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Consider life insurance as an off-farm investment


It's a trick getting them lined up, but in the end the numbers never lie. And one of the truths that the financial numbers point to, which doesn't get a lot of attention in the number-crunching process, is that off-farm investments can pay.

It seems counter-intuitive that farms, capital intensive and always scraping to put enough together for the next down payment, should be looking to place hard-earned cash somewhere else. It's not an easy pitch to make to producers, but chartered accountant Mario Dumas considers that there's value to be discovered. “It's a big job to convince farmers to off-farm invest,” he says, “but we preach off-farm investments.”

Dumas, located southwest of Montreal in Ormstown, Que., advises a lot of capital-hungry farmers, either dairy farmers needing to buy more quota or cash croppers facing land at $5,000 per acre and up. He tries to demonstrate that with a few strategic adjustments, producers can profit from off-farm investments, especially life insurance.

“I sometimes feel like a life insurance salesman when talking with farmers,” Dumas quips. He notes that life insurance is important not only for preventing financial catastrophe should the unthinkable happen, but also in terms of succession planning. It can be an advantageous strategy in taking care of non-farming children.

It's difficult enough trying to sell the farm to one child at a price that's both affordable to buy yet profitable enough for the farmer to retire on, without having to think about the other siblings in the family. Life insurance can take care of that worry by leaving the policy benefits to the remaining children. This can help avoid buyouts when one or all of them want a financial share of the family's farming legacy.

This is where the numbers come in. When producers counter that they need any available cash for on-farm investments, Dumas advises longer-term loans (lower payments) while putting the savings from monthly payments into life insurance and other personal investments such as RSPs. He crunches the numbers to show that cash flow is not affected, and equity is the same or better through compound interest.

It may be a better overall investment strategy, according to Dumas, because the proceeds from life insurance are not taxed, leaving more money to the estate and less pressure on the retiring farmer to set aside money for the other children. The proceeds from life insurance are liquid (as opposed to land or other farm assets) so it's easier to divide to accommodate any “fairness” desires.

And if the numbers are not convincing enough, Dumas also explains that life insurance can relieve liquidity concerns when the family is going through a difficult period from the loss of a key person in both the family and the farming operation.

By Hugh Maynard

Minggu, 28 September 2008

The Trick Is Not Minding

From time to time, we introduce investment vehicles that don’t get a lot of attention from either the pros on Wall Street or the pop market press that so adoringly elevates them in the public consciousness. And when the cool kids do take notice, it’s to point out how “volatile,” “little understood” or “complex” such investments are.

If you’ve followed the Personal finance investment path for the long haul, you’re well aware that one way to growth is to declare independence from Wall Street and the fawning financial media.

Well, we’re at it again. publicly traded partnerships (PTPs) now represent a significant chunk of the Growth portfolio—Enterprise Products Partners, Linn Energy, Tortoise Energy Infrastructure and Tortoise Capital Resources—and TEPPCO Partners brings its high yield to the Income Portfolio.

You’ve probably heard them referred to by a few different names—partnership, limited partnership, LP. And you’ve probably heard the nonsense about how difficult they are come tax time.

You’re not doing your job if you don’t consider the tax ramifications of an investment decision. Nor do you advance your long-term financial goals if you pass up an opportunity because the tax reporting process is a little different or a few steps longer than what you’re used to.

Managing your portfolio is a time-consuming process. You’ve got to do research to find the right mix of investments, you’ve got to find a broker or trading platform to reliably execute your trades, and you’ve got to seek out sources of unvarnished economic and financial news.

If you’ve made it to the back page, and you’re still reading, chances are you’ve identified Personal Finance as a multifaceted resource capable of satisfying some of that. At any rate, you’ve already taken many steps down a long road.

Let’s do it again on the PTP/K-1 issue. It’s not that hard. You’ve put in a lot of work already. And you want to make a decent return.

Because a PTP doesn’t pay tax, it’s able to pass along more of its earnings to its investors than it could if it were in corporate form. It does this through quarterly cash distributions.

