Course for more information on sustainable financial planning and wealth creation! By signing up, you will be the first to know when my Increase Your Financial IQ Course becomes available.

 

Like what you see? Stay a while!

 

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below!

 

How to invest in socially responsible companies while timing the market

How to Invest in Socially Responsible Companies while Timing the Market

“How to time the market?”, is an age-old question. In this article, I will go over how you can use market indicators to decide where we are in the economic cycle and how to create a balanced portfolio. First, I’ll talk about how to invest in the market and when. Then, I will talk about how you can use this information to create an impactful investment portfolio by investing in sustainable and ESG companies.

How to invest in socially responsible companies while timing the market

Technology has enabled people, like you, to invest in small quantities resulting in:

  • Millions of new stock owners with sustainable ideals that companies cannot afford to ignore
  • The ability to diversify
  • A reduction in overall cost associated with investing (fees)

I’ll show you how you can diversify your portfolio while making a positive impact on the environment by supporting companies that help solve the world’s biggest challenges.  It is about putting your dollars to work by buying products from and investing in companies that put the people and the planet first.

In my post called, “Sustainable Investing: How to Diversify and Perform Well in Any Market” I talk about using the business boom and bust cycle to think critically about which sectors of industry will perform well and why.

For example, consumer staples, health care, and utilities tend to do well or at least hold their value in recessionary times.

Why? Because you need to buy groceries, go to the doctor if you get sick, and turn your lights on at night… You will do these things, even when the market is down.

There are two kinds of mentalities when it comes to investing. You are either a Momentum or Contrarian buyer.

Not sure which one you are? Read “Investing Strategies: Contrarian Versus The Crowd Consensus”.

Once you have a good idea of whether you are a momentum or contrarian buyer, you can use the following two indicators to help you make purchasing decisions. In the Increase Your Financial IQ Course, I go over several other market indicators, but for now, these two will provide a great start.

 

 

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1. The Fear and Greed Index (Consumer Sentiment):

 

Consumer sentiment is “how the public feels” about the current state of the economy. One useful metric is to use CNN’s Fear and Greed Index, which is calculated daily.

 

CNN fear and greed index
Photo Credit: CNN Money

 

 

The Fear and Greed index is composed of the following 7 economic indicators:

CNN fear and greed index
Photo credit: CNN Fear and Greed index

 

 

 

2. The Federal Reserve:

 

 

I like to go straight to the source. What better way to see where the market is going than to watch a 45-minute recap of the Federal Reserve Open Meetings (FOMC)!

The Federal Reserve is the entity that sets the monetary policy and tone of the economy. They meet 8 times a year, and their full-time job is to think about the US economy.

One serious indicator is whether the Fed is raising or lowering interest rates.

Why should you pay attention to interest rates? 

When the Fed wants to get the economy out a recession it will lower interest rates to spur lending. This allows businesses to borrow, buy equipment, and hire people.

Conversely, when the economy heats up too quickly, the Fed will raise the interest rate to slow it down. When businesses and individuals borrow too heavily, they become over-leveraged. Their debt-to-income ratio gets too high, and the rate at which people default on loans go up.

This, in turn, can lead to a domino effect…Where one person’s missed payment is someone else’s income, which causes that next person to miss their payment.

When people become over-leveraged, it means that they do not have enough equity (cash or liquidity) to cover their debt obligations (payments).

Interest rates are just 1 of 3 major powers that the Federal Reserve has to help stabilize the economy. I go into a ton of detail about this subject in the Increase Your Financial IQ Course (coming soon)! 

Remember, economic reports like the Fear and Greed Index, GDP, and employment rates are statistics that tell us about the current and past state of the economy. It is telling you how the economy has recently performed.

Indicators like the Federal Reserve changing the interest rate reflects how the economy is doing and is a more forward indicator. The Federal Reserve will adjust interest rates based on its analysis of where the economy is and what the future looks like.  

 

 

Owning a Mix of Offensive and Defensive Stocks

 

 

It is important to compose a portfolio that has both offensive and defensive stock so that you can be prepared for a fluctuating market.

Let’s take a look at what offensive and defensive stocks look like…

 

A Few Examples of Offensive Stocks are:

  • Financials (banks, lending companies, etc.)
  • Homes (home builders, Home Depot, machine/equipment to build or remodel, etc.)
  • Technology (consumer technology)
  • Consumer discretionary goods (cars, luxury goods, etc.)

