Matthew Paulson: Tax Loopholes For Business Owners and Little Known Investment Strategies

Hey, you're an entrepreneur. That means that you probably want to keep as much of your business profits as possible. You want to give as little to them, to Washington D.C. as possible and you want to grow that into more cash flow and wealth over the long term. Hey, this is Ryan and we do a class that we have taught several times at Freedom Fast Lane. It's one of the most popular and well received training is that we do. We've just done a terrible job of marketing. It's and we finally are just calling it investing for entrepreneurs because it is about growing your business. It is about putting those profits into long term passive income streams that also grow your wealth and allow you to protect more of it from taxes. So if you go over to freedomfastlane.com investing, there's a simple questionnaire that'll put you on our radar the next time we're holding one of these live workshops to help you grow your business, make more money, invest it for long term cash flow, protect it from undue taxes, and grow your wealth over the long term. That's@freedomfastlane.com investing.

Hey fastlaners. Ryan here and today you're going to be hearing from my buddy Matthew Paulson. Matthew and I met in our Investing for Entrepreneurs class and became kind of a super fan of what we do here. We also had it on the investor panel at Freedom Fast Lane Live. And just maybe you're on the podcast before and he's been writing about the topic of cash flow investing. And one of the things I really like about Matthew is that he makes most of his decisions, at least his business decisions, based purely on cash flow. In fact, one of the first things he talks about in today's episode is he discusses why he doesn't run a fiscal products business. He just says that the cash flows, the margins aren't high enough. And he's in a different type of business which he talks a little bit about. He's the founder and the CEO of MarketBeat.com which by the way, I recommend checking out just to see how the business model is run. Because Matthew says if I can't make 85 cents on every dollar, like if I can't keep 85 cents on every dollar as my own cash flow, what's the point to be in that business? Now, I don't completely agree, but it'll give you some context for how Matthew is approaching investment vehicles, how he is approaching tax avoidance strategies, how he is approaching certain business principles. He's looking at very high margin cash flow vehicles that he can be a part of. So when Matthew talks about dividends, for example, he's not approaching it from the perspective of this is a safe long term investment. He's looking at it from this gives me the highest cash flow possible of everything that is available to me. He he compares dividend investing and Bitcoin as part of today's podcast and says I'm not my words not his not being against bitcoin because there isn't money to be made, but because there is more cash flow and more wealth to be made in things like dividend paying stock doesn't sound sexy, but when you go through the numbers there is more wealth and cash flow to be had there. So in this episode Matthew is going to go through some of the ways that business owners specifically can shield some taxes and grow their wealth. Now when you are an entrepreneur you are open to different advantages, specifically tax advantages that the majority of Americans don't have access to that are completely legitimate, that are not illegal loopholes. They are legitimate ways to classify income, classify cash flow however you deem appropriate and be able to defer taxes. And I always say that the best time to pay taxes is later. So the more that you can defer the better he's going to be going into that as well as some little known ways for for entrepreneurs to be investing for cash flow and wealth. If you like this conversation then you really want to go check out one of the clips that we just released from Matthew's debate with Jay Massey at Freedom Fast Lane Live. We did it on a recent episode of Freedom Fast Lane tv. You can see their banter and hear my conclusion about whether or not you should be hedging for if the tish hits the fan, which was the biggest controversial discussion that we had at the investor panel at Freedom Fast Lane Live. Hey, I hope you enjoy this talk from Matthew Paulson.

