Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management

368 Pages·2013·2.95 MB·English

by  John J. Vento(auth.)

Additional Praise for
Financial Independence

“It is without reservation that I recommend John Vento’ s
book Financial Independence . Not only does the book cover the
myriad of information that one needs to know for financial
health, but it is presented in a clear, concise and readable
manner. Too often, the jargon thrown at a reader about
financial affairs makes the average person feel ignorant and
ready to give up all decisions to the ‘professional’ advisor.
John makes it clear that the average person needs to be a
participant in this process and provides the clear guidelines
to make it possible.”
—Lynn K. Robbins, PhD
“Drawing on 25 years of investment experience and a
rich legacy of immigrant parents, John Vento defines the
American Dream in realistic financial terms through his 10
Commandments of managing your finances and lifestyle. Step
by step, he lays out in readable prose what he calls ‘10 Key
Issues to Comprehensive Wealth Management,’ the road to
financial self-reliance, revealing the wisdom of that old tune
so many of us failed to heed, ‘Little Things Mean a Lot.’”
—Donald Martin Reynolds, PhD,
art historian and the author of numerous books,
articles, and reviews on American art and architecture
“I have known John Vento for more than 30 years. When it
came time to decide who to entrust my private accounting
practice clients, I did not have to think twice. John, to me,
is a perfect example of success story. His professional and
teaching experience enabled him to make complex issues
understandable.”
—Vladimir Slizinov, CPA, President, Savara Group
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Financial Independence
Point X
(Getting to )
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Financial Independence
Point X
(Getting to )
AN ADVISOR’S GUIDE TO COMPREHENSIVE
WEALTH MANAGEMENT
John J. Vento
John Wiley & Sons, Inc.
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Cover Design: Paul McCarthy
Cover Images: both Istockphoto, © jodiecoston / © scanrail
Copyright © 2013 by John Vento. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts
in preparing this book, they make no representations or warranties with respect to the accuracy or
completeness of the contents of this book and specifically disclaim any implied warranties of merchant-
ability or fitness for a particular purpose. No warranty may be created or extended by sales representatives
or written sales materials. The advice and strategies contained herein may not be suitable for your
situation. You should consult with a professional where appropriate. Neither the publisher nor author
shall be liable for any loss of profit or any other commercial damages, including but not limited to special,
incidental, consequential, or other damages.
As of the time of writing, John J. Vento is an advisor with H.D. Vest. The views and opinions presented in
this book are those of John J. Vento and not of H.D. Vest Financial Services® or its subsidiaries. All
investment-related information in this book is for informational purposes only and does not constitute a
solicitation or offer to sell securities or insurance services. Securities offered through H.D. Vest Investment
ServicesSM, Member: SIPC, Advisory Services offered through H.D. Vest Advisory Services SM, 6333 North
State Highway 161, Fourth Floor, Irving, TX 75038, 972-870-6000.Investments & Insurance Products: Are not
insured by the FDIC or any federal government agency; Are not deposits of or guaranteed by the bank or any
bank affiliate; May lose Value. Comprehensive Wealth Management, Ltd. is not a registered broker/dealer or
independent investment advisory firm
For general information on our other products and services or for technical support, please contact our
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Library of Congress Cataloging-in-Publication Data:
Vento, John.
Financial independence (getting to point X): an advisor’s guide to comprehensive wealth
management / John Vento.
p. cm.
Includes index.
ISBN 978-1-118-46021-4 (cloth); ISBN 978-1-118-52636-1 (ebk)
ISBN 978-1-118-52643-9 (ebk); ISBN 978-1-118-52638-5 (ebk)
1. Finance, Personal—United States. I. Title.
HG179.V457 2013
332.02400973—dc23
2012039488
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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This book is dedicated to the memory of my
parents, Rosario Vento and Concetta Giuffre
Vento, for the sacrifices and commitments they
made throughout their lives to provide their
children with the opportunity to live the
“TRUE” American Dream.
Momma and Poppa, I love you, miss you,
and think about you every single day!