Although they resemble corporate dividends, PTP distributions are treated differently—and better—for tax purposes. Rather than taxable investment income, they’re treated as a return of capital and reduce the partner’s basis in his/her partnership units. (The investor’s original basis is the price paid for the units. The basis is adjusted downward with each distribution and allocation of losses and deductions, such as depreciation, and upward with each allocation of income.)

When the units are sold, the difference between the sales price and the adjusted basis equals taxable gain (or loss). Partners won’t be taxed on distributions until: they sell their PTP units and pay tax on their gain, which includes the distributions; or their basis reaches zero.

Some of the tax on the capital gain from selling the interest will be paid at the capital gains rate. That portion of the gain that results from a downward adjustment of the basis after allocation of depreciation or other deductions will be taxed at the ordinary income rate.

Each March, investors receive K-1 tax packages that summarize their allocated share of reportable tax items. In general, cash distributions received during the year shouldn’t be reported as taxable income even though those distributions may appear on your brokerage statement. Only the amounts shown on the K-1 should be entered on your tax return.

Tax consequences to a particular unitholder will depend on the circumstances of the unitholder. Consult your tax professional or financial advisors to determine the federal, state and local tax consequences of ownership of our limited partner units.

You’re not taxed on the distributions you received but rather on your share of the partnership’s taxable income. The excess—the return of capital, if any—will reduce your cost basis in your shares, increasing the capital gain (or reducing the loss) you’ll realize when you sell your partnership units.

The K-1 you’ll receive from your publicly traded partnership is a one-page document setting forth income, gains, losses, deductions and credits of the partnership. Only the amounts shown on the K-1 need to be reported on your tax return.

You don’t file your K-1. That’s the responsibility of the partnership, which generates and distributes them to unitholders. (“Unitholders” are also “partners” within the meaning of the Internal Revenue Code.)

It’s not a lot of information. Many of you probably outsource your tax preparation to a professional, an attorney or accountant specifically trained—and well compensated—to sift through the forms and schedules the IRS and similar state agencies use to track down and extract the lifeblood of government. A tax professional can handle PTP issues easily, and a committed investor can get the job done, too.

But there’s nothing really “easy” about tax forms; there may be more pages, more entries, more signatures, but at the end of the document, you still have to give it up to Uncle Sam. And there’s something uncomfortable about the unfamiliar, but exploration is the story of man.

Neil George and Elliott Gue have prepared a special report on PTPs, which includes a detailed discussion of tax ramifications for individual investors. The report is available at www.pfnewsletter.com/MLP.

The bottom line: Don’t avoid publicly traded partnerships just because you’ll receive a K-1 instead of a 1099.

(by David Dittman is Managing Editor of Personal Finance)

Kamis, 25 September 2008

10 Killer Tips for Property Investment

If you really want the best deals in investment properties, you have to increase your odds by finding more deals. Who is more likely to get a cheap apartment building, an investor that looks through the MLS listings and calls it a day, or the one that uses ten resources? Here are the ten:


1. Talk. Let people know you are looking and sometimes the properties will come to you. There are a lot of owners out there who want to sell, but haven't yet listed their property.

2. Use the internet. Go to a search engine and enter the type of real estate you are looking for, along with the city you want to invest in. You never know what you might find.

3. Drive around looking for "For Sale By Owner" signs. Owners often don't want to pay to keep the ad in the paper every week, so you won't see all properties there.

4. Find abandoned properties. That's a pretty clear sign that the owner doesn't want to deal with the property. He might sell cheap.

5. Find old "For Rent" ads. Call if they are a few weeks old. Landlords are often ready to sell, especially if the haven't yet rented the units out.

6. Talk to bankers. You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate agent.

7. Offer someone a finder's fee. There are people that always seem to hear about the good deals. Have such people coming to you.

8. Eviction notices. If your local papers publish eviction notices, or if you can get the information at the courthouse, it can be useful. A landlord who just went through the procees of evicting tenants is a likely seller.