Hey fastlaners, Matthew Paulson here. You might remember me from the investment panel at Freedom Fastlane Live. I was the guy that got into an argument with Jay Massey over whether or not you should buy gold bitcoin. I was also on a recent episode of Freedom Fastlane Live with Brian to discuss dividend investing. But if you didn't hear that episode or you didn't meet me at Freedom Fasting Live, just a little bit about me. I am the founder of a financial media company called MarketBeat.com and we make real time financial information available to investors at all levels and we primarily do this through our daily investment newsletter. It's called MarketBeat Daily Ratings and that newsletter provides a summary of analyst recommendations to more than 430,000 subscribers. We also publish content on our website, marketbeat.com and through our network of news websites that includes American Banking and Market News. So we get about 3 million page views every month. We were number 529 on the Inc. 5000 list last year. Hope to hit a similar number next year. We did about 2.7 million in revenue. I've also recently published a book. It's called Automatic Income and it kind of teaches the dividend growth investing strategy that Ryan and I talked about. On our recent episode at Freedom Fast Lane Live, there was kind of a conversation around investing that happened and is continuing to happen. And several interesting questions kind of came up over and over. And I'd like to use this podcast episode as a way to kind of continue that conversation. A lot of people approached me after the panel. We got really good feedback on the panel and two topics that kind of came up over and over over among the attendees was one, when do I start taking money out of my business? What percentage of my profit should I reinvest in the business? And what percentage should I take home? And then the other question is obviously once I have money to invest, where do I put that money? Do I buy stocks? Should I buy residential real estate? Do I buy gold? Do I buy bitcoin? Should I hedge against a downturn in the US Economy? Or should I get really fancy and buy things like high end whole life insurance policies and overfund them? Should I do a captive insurance policy? Should I do something like that? Should I do something like bank on yourself? There are a lot of really kind of fancy and complicated investment options that are out there and we'll discuss whether or not you should dive into those. So I plan on addressing each of these questions in the show and hopefully provide a little bit of clarity where maybe there isn't clarity right now. The first thing I want to cover is talk about when you should take money out of your business. Many people listening to the show, probably you sell physical goods. A lot of people have Amazon, FBA businesses that are part of Ryan's audience. I want to address you guys first a little bit. If you have a physical goods business, you probably have inventory is going to be one of your highest costs. You can always put any profit that you get back into inventory to kind of get your inventory numbers up. Or you can kind of use that money to fund your next product, develop it, and buy inventory. So you could literally reinvest every dollar of profit back into the business to buy inventory or fund the development of new products if you wanted to. There's a clear trade off between growing your business so that you can eventually sell it by having lots of products and a lot more revenue because you reinvested everything. And then years down the line, you could sell it for seven or eight figures because you have a ton of products that make a ton of revenue. Or do you draw back a little bit to take money home and invest it in stocks and real estate and take care of your own personal finances? So where kind of is that line? And there is a line, and we'll get to that. For me, I have a purely digital goods and services kind of business. So this trade off between reinvesting money back into business and taking it home, that's not really so much an issue for businesses like mine because the expenses just tend to be a lot lower. You know, at MarketBeat, we consistently have a profit margin of around 85%. And the only significant expense that we have are expenses that we have are people, you know, web hosting and advertising. You know, anything after that I can take out of my business or put it in other investments. You know, there's nothing wrong with physical goods businesses. They just have lower margins. That's not for me. But, you know, some people do quite well with them. I really like businesses where I can earn a dollar of revenue and take home 85 cents, you know, in my pocket before taxes at the end of the day. So regardless of which of these kind of two types of businesses you have, when you first get started, you're probably going to have to throw 100% of the money you make back into the business to grow it out to grow it, and just kind of figure out what works. Seth Godin refers to this as throwing spaghetti against the wall and seeing what sticks, that kind of phase of your business. But eventually you are going to figure it out. You're going to have a few core products or revenue streams that are just profitable independent of what else going on in your business. So, you know, at this point, you know, expenses are predictable, marketing is predictable, inventory is predictable. You know, at that point, you can take your foot off the brakes, take some profit home, you know, invest it in other, you know, assets. Or you can keep throwing spaghetti against the wall and just hope something else sticks in addition to, you know, what's already sticking. So, you know, how do you decide which investment should you make in the business and, you know, which you shouldn't? So what I kind of think about.

