U20 – Asset Allocation Part II
0:02
Well, hi, it’s John Jay here. And I want to share some strategies with you.
0:05
The punchline, and the reason why I’m doing this, the end result is I want to explain what I really mean about. Or I’m gonna give you some ideas and strategies, too.
0:16
Have a method, other than paying off debt fast, just because you have a windfall. I know you hear me say this all the time and I rattle off some ideas, but I wanted to share with you actual strategies, and I’m leaving is basically a long answer.
0:33
And I’m gonna introduce some tools and services to you.
0:38
Just so you can have an idea of things that are available to help you manage cash flow or temporarily managed property.
0:49
you’ll see it’s it’s a way to do it so that you’re not only in cryptographic currency.
0:54
Um.
0:57
So, the couple of rules here is this.
0:58
While I’m doing the video, I don’t want you to pay debts too early. It’s not good use of capital. You can ask any good banker that’s willing to tell you the truth. Ask an account.
1:08
your net present value goes way down.
1:09
Your internal rate of return goes way down when you pay debts early and if years goes way down, the lenders goes way up. Why would you give the lender free money? OK, just look into that, net present value. I have a video on this, too, on cap rates and gross rents and how to make calculations and how to compare assets and look at cash flow values.
1:30
Alright, so don’t pay debts early, it’s one thing to say it, but I’m going to give you some strategies here as to how to accomplish that.
1:39
Part of that, OK, like, paying cash for assets or even paying cash for liabilities, or paying upfront, too, settle, pain advanced, or, in one lump sum, pay off consumer debt.
1:55
Do not be your own lender. This is a bad use of capital.
1:59
You want some loan risk because you’re offsetting the risk that you understand and having someone else take on that risk who understands that part of the risk.
2:11
So, it’s like, you know, Russell Simmons says, Stay in your lane, OK, that’s what we’re talking about.
2:17
OK, so, I know this may sound unrelated, but I want to introduce introduce you to a service if you haven’t heard this before. It’s a It’s a vault or transportation service, it transports valuables, like tokens, and valuables tokens, the chips, jewelry. Precious, metals, coins, rare, coins, things, of value, this service called malka emit.
2:42
An MA, LLC, a dash MIT malka emit transports, valuables, it’s kind of like Loomis or Wells Fargo, or Brinks.
2:52
So check them out.
2:54
I believe it’s an Indian based company in India, and then there’s another one, now you may have some friction if you’re a US citizen, so just be aware of that.
3:04
Another one is via mat V I a, M a T, so check out that service. Again, they, they have a vastly different service for US citizens, if they have one at all.
3:14
But they have, you know, you’ll see, when you’re, when you’re needing to move things, look at, via Matt and Malka I met.
3:22
Now, I did mention the, this other service in a previous video video, it’s called, OCR and I used to, at one point, know what the CRA meant but I’ll just tell you it’s a network of hundreds of professionals around the world and they have attorneys and accountants.
3:37
In fact, if you wanted to buy a yacht and figure out who your broker should be, where you build it or where you buy it and where you should flag it and how to insure it.
3:47
When you buy a yacht, it comes with a budget.
3:50
It’s actually like buying a business.
3:52
Although a yacht is a losing business, it’s always going to lose money for the most part most. Most yachts are not going to make money if you’re trying to, you know, even if you’re trying to run it as a business.
4:02
So what CRA can do for you as one example is they can get you the budget and the broker and the proper flag and insurance and all that for purchasing a yacht.
4:16
I’m not saying you should go off and do that, I’m just saying it’s one of the the services you would use. If you’re doing that, you wouldn’t you wouldn’t want to go try and buy a yacht. I mean a really nice yacht you wouldn’t want to do that like you’re shopping for a car like you’ve used to do like you’re used to doing.
4:32
So OCR A, and I believe it’s website is oh CRA dot com, I’m just going to read to you a little bit from its website. It’s basically, it says, it’s a global corporate, a trust service provider, OK, It’s been around for, you know, 35, 40 years.