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“Financial Independence”
To achieve financial independence, one must know the
difference between invested assets, personal use assets,
and liabilities, as well as the difference between needs and
wants. Wealthy people focus on accumulating investment
assets, while the middle class and the poor focus on
increasing their standard of living based on their cash
inflow. The wealthy understand that the more investment
assets may grow, the greater cash inflow from these
investment assets may be. The greater cash inflow from
these investment assets, the more investment assets may
continue to grow. If you are able to accumulate sufficient
investment assets to maintain your desired standard of
living, your money will be working for you, instead of you
working for your money. 1
This is p oint X : fi nancial independence.
1 Investments are subject to market risks, including the potential loss of principal
invested.
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Contents
Preface: Living the American Dream xiii
Acknow ledgments xvii
Introduction Getting to Point X xix
Financial Literacy and the New Norm xx
Point X: Our Fundamental Financial Goal xxi
Ten Key Issues to Comprehensive Wealth Management xxii
Our Biggest Expense xxiii
Take a Financial Planning Checkup xxiv
The Power of This Book xxvii
Chapter 1 Committing to Living within Your Means 1
The American Dream Becomes the American Nightmare 1
Living within Your Means: The Essential Step 2
Simple Saving 6
Chapter 2 Understanding Taxes 11
A Brief History of the U.S. Tax System 12
Organizing and Retaining Your Records 15
Tax-Preparation Services 16
Accumulating Wealth through Tax Planning 18
ix
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x Contents
Chapter 3 Determining Your Financial Position 23
Figuring Your Financial Net Worth 24
Case Study: How One Couple Learned They Were Spending
More Than They Earned 24
Making Sense of Cash Flow 35
Establishing Your Financial Goals 57
Finding Trusted Advisors 61
Chapter 4 Managing Debt 67
Case Study: How Two Doctors Went Bankrupt in Only a
Few Years—What Not to Do 67
Basic Principles for Managing Debt 71
Good Debt versus Bad Debt 73
Credit-Card Debt 74
Auto Loans 80
Student Loans 81
Home Mortgage Loans 82
Business and Investment Loans 86
Understanding Credit 87
Your Credit Report and Your Credit Score 89
Preventing Identity Theft 93
Analyzing Your Debt 94
Chapter 5 Insuring Your Health and Life 99
Choosing a Health Insurance Plan 100
Long-Term Care Insurance 111
Disability Insurance 118
Life Insurance 122
Buying Insurance Policies 128
Chapter 6 Protecting Your Property with Insurance 133
Case Study: How a Lack of Insurance Wiped Out One Woman’s Life Savings 134
Homeowner’s Insurance 136
Automobile Insurance 140
Umbrella Liability Insurance 144
Buying Insurance Policies 147
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Contents xi
Chapter 7 Paying for College 153
Case Study: How Not Saving for Your Child’s Education
Can Ruin Your Finances—and Your Child’s 156
Conducting a “Needs Analysis” for Your Children’s College Educations 160
Strategies for Saving Money for College Education 162
Education Tax Deductions and Credits 179
Chapter 8 Planning for Retirement 187
Case Study: Saving versus Not Saving for Retirement:
The $1.7 Million Difference 187
Retirement Equation: Calculating Your Personal Point X 191
The High Cost of Waiting to Save for Retirement 193
What You Can Expect to Receive from Social Security 196
Qualifi ed Retirement Plans 198
The Difference between Traditional IRAs and Roth IRAs 203
Fixed and Variable Annuities 209
Retirement Funding: “Needs Analysis” 212
Chapter 9 Managing Your Investments 221
Analyzing Your Risk Tolerance 222
Stocks, Bonds, Mutual Funds, and Exchange-Traded Funds 226
Diversifi cation and Modern Portfolio Theory 234
Asset Allocation and Rebalancing 237
Dollar-Cost Averaging 243
Infl ation and Taxes: The Biggest Drains on Investment Return 245
Medicare Surtax on Net Investment Income 246
Chapter 10 Preserving Your Estate 251
The Federal Gift and Estate Tax System 252
Legal Documents to Consider for Estate Planning 252
The Probate and Administration Process and Why You May Want to Avoid It 257
Using a Planned Gifting Strategy 261
Ownership of Property and How It Is Transferred 262
Reasons for Creating a Trust 265
Benefi t from a Family Limited Partnership 277
Estate Tax Planning and Life Insurance 278
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xii Contents
Chapter 11 The Time Value of Money 285
The Rule of 72 286
Appendix A: Selecting a Trusted Advisor 301
Appendix B: 101 Ways to Save $20 or More per Week 311
Appendix C: Basic Concepts and Definitions of Various Types of Taxes 321
About the Author 341
Index 343
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