At marketbeat is when I have something that I want to buy that I don't necessarily need to buy for the business. I really think about, you know, what is the ROI going to be? What is the, you know, how long it's going to take for this investment to pay off? You know, what is that break even point? You know, for example, I can buy an email lead for $2 to 3, $3 through a co registration advertising network from MarketBeat. And I know that I'll make seven to eight dollars off of that lead over the next two years. So I put in three bucks, I make eight bucks back. That's five dollars profit in two years on a three dollar investment. I'm never going to get returns like that by investing in stocks or real estate. I'm going to make that investment every day until I literally run out of email signups to buy. However, not all investments in business are that clear. Sometimes the return is, you're just really not quite sure whether or not the returns are going to be there or not.

In my business I make every no brainer investment that I can. So anything that's got that strong likelihood of paying itself off in 12 to 18 months, I'll make that investment and then I'll just get keep what's left over. But you know, if there is say a piece of equipment that you could buy, it'll take five years to pay off and there's only, you know, a 33% chance of it being able to provide that kind of, you know, cost reduction or revenue increase that you're hoping for. If that had 100% chance of working, you'd be getting about 20% of your investment back every year. But if the likelihood is only 33% working, that it's kind of effective of getting about 6 or 7% back on your money every year. So you know, if you buy something that's got a five year payoff window and it's 1, 3 chance of working, that becomes much less clear of an investment. It's not immediately clear.

Whether or not to make that. So I really like to focus on those no brainer things that if I spend this money I'm going to get it back within one to two years and then after that it's pure profit. So anything like that I'll do all day long. I also like to set kind of a minimum profit margin in my business so that no matter what other, I guess so that no matter what the opportunities in my business are that I could spend money on, spend the profit on, I always want to take home at least 75% of what I make as profit. Because, you know, a 25% profit margin in my business allows me to, you know, run the business and also do a healthy advertising spend. And after that I'm probably just getting sloppy. So if my margins get below 75% a month, I just stop spending money on anything that's not necessary to run the core business operations until I get back up to 75% again. So I like to have that minimum profit margin in place just so I don't get sloppy. So, you know, a 75% margin probably isn't going to work in any fiscal goods businesses. Maybe you set that minimum profit margin number at 30 or 40%, but you should have an established minimum profit margin in mind while building your business and running it on a month to month basis. Those are the criteria that I use in my business to determine whether or not I reinvest profit. I make sure that minimum profit margin is in place and I hit that and then I'll invest in any investment back in my business that has a strong likelihood of paying off in 12 to 24 months.

So let's say that you are at a place in your business where you've kind of run out of no brainer opportunities to reinvest in a business and you want to start taking some money home. That kind of leads to the question, once I've got some money to take out of the business, I'm paying for my living expenses, I've got some money left over. What do I buy? Do I buy stocks? Do I buy real estate? Do I buy gold? I buy Bitcoin?

What kind of investment vehicle do I hold them in? Do I use an IRA? Do I use a 401k? Do I do some crazy kind of trust? What do I do? I really want to provide a plan or a strategy here that I think will work for everyone. It's not the most complicated strategy in the world, but it really actually works. There are other people that have done more complicated strategies than this that done quite well. But that's not what we're going to talk about today. And the reason is because I think a lot of people get themselves in trouble by investing in things that they don't understand. So if you don't understand exactly how something works, how an investment works, you know why you'll make money from it, what fees you're paying, what the risks are. You know, you're just signing up for trouble if you don't really know these things.

Most of the financial Products that are out there that have a great sales pitch, they typically aren't designed with your best interest in mind. Because usually if someone is trying to sell you a financial product, it's because they're going to get a sizeable commission for selling it to you. And you're the person paying that commission.

Those commissions that you're paying to the salesperson to sell you that product, those are going to cut out of your investment returns and you're probably not going to do as well as you would if you just had stuck with a low cost investment option. So really never let yourself be sold a financial product. You should only buy a financial product if you've researched it thoroughly, you understand it, and.