9. Old FSBO ads. If you call on two-month-old "For sale By Owner" ads, and they haven't sold, they may be ready to deal. Owners often give up the effort, but still would love to sell. Help them out!

10. Put an ad in the paper. "Looking for investment properties to buy," might be sufficient to generate a few calls.

Writer by. Dave Simpson

Minggu, 14 September 2008

Obama effect on oil

In early July I published a note discussing how expectations of an Obama win could knock $40 off the oil price. The note is below. One piece of the puzzle was put in place today with Obama mentioning that he might tap the Strategic Petroleum Reserve (SPR). He said as much in a speech he delivered on energy today in Michigan. Obama said "we should sell 70 million barrels of oil from our Strategic Petroleum Reserve for less expensive crude, which in the past has lowered gas prices within two weeks." Obama said many other things, such as investing in energy infrastructure, changes in the tax code to encourage energy conservation, and other ideas.

Additional impetus I believe for today's and the recent oil drop is coming from China's cutbacks on energy use amid efforts to cut pollution for the upcoming Olympic games. There were also likely bad longs betting on greater impact of the storm currently in the U.S. gulf than has thus far been the case.

Here is my the note I sent a number of weeks ago:

If Barrack Obama wins the presidency, the price of oil could fall $40 per barrel. The financial markets will discount the possibility before hand, at least partially