 

These kinds of stock do well when the public has confidence in the market. On the other hand, in recessionary times, people tend to tighten their belts and not purchase luxury goods.

A rule of thumb is to think of offensive stocks as ones that tend to experience greater fluctuations during economic booms and bust cycles.

 

A Few Examples of Defensive Stocks are:

  • Utilities
  • Health care
  • Blue chip
  • Commodities
  • Grocery stores

 

These kinds of stocks are more reliable and aren’t as heavily impacted by the market.

For example: If economic times are good, you probably aren’t going to start leaving all of your lights on, buying 3x more groceries, and getting surgeries that you don’t need. Conversely, if economic times are bad you aren’t going to stop going to the grocery store or taking your medication.

One way that can help you decide whether a stock is a defensive or offensive purchase is by looking at its Beta.

Often times the Beta can help you decide when to invest in a stock (Sector Investing).

So what is Beta you ask?

 

Beta:

 

Think of the number 1 as being equal to the “markets performance”, and a company’s Beta is always in relation to the market.

Beta is a number between 0 and 2. I suppose you could have a Beta that is higher than 2, but that just means that the stock is 2x as volatile as the market.

If a stock has a greater than 1 Beta, it typically means that the stock will do really well in good times. Conversely, a stock with a greater than 1 Beta will suffer more in bad times. Just equate a large Beta with more volatility.

For example, KB Homes (a new home builder) has a 1.47 Beta. Note that, the Beta can change depending on the stocks perceived volatility.

Photo credit: Yahoo Finance (please note that stock prices are always changing)

 

If a stock has a lower than 1 Beta, then the stock will tend to hold its value. Economic hard times won’t have a massive negative effect, but the stock won’t rally in a meaningful way in economic good times either.

Now, let’s talk about how you can use this information to create an impactful investment portfolio by purchasing in sustainable and ESG companies.

 

A Case for Including ESG Companies in Your portfolio:

 

A study published by Taylor & Francis Online combined findings from 2,200 individual studies and concluded that “the business case for ESG investing is empirically very well founded.”

This means that after studying and combining all of the research from several thousands of studies, the authors found that investing in companies that care about its social and environmental impact is financially practical.

The old line of thinking used to stand that, “You can either make a profit or do good”. That you could only accomplish one or the other. This study shows that this is no longer the case.

Agencies like MSCI perform reviews of ESG funds and assign them a rating called an “ESG Quality Score”.

Since its founding in 2006, the United Nations Principles for Responsible Investing (PRI) has attracted over USD $68 trillion in assets under management as of April 2017.

In a prior article, I list 5 great ESG ETF Funds that you can invest in that will allow you to support companies that “Do Good”. Eco Economics is about helping you support these kinds of companies.

You can make a difference in two ways:

  1. Buying natural, reusable, and zero waste products from Eco Economic’s Sustainability Shop
  2. Taking ownership in ESG companies through the purchase of their stock

Owning stock in a company helps the company by raising money to invest in R&D and buy equipment to produce more products.

 

 

Why should we invest in a Low Carbon ETF?

 

 

Here is a TED talk by Bill Gates on how we can solve the Global Warming issue. We have to solve this issue and fast! After all, it is our lives at stake.

 

 

 

The Take Away:

 

In sum, it is not about selling stocks on Wednesday and planning to buy them back on the following Monday. Smart investing is based on long-term (patient) investing in companies with strong fundamentals. Moreover, it’s about properly diversifying your portfolio. If you are investing in ETF’s consider manually dollar cost averaging.

Are you interested in increasing your knowledge of personal finance and want to learn about how you can live a more sustainable lifestyle? Sign up for the FREE Increase Your Financial IQ Email Course for more information on sustainable financial planning and wealth creation!

To quote a Forbes Article,

“The success rate for day traders is estimated to be around only 10%, so … 90% are losing money.” 

Similarly, the article quotes Cory Michael’s (Vantage Point Trading) even more pessimistic view. He says,

” Only 1% of [day] traders really make money.” 

So how can you start saving money today so that you can increase your investment portfolio?

Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Eco Economics was created to help you learn about personal finance while creating a more sustainable future. 

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

 

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Do you invest in an ESG company? If so, which one? Feedback is always welcome, so feel free to comment below!