You are the person approaching the salesperson saying, please sell me this product. I think it's awesome. It's kind of a corollary to this. I really like the phrase that you should invest according to your level of sophistication. Invest according to your level of sophistication. So if the only thing that you understand is going to vanguard.com and buying low cost index funds inside of an IRA, go ahead and do that. You are much better off by buying a simple investment that you understand than a complicated investment that you don't understand that could get you into trouble down the line or comes with just a lot of strings attached. So let's start off with three basic things that I think everybody should do in terms of investing. The first $5,500 every year that you plan on investing, or 11,000 if you're married, is to invest into a Roth IRA. So you can set aside money inside of a brokerage account or mutual fund company inside of a Roth ira, and the earnings on that money are tax free forever. There is literally no better deal than this in the United States. So you can take out.

Any contributions that you make. You can take them out without penalty at any time for any reason. And then the earnings or the money that your investments make, you can start taking those out at the retirement age, which is 59 and a half. And there are some special hardship provisions that you could also take that money out early, tax free for some very specific reasons. So if you haven't done the Roth ira, that's a great first step. I recommend setting up a Roth IRA through a low cost brokerage or a mutual fund provider. Vanguard, Fidelity, TD Ameritrade, Schwab, T. Rowe Price. They're all pretty good choices. But Vanguard is kind of my favorite child among those. And that is where I have most of My money.

If you don't have that specific investment strategy like dividend growth stocks that you can want to follow, just buy a target date retirement fund. That will give you kind of an age appropriate mix of stocks and bonds. Say you're 30 years old, they might put you in 70% stocks and 30% bonds. That will give you a great basic diversified investment portfolio. It's not complicated, it's not fancy, but you'll get similar returns to the market which are 9 to 10% per year, and you won't pay a lot of fees. So, you know, it's a really good. I don't really know what I'm doing, but I want to get started and I want something basic that I can understand. That's a good deal. That is a great place to start. You might be in the situation where you make too much money to contribute to a Roth IRA. I think it's around $150,000 around there. Your ability to contribute to a Roth IRA starts to phase out. The cool thing though is there's a tax loophole that allows you to invest in a non deductible IRA and immediately convert it into a Roth IRA like a couple weeks later. And that lets you get around that contribution limit. So, you know, any registered investment advisor can help you do this. You can do it yourself if you're really smart. I've decided that I don't want to mess with this. So I had my friend Jesse set this up for me. But really all it is is putting money in one type of IRA and then immediately converting it into a Roth ira. And the tax implications are exactly the same as if you had just put money into a Roth IRA to begin with. So if you make too much money to do a Roth ira, Google the phrase backdoor Roth ira. It's back to a Roth ira. Put that in Google, see what comes up, and you'll learn some more about how to get around that income limit.

After you've kind of maxed out your Roth ira. I think the next step is probably to do a simplified employee pension plan, an incident individual 401k or an actual 401k plan if you have employees. I know this sounds complicated, but it's actually not really hard to do because there are companies that make it really easy for you. So when I was getting started with my business and I maxed out my Roth IRA and kind of wanted to do that next step, I set up an individual 401 plan through Vanguard and that let me put aside $54,000 every year in pre tax tax money or you can also do it as post tax money for some of it and kind of make it more like a Roth IRA. So typically if you do a 401k like a regular 401k, you get an immediate tax deduction of the amount that you put into your ira. And then you only pay taxes on that money when you start to withdraw it in retirement. And obviously you withdraw as little of that money as possible in retirement. You focus on your after tax stuff first. But so that's, you probably won't, you know, end up paying all that tax down the line if you end up, you know, giving it to your kids when you die or if you give it to a charity, you can avoid a lot of those taxes down the line that you would be paying otherwise. So I really like the individual 401k as an investment vehicle for the next step after a Roth IRA. But you can only do that individual 401k if you don't have employment. So if you have several employees, you can set up a real 401k plan and have that same $54,000 contribution limit. There's, I think it's $18,000 as an individual you can set aside and then the company can match up to 25% of your salary for another 36,000. So you would have to pay yourself four times $36,000, give yourself a 25% match and then you can get up to $54,000 contribution. I did it with a company called Ascensus who is a sponsor and then they set it up with Vanguard somehow. So somehow Vanguard works with Ascensus to set it all up. But they made it really easy. It was some work, it was some paperwork to set it all up, but it was definitely worth it to get that $54,000 I can set aside each year. And it's also just a nice benefit for my employees. They get a really good 401k plan plan. And I also have the ability to set aside that $54,000amount every year. Another kind of option is a simplified employee pension plan. I've never done one of those myself. I don't know a lot about them, but they kind of work similar to that individual 401k. They're good for companies that are one person businesses. So if that's you, that might be another option to check out. I think the paperwork is a little bit less complicated on an SEP than an individual 401k. So that would be an option to check out. The third thing I like to tell everybody to do is to open a health savings account. The caveat to this is that you do need a high deductible health plan to set one of these up. And if you have a high deductible health plan, you can set aside $6,500 a year. This is pre tax money. So you do get that immediate tax deduction. You can invest it in a company. I think mine is healthsavings.com you can buy Vanguard funds with it.