Kamis, 11 September 2008

New evidence has emerged that Democratic presidential candidate Barack Obama was closely associated as early as age 25 to a key adviser to a Saudi billionaire who had mentored the founding members of the Black Panthers.
In a videotaped interview this year on New York’s all news cable channel NY1, a prominent African-American businessman and political figure made the curious disclosures about Obama. (See Video Clip Below)
Percy Sutton, the former borough president of Manhattan, off-handedly revealed the unusual circumstances about his first encounter with the young Obama.
“I was introduced to (Obama) by a friend who was raising money for him,” Sutton told NY1 city hall reporter Dominic Carter.
“The friend’s name is Dr. Khalid al-Mansour, from Texas,” Sutton said. “He is the principal adviser to one of the world’s richest men. He told me about Obama.”
Sutton, the founder of Inner City Broadcasting, said al-Mansour contacted him to ask a favor: Would Sutton write a letter in support of Obama’s application to Harvard Law School?
“He wrote to me about him,” Sutton recalled. “And his introduction was there is a young man that has applied to Harvard. I know that you have a few friends up there because you used to go up there to speak. Would you please write a letter in support of him?”
Sutton said he acted on his friend al-Mansour’s advice.
“I wrote a letter of support of him to my friends at Harvard, saying to them I thought there was a genius that was going to be available and I certainly hoped they would treat him kindly,” Sutton told NY1.
Sutton did not say why al-Mansour was helping Obama, how he discovered him, or from whom he was raising money on Obama’s behalf.
A Sutton aide told Newsmax that Sutton, 88, is ailing and is unlikely to do additional TV interviews in the near future. The aide could not provide additional comment for this story.
As it turned out, Obama did attend Harvard Law School after graduating from Columbia University in New York and doing a stint as a community organizer in Chicago.
The New York Times described how transformative his Harvard experience became for the young Obama: “He arrived there as an unknown, Afro-wearing community organizer who had spent years searching for his identity; by the time he left, he had his first national news media exposure, a book contract and a shot of confidence from running the most powerful legal journal in the country.”
The details of Obama’s academic performance are well known: At Harvard, Obama rose to academic distinction becoming the editor of the Harvard Law Review and graduating magna cum laude.
Less known are the reasons al-Mansour, an activist African-American Muslim, would be a key backer for a young man from Hawaii seeking to attend the most Ivy of the Ivy League law schools.
Khalid al-Mansour a.k.a. Don Warden
In an exclusive interview with Newsmax from his home in San Antonio, Texas, al-Mansour said he would not comment specifically on the statement by Percy Sutton because he was afraid anything he said would get “distorted.”
“I was determined I was never going to be in that situation,” he said. “Bloggers are saying this is the new Rev. Wright — in drag! — and he is a nationalist, racist, and worse than Rev. Wright. So any statement that I made would only further this activity which is not in the interest of Barack.”
But in the lengthy interview, al-Mansour confirmed that he frequently spoke on university campuses, including Columbia, where Percy Sutton suggested he met Obama in the late 1980s, and confirmed his close relationship with Prince Alwaleed.
“I am not surprised to learn about this,” said Niger Innis, spokesman of the Congress of Racial Equality (CORE). “It is clear that Barack Obama’s ties to the left are familial, generational, and have lasted for several years.”
Although many Americans have never heard of Khalid Abdullah Tariq al-Mansour (his full name), he is well known within the black community as a lawyer, an orthodox Muslim, a black nationalist, an author, an international deal-maker, an educator, and an outspoken enemy of Israel.
A graduate of Howard University with a law degree from the University of California, al-Mansour sits on numerous corporate boards, including the Saudi African Bank and Chicago-based LaGray Chemical Co. LaGray, which was formed to do business in Africa, counts former Nigerian President General Abdusalam Abubakar on its advisory board.
He also sits on the board of the non-profit African Leadership Academy, along with top McCain for President adviser Carly Fiorina, and organized a tribute to the President of Ghana at the Clinton White House in 1995, along with pop star Michael Jackson.
But his writings and books are packed with anti-American rhetoric reminiscent of the Rev. Jeremiah Wright, Obama’s disgraced former pastor.
In a 1995 book, “The Lost Books of Africa Rediscovered,” he alleged that the United States was plotting genocide against black Americans.
The first "genocide against the black man began 300 years ago," he told an audience in Harlem at a book-signing, while a second "genocide" was on the way “to remove 15 million Black people, considered disposable, of no relevance, value or benefit to the American society.”
In the 1960s, when he founded the African American Association in the San Francisco Bay area, he was known as Donald Warden.
According to the Social Activism Project at the University of California at Berkley, Warden, a.k.a. Khalid al-Mansour, was the mentor of Black Panther Party founder Huey Newton and his cohort, Bobby Seale.
Newton later had a falling out with Warden, who was described in a 1994 book as “the most articulate spokesperson for black nationalism” at the time.
The falling out wasn’t purely political, according to author Hugh Pearson.
“Sometimes Newton and the other members of (Warden’s) security detail got into fights with young whites who didn’t like what Warden had to say about whites. Rather than ‘throw down’ along with the security detail, Warden refused to fight,” Pearson wrote in “Shadow of the Panther: Huey Newton and the Price of Black Power in America.”