4:49
They have, they set up company structures. They provide services like, really, if you want to buy an airplane or a yacht or you know, do something big, these guys can help you get set up properly.
5:02
They’re the real deal.
5:04
I also want to introduce you some language.
5:07
Now, in case you don’t know this already, um, if you need to put money somewhere besides cryptographic currency and something that’s traditional, you can look at what’s called a goal or good delivery, gold bars, good delivery gold bars, and also Kyla Bars, now, there’s a lot.
5:23
There are many gold bars, I would say, good delivery bars, gold bars, that are converted to Kyla Bars, OK, a killer bar is £2.2 Go delivery is let’s see here go delivery ranges from 350 troy ounces to 430 troy ounces OK?
5:41
I don’t know why there are difference there.
5:44
There’s different dimensions.
5:45
They have different physical, physical properties, but they do fall within a certain criteria, and they’re good delivery bars, So it’s a nice way to store a lot of money in one small place.
5:55
If you’re into that, if you need to do that, um, just look into it.
6:00
Good Delivery, Gold bars, and kill bars. Many of the Vault services you’ve probably dealt with have access to these.
6:06
Boy instar of course.
6:07
Now, you know, Bullying Star has a bit of a premium. So you can shop around.
6:12
But that is a convenient tool. I’ve used this before, to move money between countries. So I like to use the Vault storage systems, and now it’s even easier with Bitcoin. So there’s that, I’m not gonna bore you with all the details, but you can look it up yourself. Now, here’s an interesting thing.
6:28
Many people don’t talk about this, but, um, loose diamonds are a way to store money. In fact, loose diamonds are money around the world and most most places, especially in Africa. Now, there’s a, I know there’s a bad rap on blood diamonds, so you gotta be careful about what you’re buying.
6:43
But there is a diamond profile, and I’m going to, you know, what, yeah, I’m gonna put it with this video, But I’m gonna explain it briefly right here.
6:52
There are some criteria under which you want to buy some diamonds, if you, if you’re looking at diamonds, so I can take, I could take a million or even $10 million worth of diamonds and literally put it in the bottom third of my coffee cup while I’m drinking the coffee.
7:07
And it’s perfectly preserved concealed. It’s a small space. It’s not detectable, OK.
7:13
It’s Diamond’s its carbon.
7:15
All right, so I have two profiles.
7:19
Now, there are, these are called on EGS, or G I A. Certified, you can look up what that means.
7:26
I have what I call an 8% profile.
7:29
So an 8%, um, is like a return on my money, OK, 8%, but buying these diamonds and then selling them later. I’m gonna expect an 8% return and the same thing. I’ve got a 16% profile, so I just pick those two categories. I made them up myself. And here are the criteria. Now, I base the, this, these two profiles off of statistics or data, from the years 2003 to 20 13.
7:56
And diamond trades around the world. I did a lot of research on this. And the, there’s, let’s say five, yeah, five characteristics.
8:04
It has to do with the color of the diamond, the clarity, the carrot, the cut, and there’s, let’s see here.
8:13
Yeah, that’s for then the other characteristic is that its shape, so what I’m talking about is what’s called a round brilliant diamond.
8:24
So this first profile is based on a carrot, which is await of 1 to 2.99.
8:32
I just picked that one. There’s a particular reason.
8:36
And the cut, I’ve chosen is a very good cut, ideal or signature ideal.
8:42
And the clarity is VS, one, V V S two, VBS one and I, F, the colors, D and E, OK?
8:52
So, you can find these diamonds.
8:58
Through not a retailer, I mean, obviously you can find loose time, is there a retailer?
9:02
But you want to go to the cutter.
9:05
And there’s usually a supply chain of several cutters.
9:09
Why me?
9:10
Yeah, maybe it’s a couple of Cutters before it gets to the retailer, so you want to kinda work up the chain, and there’s a way to buy into that supply chain earlier in the chain. So that you can buy it at a good price.
9:23
I’m not saying it, to be cheap, but if you’re going to buy, you’re gonna put, like, 10 or 20 or $50 million, I don’t know if you want to do that.