So you can set aside that money in a special account. You can invest it in mutual funds or stocks or whatever the company lets you do, and you let it grow and then you can reimburse yourself down the line. So theoretically the point of this thing is to reimburse yourself for medical expenses. And then when you spend that money on medical expenses, the money comes out tax free. But what some people can figure it out is it's kind of a triple tax benefit for this because one, you get that immediate deduction up front. Two, the growth inside of the health savings account is free. Then three, it's spent tax free if it's on medical expenses. But there's kind of a loophole here in that you don't have to like, you don't have to withdraw it immediately when there's medical expenses and there's no time limit on it. So if I had a big medical expense this year, I could let the health savings account grow for 20 years and then reimburse myself for a medical expense that happened 20 years ago. I would imagine that the government might crack down on this at some point. But right now it's a really good deal because you get the deduction up front and then you can spend it tax free. Medical expenses. So I really think everybody should do these kind of three things first, because they're just really good basic things that anyone can have in place to set up a good kind of retirement and investing plan. And these three plans have really a special tax status that they receive from the government. And you're just not going to get a better deal from other vehicles like annuities and just other insurance promise products that promise tax savings Account. Because none of those insurance products have the ability to actually remove liability from taxes on investment income in the way that your Roth IRA does, your 401k does, and your HSA does. They can do complicated things like take your money and then lend it back to you. But really the liabilities is still there.

You're doing some complicated dodging to get around that. Those types of things might have a place after you do these three things, but because of the special place in the tax code that the IRA has, that the 401k has, and that the HSA has, I would always do those first three things before I do anything else. Start with the Roth IRA, then do your 401, and then do your HSA. If you have a specific investment strategy that you want to use, you can do that. You can kind of of look at what the Harvard Endowment has done. They have really neat asset allocation that you can check out. You could just do a target date retirement fund. If you really don't know what you're doing and don't want to learn, that'll put you into a nice kind of base of stocks and bonds. Or if you want to do dividend investing like I do, you can do that inside of a 401k and a Roth IRA as well. So let's say that you've done those three things. You've brought out tax advantage, investment options. You know, what do you buy with the money that you're going to have to pay taxes on? First, let's kind of start with the things that you probably shouldn't buy. Don't buy gold, don't buy silver. Don't buy any other commodities like oil futures or wheat. Some people like to talk about gold as a potential hedge in case the world just kind of goes to hell or there's some kind of zombie apocalypse. Because the idea is that you can always buy stuff with gold and silver after currency crashes. But I think if we're in a situation where the US dollar disappears, you'd probably be much better served by having a stockpile of food, water, guns, ammunition, gasoline, than you would having some shiny yellow bars that really don't have any utility. So if you want to protect yourself from the next Great Depression or a zombie apocalypse, do a little bit of prepper stuff. Don't go crazy with it. Don't make it your hobby for the rest of your life. Having a few weeks of supplies in your basement, never a terrible idea. And it's probably going to do you a lot more good than having some gold in your house. If the end of the world happens, maybe do some basic prepping. But don't think of gold and silver as something that is going to be something that's going to be valuable to you. If the world goes to hell and the US government collapses and the dollar disappears, gold is probably not going to do you a whole lot of good in that situation.