 

 

How to use the tax code to your advantage

Tax-Free Income: A Guide to Reducing Your Taxes Legally (Part 1)

The government uses incentives to get people to do what they want them to do. For example, if the government wants more affordable housing, then it will provide some great incentive to get you (an investor) or developers to invest in affordable housing.

My goal is to get you to have a different perspective on taxes. I want you to start seeing taxes as our government’s way of incentivizing people to help them accomplish their economic and social agendas through tax breaks.

How to reduce your taxes legally

Over the next several posts, I will be writing a guide on how to lower your taxes permanently and the legal way! Currently, I am creating the “Increase Your Financial IQ Course” and am now adding on to create the “Financial Freedom Course”. 

 

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Who Receives the Most Tax Breaks?

 

Business owners and investors receive tax breaks because they provide jobs, housing, products, and services.

Starting your own business can be risky, as only 1 out of 10 make it. This is why the government gives incentives to entrepreneurs so that the model of, “with greater risk, comes greater reward” motivates people to take chances. 

In a prior post, I write about how there are 3 streams of income (earned, passive, and portfolio).

Earned income is taxed at the highest tax rates, while passive and portfolio income is taxed at capital gains rates. 

The reason why you pay less in taxes on investments (passive and portfolio income), is because you have already paid earned income taxes on this money. You needed to earn the money prior to being able to invest it. 

Moreover, when you invest in real estate or a company (through the purchase of a company’s stock) you are supporting the economy.

You will see that the two areas that the government gives the most incentives are in the area of owning a business and in real estate. This is because they want you (private industry and entrepreneurs) to employ and house the public.

Why? So they don’t have to do it…

Because we live in a free-market and semi-capitalist society. I say that we live in a semi-capitalist society because the government does intervene with stimulus packages, subsidies, and tax breaks.

If the government did all of the employment and housing of the public… Then, by definition, we would live in a communist economic model. History has taught us that the communistic model is not truly equal and is one of the most wasteful and inefficient uses of time and natural resources.

 

Tax-Free

 

 

How to Reduce your Taxes Through Real Estate and Owning Stock

 

 

A Private Residence:

 

 

When you purchase a home, you typically need to take out a loan. This loan is generated by a mortgage lending officer. You probably used the help of a real estate agent, who also gets paid. Then, you purchase furniture for your new home and hire a handyman to make a few improvements. Suddenly, your kitchen faucet springs a leak and you decide that you want to plant an edible organic carbon sequestering garden. This requires you to run to the nearest home improvement store to buy maintenance and gardening tools.

Please note, there is no “income or cash flow” because you are living in the home. Your tax incentive in this situation is that you get to write off the interest that you pay on the mortgage of your home.

The government wants you to own your own home because owners take better care of their properties. This, in turn, increases the curb appeal and boosts the neighborhood appeal. Moreover, homeowners support local handymen, contractors, and electricians.

What’s more is that you likely had to save enough money for a downpayment, meaning that you are making enough money so that the government isn’t having to support or provide you with low-income housing.

 

 

An Investment Property:

 

When you purchase a rental property, you basically help the economy in all of the same ways that you help it by buying a personal residence… You most likely provided income to a lender by taking out a loan and generated revenue for a bank. Used the help of a real estate agent, appraiser, and purchased a home inspection. Except for this time, you are providing housing.

 

Tax Breaks for Rental Properties:

 

You can deduct the following expense…

  • Mortgage interest payments on loans used to acquire or improve rental property
  • Interest on credit cards for goods or services used in rental activity
  • Depreciate a portion of the cost of the property over several years (27.5 years for residential property)
  • The cost to repair the rental property
  • Pass-through tax deduction
  • Travel to check up on your rental or to provide/meet a maintenance person
  • Home office (write off a portion of your primary residence that is used as a home office)
  • Employees and independent contractors
  • Legal and professional services

To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel and other write-off expenses that you deduct.

The Financial Freedom Course will discuss this in greater detail.

 

 

Owning Stock in a Company:

 

Most tax breaks are given to business owners. That being said, you can take advantage of being a business owner while not having to start your own business. The Financial Freedom Course will go into greater detail about the many different tax write-offs you can claim when you own your own company.

By owning stock in a company, you get to pay capital gains tax (15%-20%) on any dividends you receive or on the profits when you sell your shares.

Moreover, should you need to liquidate your shares and happen to lose money from the sale of your stock, you can roll the losses forward to the next tax year. This means that you can offset your gains (up to $3,000), and roll any residual losses to be applied to the following year.