U.S. Rep. Barbara Lee of California entered an official statement of appreciation of Warden and his Black Panther colleagues in the African-American Association in the Congressional Record on April 23, 2007.
“Among the founding members (of the Association) were community leaders such as Khalid Al-Mansour (known then as Don Warden); future Judges Henry Ramsey and Thelton Henderson; future Congressman and Oakland Mayor Ron Dellums, and future Black Panthers Huey Newton and Bobby Seale,” the Democratic representative’s statement said.
Al-Mansour’s more recent videotaped speeches focus on Muslim themes, and abound with anti-Semitic theories and anti-Israel vitriol.
“Today, the Palestinians are being brutalized like savages,” he told an audience in South Africa. “If you protest you will go to jail, and you may be killed. And they say they are the only democratic country in the Middle East. ... They are lying on God.”
He accused the Jews of “stealing the land the same way the Christians stole the land from the Indians in America.”
The Saudi Connection
But al-Mansour’s sponsorship of Obama as a prospective Harvard law student is important for another reason beyond his Islamic and anti-American rhetoric and early Black Panther ties.
At the time Percy Sutton, a former lawyer for Malcolm X and a former business partner of al-Mansour, says he was raising money for Obama’s graduate school education, al-Mansour was representing top members of the Saudi Royal family seeking to do business and exert influence in the United States.
In 1989, for example — just one year after Obama entered Harvard Law School — The Los Angeles Times revealed that al-Mansour had been advising Saudi billionaires Abdul Aziz and Khalid al-Ibrahim in their secret effort to acquire a major stake in prime oceanfront property in Marina del Rey, Calif., through “an elaborate network of corporate shells in California, the Caribbean and Europe.”
At the same time, he was also advising Prince Alwaleed bin Talal in his U.S. investments, and sits on the board of his premier investment vehicle, Kingdom Holdings.
Prince Alwaleed, 53, is the nephew if King Abdallah of Saudi Arabia. Forbes magazine ranked him this year as the 19th richest person on the planet, with a fortune in excess of $23 billion. He owns large chunks of Citigroup and News Corp., the holding company that controls Fox News.
He is best known in the United States for his offer to donate $10 million to help rebuild downtown Manhattan after the 9/11 attacks. But after the prince made a public comment suggesting that U.S. policies had contributed to causing the attacks, Mayor Rudy Giuliani handed back his check.
"I entirely reject that statement," Giuliani said. "There is no moral equivalent for this (terrorist) act. There is no justification for it. The people who did it lost any right to ask for justification for it when they slaughtered 4,000 or 5,000 innocent people.”
Since then, Prince Alwaleed’s Kingdom Foundation has given millions of dollars to Muslim charities in the United States, including several whose leaders have been indicted on terrorism-related charges in federal courts.
He also has given tens of millions of dollars to Harvard and other major U.S. universities, to establish programs in Islamic studies.
The casual statement by Percy Sutton to NY1 is the first time anyone has hinted at a relationship between Obama and the Saudi royal family.
Although al-Mansour glosses over his ties to the Saudi mega-billionaire in some of his public talks, he has represented the Saudi’s interests in the United States, in Britain, and in Africa for more than a quarter century, according to public records.
He told Newsmax that he has personally introduced Prince Alwaleed to “51 of the 53 leaders of Africa,” traveling from country to country on the Saudi prince’s private jet.
He knows virtually every black leader in America, from the business community, to community activists, to the worlds of politics and entertainment.
When Michael Jackson was on the ropes in the mid-1990s following a series of lawsuits by the parents of children accusing him of sexual abuse, al-Mansour introduced him to Prince Alwaleed, whose Kingdom Entertainment signed a joint venture with Jackson in 1996.
“Jackson and Alwaleed became pals in 1994, when a mutual friend from Alwaleed's college days in California arranged a lunch meeting aboard the prince's yacht in Cannes,” Time magazine reported about the new partnership in 1997.
The mutual friend was al-Mansour.
“As a black American, I am exceedingly proud at the American people’s response to Barack Obama’s candidacy,” said CORE’s Niger Innis. “But to deny that he has long-standing ties to left-wing elements in our polity is to deny reality. If you want to be president of the United States, it is not racism if you ask these kind of questions, and he has to come up with an answer, hopefully the truth.”
Sutton gives no clues as to why al-Mansour would be raising money to help Obama go to law school. Obama has said during his campaign that he paid his way through Harvard with student loans.
For Jesse Lee Peterson, founder of the Los Angeles-based Brotherhood Organization of a New Destiny (BOND), these latest revelations about Obama’s ties to Saudi financiers were an important wake-up call.
“To me, this opened up more questions about Barack Obama and his relationship to the Muslim world,” Peterson told Newsmax.
“A lot of people are caught up with the emotional aspect of Barack Obama, the movie star aspect, the false promises that he’s going to take care of everyone and their Mama.”
But when the full story of Obama’s ties to radical preachers such as Wright and to black Muslim leader Louis Farrakhan comes out, Peterson believes that Obama’s star power will fade.
“I think there’s more to this story and to Barack Obama than we realize,” Peterson said. “As all the truth comes out before the election, I don’t think he has a chance. I can’t see American’s taking that kind of risk.”
The Obama campaign did not respond to requests for comment.
Percy Sutton Reveals Association Between Khalid al-Mansour and Obama at Age 25

Kamis, 04 September 2008

 
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