Second, don't buy bitcoin, don't buy ethereum, just kind of avoid cryptocurrencies in general as an investment. So digital currencies, they're very effectively, pretty much extremely volatile commodities. Think about Bitcoin, it was 500 a year, 1300 to the next. It crashed to the $200 to $300 range. It's now back up to the $900 range. So some people have done really good at speculating in bitcoin and other cryptocurrencies, but they just aren't an investment because effectively what you're doing is betting on the future price of Bitcoin and that is reliant on just market forces that you probably don't understand. So it's not an asset that inherently has value that is going to go up over time. You're really just making a bet off the price of bitcoin. And some people have done really well with that because they bought Bitcoin at $50 and then it just shot up like crazy. And those people look maybe smart in retrospect, but that doesn't mean it's a good idea to buy bitcoin today at $900 or whatever it's trading at.

When you're making a bet on a price of a cryptocurrency, there's just no way to make an informed decision about that future price of that, you know, commodity two or three years from now. You know, it's, you know, buying bitcoin is like buying corn or wheat, putting it in your shed in your backyard and saying, I think the price of corn is going to go up next year, so I'm going to buy a bunch of corn and then sell it a year from now. It's not an investment. It's really just speculation, which, you know, if you're really excited about bitcoin, you want to own some, go spend 10 grand on Bitcoin, I don't care. It's just not an investment.

That's not something I would want to rely on to live off of on the future. And then finally, don't buy any complicated financial products that you just don't understand thoroughly. I know strategies like overfunding, whole life insurance, captive insurance, bank on yourself, stuff like that. It's been discussed on the show. Ryan has said that he doesn't totally understand captive insurance, stuff like that, but he's looking into it. And I kind of take that position as well. These things are great to look into, but you shouldn't buy one of them unless you know exactly how they work. You've read everything there is to read about them and you've literally become an expert on them. Some of these strategies are decent ideas for the right people in the right situation, but there's a pretty good chance that you're not the right person for these products and shouldn't buy them. So if you really want to learn about captive insurance or overfunding whole life, go become an expert on it and spend just hours upon hours upon hours and reading about it, reading the paperwork, looking at everything there is to read. And if you've done all that and then decide it's right for you, go ahead and do that. But don't just go out and buy one of these policies or do one of these advanced strategies because somebody on a podcast told you to. You really have to be an expert and know what the fine print is and know what the risks are of these strategies before diving in. So for some people in the right situation, go ahead, do these things. But for most people, you probably should avoid it unless you're willing to become an expert on each of these types of strategies. So now we kind of know what not to buy. Let's talk about what you should buy.

First. I really love dividend stocks. They're passive investments. You buy them, you become a part owner in the business and you get a profit share of the company at the end of each quarter.

Whether you are an owner in just major publicly traded blue chip companies. General Electric, Procter and Gamble, Wells Fargo, General Electric, maybe I just said that one Again, companies like these, they're big, boring, established companies that are very profitable and they can pay out dividends to their owners every quarter. And you know, these companies have done really well compared to the S&P 500. So the S and P dividend aristocrats, these are companies that have.

Raised their dividend every year for 25 years. This basket of companies has outperformed the s and P500 by about 2% per year over the last decade. If you look further back, you know those numbers just continue.