9:30
But if you want to put a lot of money and diamonds, and it has high liquidity, and a very easy way to store it securely, you want to go and buy it at a decent price.
9:38
And, the way to do it is, you come in with them with some cash, a small amount and you establish your relationship first with the broker or the cutters.
9:48
And then, you do it like this, You come in with, like, a million dollars, and you work out some deals, and then when you see that’s working, then maybe you can put more money on a regular basis, OK?
9:58
The offer you would probably start with is, here, I have some cash, I would like to joint venture with you and buying some more Diamond’s. Maybe you’ll get a better price.
10:08
if you can buy more.
10:09
And I’m gonna ride the coattails so to speak with my cash, and I want to, I want my cut, and, and work out that way. Now that I’m sure there’s other ways to do it.
10:18
I’m just saying, the other profile is the 16%, and I’m just gonna list real quick, those are three carrot to 5.99 carrot. And the cuts are very good, ideal and signature ideal.
10:32
Um, The Clarity is little bit more Clarity, it is V S one V S S two, I’m sorry, v.d.s.
10:37
too, and DBS one.
10:40
And then the colors are E and F Round, brilliant, round, brilliant, that is a very easy diamond defined, It’s very popular.
10:49
I’m going to give you a link to a website where you can go in there for free, you can login, you can create an e-mail account with your e-mail address. You can login and create a profile based on what I have here.
11:01
Now I’m going to put this in the comment section, this profile, um, and you can actually see everything that’s for sale and you can narrow it down to the types of diamonds you want.
11:12
And then just say, I want, which ones I want, click a bubble and then put it in your shopping cart and you can order it. And they have wiring instructions and all that stuff.
11:21
Now, I don’t, don’t, I know you’re gonna ask me right away. Can they do they, will they do it for Bitcoin? I don’t think they do that yet, but I’m sure that can be negotiated.
11:30
Um, another thing you want to look into is just to understand right now you can buy bitcoin, that’s what’s called newly minted right from the miners.
11:40
But, I’m sure that’s difficult because PayPal, I don’t know if it’s changed right now, but PayPal has been buying two thirds of all the newly Minted Bitcoins and then another company by the name of Gray Scale.
11:53
Now, it operates under the trust. It’s called gray scales, Bitcoin Investment Trust, OK, G and TC.
11:58
That’s been buying up the other third of the world’s supply of Bitcoin, so, it’s worth knowing or worth noting that there’s a difference between a newly minted Bitcoin and something you can just buy from anywhere.
12:11
I believe it has more value kinda like a newly minted silver gold coin.
12:17
So check that out.
12:19
Now this is what I call the punchline, the last part, where I really want to explain something. I’ve explained many times before where if you have a windfall, it’s so tempting to buy the next asset with cash or pay off debt. Especially debt on liabilities with cash, you shouldn’t really.
12:38
I mean, I could see paying some debt, but not all of my consumer debt just up, some of it, so that I’m I’m at least comfortable with you, but you really want to have some debt and our assets, you probably want to have more debt on assets than you do on personal, OK, Because the asset’s paying for the debt, it’s a good use of capital.
12:56
So if I could, if I could just give you a ratio, I would just say, no more than 50% on personal debt. Liabilities like your house, OK, that’s the liability carr’s, things like that.
13:09
I wouldn’t go more than half.
13:11
I’m comfortable with a quarter of 25% debt on on property, like my house.
13:15
Um, but I would not exceed 80% on an asset.
13:22
Now, that should change, based upon what you’re doing, and your knowledge, and all that. That’s just my take on it from what I’ve seen over the years.
13:27
So, what I always recommend is, yeah, you can pay cash for an asset, but you’re also in the business of lending, because you’re a lender by default. You’re your own lender. I went, I want to suggest you avoid that. How do you do that?
13:40
Well, you go out and get a loan. If you paid cash for the asset, go out and get a loan, or get some financing when you’re buying the asset at the same time.
13:49
You can do that. And once you start getting it going, it’ll be easy for you to do that once you know who to go to. So I’m gonna use some language here.