One of my favorite books is by Tom Wheelwright, who is the author of Tax-Free Wealth. In his book, he helps you learn tax planning concepts in simple to understand terms.

He teaches you how to use your country’s tax laws to your benefit. Tom Wheelwright tells you how the tax laws work, and how they are designed to reduce your taxes, not to increase them.

 

 

 

Tax Free Wealth

 

 

This guide has been written and is to be used as general information. This is not professional or financial advice that is specific to you. In other words, I am not A CPA or lawyer and the opinions/representations on this site are my own.

While I have a B.S. in International Business and an MBA with an Emphasis in Renewable Technology, I am not providing financial or legal advice that is specific to any one person.

 

 

The Take Away:

 

 

The government uses incentives to get the free-market (entrepreneurs and investors like you and me) to focus on projects that it wants them to invest in, build, and/or fund. When we do want the government wants, the government rewards us with tax breaks!

By learning the tax code you can make more money, or at the very least, reduce your tax liability.

Think about your financial IQ, your financial report card, and your financial freedom like it is a game. Once you shift your perspective, you will love learning about how to win the Financial Freedom Game of Life.

One of the keys to building massive wealth is by permanently lowering your taxes. Economic policymakers know that the public responds to tax incentives, which is why they have created them. 

Taxes are apart of everyone’s life, and they are here to stay. Instead of complaining about them, use them to your benefit!

Treat the tax law as if it were a treasure map. As you follow the map, your taxes will go down. In turn, your profits and return on investment will increase.

The Financial Freedom Game of Life is exactly that… A Game, so use all of the tools you can to ensure that you have the best chances of winning.

By learning the rules you will start to enjoy the game and the treasure hunt. Especially when you start to see your wealth accumulate. 

 

 

Be a Life-Long Learner: 

 

 

Want to learn about how you can grow your retirement account by investing in commodities and skip paying the 28% capital gains tax legally? Read my prior article called, “Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”

So how can you start saving money today?

Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Eco Economics was created to help you learn more about personal finance while creating a more sustainable future. 

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. Visit Eco Economic’s the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

Want to learn more about how to reduce your taxes? Know the difference between tax incentives, credits, and deductibles? Interested in knowing how to tax defer indefinitely? 

Sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

 

Like what you see? Stay a while!

 

If you have learned anything new, please remember to share so that I can continue to provide you with more free content!

Feedback is always welcome, so feel free to comment below!

Sustainable Investing_ How to Diversify to Perform Well in Any Market

Sustainable Investing: How to Diversify and Perform Well in Any Market

Both global institutions and individuals alike are taking a sustainable approach to pursuing their investment goals. The thought used to be that you could only accomplish one goal (sustainability or profit) at a time.

Today, statistics reveal that you can achieve diversification through the purchase of ETFs that specialize in Socially Responsible Investing (SRI). Through SRI you can help create a more sustainable future and develop a portfolio that will perform well in any market.

 

A common debate with SRI investing revolves around the idea that incorporating socially responsible factors into the investment process will hurt overall performance.

However, some studies suggest that companies with ESG practices displayed a lower cost of capital, lower volatility, and fewer instances of bribery, corruption, and fraud.

On the other hand, studies show that companies that perform poorly on ESG have a higher associated cost (in the long run). These costs are linked with an increase of capital, higher volatility due to controversies, and other damaging incidences. 

Companies that do not create contingency plans or mitigate risks face massive PR backlash from spills, labor strikes, fraud, accounting, and other governance irregularities.

 

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Diversification:

 

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio.

The rationale behind this technique is that a portfolio that contains uncorrelated investments will have a higher return. This is because stocks that are uncorrelated move in different directions during different times of the economic boom/bust cycle.

In laymen’s terms, “not having all of your eggs in one basket”. 

By purchasing stocks that are different from each other (whether by company size, industry, sector, country, etc), you are spreading out your risk.

Diversification)

 

 

 

Making a Positive Impact by Investing in Socially Responsible Funds:

 

 

One way to diversify is to invest in socially responsible companies through ETFs. In the money management world, Socially Responsible Investing (SRI) is also known as ESG (environmental, social, and governance) funds.

You can make an impact today by investing in sustainable companies that help solve the world’s biggest challenges.  It is about putting your dollars to work by buying products from and investing in companies that put the people and the planet first.