The reason that these companies do so well relative to the general stock market is just that they are well established, profitable companies that have strong cash flow and can pay out a portion of their profits to shareholders every quarter. They just tend to be better companies because they have that cash flow and they make a lot of money and they can pay that money back to their shareholders. Let's look at one example. Magellan Mid Street Partners. The symbol is MMP. I own some of currently has about a 4.5% dividend yield, it's got a long track record of paying dividends. It grows by 5 to 6% every year. So currently, let's say the dividend grows by 6% every year. Using a rule of 72, we know that the dividend will double every 12 years. So that means after owning this stock for 12 years, that'll be paying me 9% back on my original investment after only for 24 years. I'll get an 18% dividend yield on my original investment. After 36 years, it'll be paying me 36% back on my original investment every year, just in a dividend alone. This just assumes that I don't reinvest the dividend and that there's no growth from capital gains at all. But if you do choose to reinvest that 4.5% dividend, your dividend doesn't grow by 4 by 5 to 6% every year, but more like 10% because you're now getting dividend payments on your initial investment plus the dividend on the dividends that you reinvest every year. So this means if you reinvest the dividends in a stock, that the dividend payments you receive will double about every seven years. So after just seven years, you'll be getting 9% back on your original investment in the form of a dividend alone. There's lots of other reasons to love dividend stocks. They are about 20% less volatile than the broader market, which means there are fewer wild swings than the stock prices. So 2008 happens again. Your stocks don't go down by 38%. They only go down by say, 29%, which is still not very fun, but not as bad as it could be. Dividend stocks also receive preferential tax treatments or dividend payments. You receive get taxed at the capital gains rate and you if of course they are actually passive investments, you don't have to do a whole lot of work to hold them. And they just outperform the market over a long period of time. If you really want to dive deep into dividend stocks, I wrote a book about this. It's called Automatic how to Use the Power of Dividend Investing to Beat the Market and Generate Passive Income for Life. You can grab that@automaticincumbook.com if you like to read that.

I also love closed end municipal bond funds. So municipal bonds are basically bonds that are issued to cities, counties and states because the government wants to encourage you to invest in these things. The income from them is tax free. So a municipal bond fund is simply a Mutual fund that owns municipal bonds. And a closed end municipal bond fund is kind of a special type of municipal bond fund that typically uses leverage to juice the returns that you get. So for every dollar you have in invested in a closed end municipal bond fund, you might have about $1.30 in municipal bonds and another 30 cents in debt to kind of pay for that extra 30 cents worth of municipal bonds you own. Because they use this leverage, they can offer much higher income or yields than traditional municipal bond fund. There are two that I own, nzf, which is the Nuveen Enhanced Municipal Credit opportunities fund. That's NZF. Then BFK is the BlackRock Municipal Income Trust Fund. I own some BFK as well. They both offer tax free yields of about 6%. So if you're in that top tax bracket, which is 43.4% on investment income, that 6% tax free yield that these things offer is really the equivalent of about a 10.6% yield on kind of a corporate bond where you have to pay ordinary income tax and the net investment income tax as well. So these are great investments for people in a really high tax bracket because they're tax free and they won't increase your overall income at least as far as your tax return is concerned. One caveat on these is that they are going to take a minor hit every time rates go up. I don't really care about this because I plan on holding these forever. So I'm not worried about what the asset prices of these are going to be over the next five or 10 years because I'm strictly buying them for the income that they create for me. Let's say Janet Yellen raises rates a whole bunch over the next few years. Probably not going to happen, but let's say it does. I'm still going to get that 6% per year on my money if rates continue to go up. And that's mostly what I care about with this investment.

Finally, I love the idea of owning real estate at scale. I don't like the idea of owning one or two rental houses. I own one rental house and frankly I kind of wish I didn't own it. It's a great property, but I have to do a lot of the work myself and it just doesn't make sense to set up the systems that you need to have to do well with real estate with a single property. And kind of where I'm at, real estate valuations have really climbed relative to what you can get for rents. I like the idea of buying an apartment complex or something Bigger. But valuations or what are property costs, what relative to the rent I can receive, just doesn't make a lot of sense right now. There's too much money in my community going towards real estate. So if I really wanted to do this, I'd probably have to look at a softer market.