13:55
So what we’re talking about is, I never really use this language, but it’s called matching funds. So matching funds.
14:03
Know, I use that in a different context. I use that for joint venturing. And I’m not going to get into how I use the term Matching Funds for joint venturing.
14:09
Let’s just say, in this context, matching funds is a better way to go.
14:16
Then, how to avoid a lump sum payment of a debt.
14:20
Because if you don’t know anything else, you would think, OK, I’m just going to pass my debt in one lump sum. It does all kinds of havoc for you. It’s going to maybe give you a new tax liability.
14:30
It’s going to exposure to other liabilities, you’re going to type your cash in a liability, that’s a no-no because now you have a negative net present value, negative, internal rate of return on your net worth. Why would you go against trying to build up your net worth by paying off consumer debt? And now you’re basically subtracting against your net worth you’re trying to build up, right?
14:47
You want to continue going forward and acquire assets, and this is where we get into matching funds.
14:53
So, I know I’m gonna read some notes here, so the purpose here is to offset liabilities.
15:01
That means if I have an expense over here, I want to have an income over here that at least equals it.
15:08
So if I have an expense is one thousand bucks a month, I want to have something that’s paying me or netting me a thousand bucks a month. So, I’m not paying for it. My asset is now paying for it, right? So an example is let’s see here.
15:19
I have a, um, a mortgage is one thousand bucks a month.
15:23
Let’s say my my home mortgage, right, thousand bucks a month, it’s a small house. And I then go out and get a two duplexes. That means I have four units to rent out and I’m netting one thousand dollars a month.
15:35
And that is on the same balance sheet. So I own the duplexes. I have the mortgage.
15:41
I’m settling out. at the end of the month. I have this debt, but I have this income and now I’m not paying for it. And basically I’m debt free because my Balance sheet is balances to zero and everything works out perfectly, right. If I have a 0%, what do you call it?
15:54
They can see rate, which is not likely.
15:56
So that is the idea of matching funds.
16:00
So that example would the example of buying that duplexes or other asset would be used to offset the liability.
16:10
The term for that that is used in regular investing, would be fixed income instruments.
16:18
So instead of buying an actual investment property, I would buy paper somewhere like I would buy mortgages or CDs or something.
16:26
So I’m gonna give you a list right now of what would be used to do the offset on a balance sheet so that you’re not tempted to pay the debt in advance.
16:36
Just because you have the ability to do that, you want to instead take the cash.
16:41
Instead of you’re paying the debt, you want to go purchase a fixed income instrument or an asset, and use that to set off against the debt liabilities. So here’s, here’s examples of what they are. Now, these are traditional.
16:54
I would not do any of these because of what’s happening right now. We’re changing of our entire economic system, the entire currency system, OK?
17:02
So, just keep in mind, these are the types of investments, they’re paper assets and maybe they’ll be around in two years, I don’t know.
17:10
Um, they would include fixed deposits, like certificates of deposit, CDs, C, C, D is not really an investment. It’s, it’s not, in my opinion, it never has been an investment. But it’d be a great way to set off a liability I have somewhere else.
17:27
So it’s a cheap, easy way. I can, I don’t have to get my hands dirty. I can just go somewhere, fill out a form, put some money on the table, and I’ve got a set off.
17:35
OK, bonds, there are public bonds, municipal bonds, and corporate bonds, OK, private companies those are good ways.
17:44
They’re, they’re low risk, OK, so you’re, you’re getting into a low risk paper asset is what a fixed income instrument is doing.
17:53
And it’s going to allow you to match funds or set off a liability that’s on the same balance sheet.
17:59
There’s some other things too. I know these are kind of new to me and I don’t use things like this. I do other things I’m more creative But I’m just telling you guys.
18:06
Here’s the traditional way of doing it.
18:08
Post office monthly income schemes.
18:10
That’s actually a thing mutual funds, public provident funds. Some of these are brand names.
18:17
Guilt funs, National Saving Certificate.
18:21
Some of them are not always in all the countries, tax free bonds.
18:25
Sometimes, it doesn’t matter if they’re tax free.