In a prior article, called “New Year’s Resolutions to Create a Sustainable 2019“, I write about how UN scientists have recently released a warning. In their statement, the UN gives the world less than 15 years to reduce the carbon output to nearly 0 or else face serious climate change consequences. 

What’s really scary to think about is that three-quarters of the world’s mega-cities are by the ocean. Just imagine the level of geopolitical instability that would occur should billions of people need to relocate due to rising sea levels.

According to the UN, 2.4 billion people (40% of the world’s population) live within 60 miles of the coast. To give you a comparison, the recent instability in Syria has displaced 13 million people.

Ask yourself, what would happen should 1 billion people need to find new homes. I am not an alarmist, I just want you to know the facts.

So what can you do? Become minimalist, which will inherently help you save more money. This, in turn, will allow you to invest more. The zero-waste lifestyle has many health and budget benefits.

Support sustainable businesses by buying products from and investing in companies that put the people and the planet first. 

Check out Eco Economic’s Sustainability Shop to find nifty swaps for plastic/disposable items with more sustainable alternatives.

 

 

Sector investing: Using the Business Cycle

 

I am sure you know that the economy goes through economic cycles. These ups and downs in the economy are called boom and bust cycles or bull/bear markets.

So if you know that these cycles exist, then it makes sense to study which sectors of the market do well in each phase of the cycle.

The photo below, provided by mrshearingeconomics, is a great depiction of how our economy expands and contracts to grow over time.

economic cycles

Early-cycle Phase:

 

Sectors that typically benefit the most are ones that thrive due to a reduction in interest rates.

Interest rates are set by the Federal Reserve, which meets 8 times per year. A reduction in interest rates spurs the economy because it incentivizes companies to borrow/take out loans. 

The industries that benefit first are:

  • Financials
  • Capital goods
  • Transportation
  • Raw materials (aluminum/copper)
  • Consumer discretionary

Mid-cycle Phase: 

 

The mid-cycle phase is characterized by a positive but more moderate growth rate than the early-growth phase. Typically, the mid-cycle phase is the longest phase of the business cycle. 

The industries that benefit the most from this phase are: 

  • Information technology (Nasdaq)
  • Real estate
  • Industrial
  • Raw materials
  • Transportation
  • Manufacturing

Late-cycle phase:

 

In this stage of the business cycle, the economy has “overheated” and will soon slip into a recession. There is a tightening of credit availability and corporate profit margins begin to deteriorate. Unfortunately, consumers and businesses become overleveraged and begin to miss loan payments.  Moreover, company inventory levels become too high, and not enough of their products are selling to continue the growth curve trajectory. 

The industries that benefit the most from this phase are: 

  • Energy 
  • Health care
  • Consumer staples
  • Utilities

The Recession Phase:

 

Often, this phase is marked by a contraction in economic activity. Corporate profits decline and credit is scarce. At this time, the Federal Reserve eases the monetary policy by lowering interest rates to stimulate the economy. Companies offer sales and coupled with a decrease in manufacturing, inventories gradually fall. Consequently, these actions set the stage up for the next recovery.

The industries that benefit the most from this phase are: 

  • Consumer staples
  • Utilities
  • Telecommunication services
  • Health care

Here is a quick video by You Will Love Economics, that explains how the business cycle works.

The Take Away:

 

Diversification is critical to lowering your portfolio’s risk. Simultaneously, by diversifying you can own enough of the market to maximize your gain. Moreover, it gives you the best opportunity to do well no matter what stage the business cycle is in. 

After building an emergency fund, investing for your retirement through a Roth IRA or 401k is the most important financial step you can make to ensuring that you can retire comfortably.

Want to learn how you can grow your retirement account by investing in commodities and skip paying the 28% capital gains tax legally? Read my prior article called, “Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”

Striving toward a more sustainable lifestyle is one goal that has budget, environment, and health benefits. Don’t forget to check out the Sustainability Shop to get started on your path to a minimalist/zero-waste lifestyle!

Want to learn more about sector investing? Why each sector benefits from its correlated phase of the business cycle? And how to use the business cycle, and which segments to invest in and when?

The Increase Your Financial IQ Course will take a deeper dive into creating a personalized financial plan that will help you feel confident in your future. This course will cover other wealth building strategies in more detail, but for now, sign up for the FREE Increase Your Financial IQ Email Course for more information on financial planning and wealth creation!

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Feedback is always welcome, so feel free to comment below! What’s your favorite sustainable brand?