If I did own 20 houses or a big apartment complex, I could hire somebody to be my property manager, just do all the stuff that I want to do. But you can't really do that with one or two houses and have the numbers make sense. Obviously there are people that are much smarter than I that have figured this out, own hundreds of rental units and have all of the systems in place to acquire and manage rental properties at scale. Jason Hartman, great example of this. He was on the investment panel at Freedom Fasting Live. He probably has a net worth of like $50 million because of his huge real estate investments. I actually have no idea what he's worth, but it's probably a lot. So the reason that I haven't personally dug into real estate a lot more than I have is just because it's more, much less passive than investing in some of the other things I invest in like dividend stocks and municipal bonds. So I can manage my seven figure portfolio, dividend stocks in kind of two to three hours per month. And I just don't know how I would manage a real estate portfolio of a similar size in a similar amount of time. Owning real estate, it's a great thing, but it's as much a business as it is an investment. It takes time to identify properties, to purchase them, to fill them with tenants, to keep those tenants happy, to collect rent checks, to figure out insurance, figure out mortgages, refill the properties when a tenant moves out, fix stuff that breaks and maintain the properties. All these things take time and money and frankly, I just don't have time to do that stuff. I run four profitable businesses and I don't want the fifth business that I run to be, you know, being a real estate investor. So as good of an investment that real estate can be, it's just not for maybe because, you know, building a real estate empire would come at the expense of operating and growing market Beat and Go Go photo contest and Falls angel fund and US Golf tv. So there is kind of a different risk reward portfolio, excuse me, a different risk reward ratio between stocks and stock investing and real estate. And frankly, it's probably a good idea to do a little bit of both. But if you really want to deep dive into real estate, I encourage you to check out Jason Hartman's Building wealth show. It's a great resource for people that want to invest in real estate. He's way smarter than I am on this stuff, and he just got some really good educational material on investing in real estate. So I think that's pretty much it for this. So let's recap a little bit. When should you take money out of your business? You should do it when you're making money and you've kind of run out of reinvestment opportunities in your business that would pay off and 12 to 24 months. And you should always try to maintain whatever minimum profit margin that it is that you set for your business. And then once you have money to invest outside of.

You know, outside of your business, you start with the basics. Do a Roth IRA, do a 401k, do an SEP or a Roth IRA. Excuse me? Do the Roth IRA, do the 401k or the SEP, and then do your health savings account after that. I like dividend stocks, closed and municipal bonds and real estate. Stay away from gold and Bitcoin because it's speculating, it's not investing. Certainly you can invest in other people's businesses, too, but that is probably another topic for another episode. I think that's pretty much it. And with that, I will turn it back over to Ryan.

I like to say that as an entrepreneur, you should go all in on your business and then you diversify through your investments. So I think it is usually a bad idea to try and go all in or try to diversify on multiple businesses, meaning I don't feel safe about my income. So I'm going to diversify by starting another business. That's like saying, I don't have enough free time, so I'm going to have another baby. The idea, I think, is to go all in on one business or all in on a skill set and then to diversify through your investments. And that's why I say cash flow has to be the number one thing that we look at when we're analyzing different investment vehicles. But entrepreneurs are notoriously bad investors. It's why we do this class, which you can find out more about@free freedomfasting.com investing, which will show you how to keep more of what you earn. Also grow your business. What are those investments you make in your business that produce the highest cash flow? Because ultimately your business is going to be the best investment that you make. And then how do you keep more of that? How do you grow it with. With more wealth, with more cash flow? And how do you have a predictable investment strategy that gives you appreciation, wealth, and allow you to grow your business over the long term without you working harder? And we have done a terrible job of promoting this, but everybody loves it, who comes through it, and we've gone through actually a couple different names of it. We finally just call it the Investing for Entrepreneurs class. And you can find out more about that over@freedomfastlane.com investing special thanks to Matthew Paulson, who actually came from that class and is now a really active member of our community. Thanks to him for sharing today and also for speaking at Freedom Fast Lane Live. If you you found value in this, please share it with a business owner who, you know, needs to develop a more robust investment strategy in their life and their business. Thanks for listening to the show, and I'll see you guys on the next episode.