18:27
I mean, no sovereign, gold bonds, OK, these are creating cash flow that, that allows you to do a setup.
18:35
With your cash. Instead of using a cached pappa liability, you’re using our cash to take a low and low risk paper asset, and pay off the liability over the life of the debt.
18:47
Here’s what I have recommended to people over the years, and we can go into more detail.
18:50
But, these are just a few examples. OK. Tax lien certificates, Tax Lien, and Tax deid Certificates.
18:59
These are guaranteed by law in the United States now, Yeah.
19:02
In your country, if you’re not in the United States, you’ll probably know what I’m talking about, Or you can do some research There.
19:07
These are where there’s a property tax liability that’s not paid, and the homeowner still owes it. And the tax collector sells the obligation in one way or another.
19:19
He sells it as a tax lien, or a certificate or a tax deed, OK. Sells it to a private party, or an investor, which could be you, and you buy this, and then the interest rate is guaranteed by law. Now there is a discount rate when you buy it, and there’s a couple ways to buy it. You can go to the auction or hire people to go to the auction and buy it on a regular basis. If you want to do smaller amounts, or if you find brokers, you can purchase entire portfolios of tax lien certificates or tax deeds.
19:48
That means, instead of putting $50, and then $500 and $5000, and $25.22, and just have a person just do that all day long. And go to all these auctions or wherever go online, do them now.
19:58
Um, it might be more effective, depending on how much money you’re dealing with, to go to a broker, or someone who’s selling an entire portfolio of, let’s say, $13 million worth of tax lien certificates in four different states.
20:12
That would make really good sense, because you can look at the balance sheet and see exactly how much money is making, and it’s very reliable money, very reliable.
20:21
Um, that is really a great way to a low risk way to offset liability on your balance sheet.
20:29
And the other one would be real estate notes, which are very similar to tax lien certificates. Because real estate notes are usually collateralized against the titles to real estate can be commercial, industrial agricultural, residential multi-family, you know, lots of whatever you want to do. And of course you can go through a broker, as well. You can find a note broker.
20:50
Usually note brokers have access to all kinds of data and they can even find notes for you.
20:55
And you can buy portfolio’s. So that’s another one.
20:57
Now another, the third one I want to explain is factoring. So factoring is involving usually net 30 or short-term loans, net 30.
21:06
That means someone bought a product for a business, and it’s going to pay for 30 days from now. And the seller needs the money now. And the business is going to pay later. So you buy it from the seller, you buy the obligation from the seller, and you’re basically lending the seller, a short-term loan, and then we expect that they, the buyer, is going to pay the seller and then the seller will then be able to pay off the loan that you extended. So it’s called Factoring.
21:32
And you would despite a discount. So, for example, let’s say, there’s a factoring, a contract that’s worth $100 on his face.
21:39
And you’d come in there and buy it for 70.
21:42
And it makes total sense for everybody, because of the discount rate. It works, You guys can look at the numbers on that one, but that’s another way to do it, and you don’t have to actually get the paper. You can actually invest with a company that’s doing that, that already understands the risk and already understands how to manage the risk. And if they had more capital, they could, they could do more things.
22:01
So you don’t have to re-invent the wheel on any of these things. You’re gonna work with people. I really encourage you to do that.
22:06
And just these three things alone, the tax liens, real estate notes and factoring, those are three basic, easy to understand things you can do to put your cash so that you’re not tempted two, pay off any type of debt in advance.
22:24
All right, so basically fixed income security provides investors with a stream of fixed periodic interest payments. That’s what you want.
22:31
You want regular cash flow with low risk and lots of times, I mean, I think most of us have relied upon people that claim to be investment brokers or stockbroker’s to do those things for us, and actually, we don’t need that.
22:46
I would like to work with someone as a colleague, Not as, you know, someone else is using my money, and I have to trust them, so.
22:53
Anyways, just wanted to share that with you. I hope these are useful tools.
22:57
I am going to build this out further with more detail, But this may answer a lot of your questions that you’ve been asking me over the, over the last several years.
23:07
All right, Thanks for listening.