The wealth-building thread

[Shorty]

But there are very few countries that do that, the US & Brazil being only 2 of a few.

Among those few countries: those within the European Community.

 

[Willem]

Among those few countries: those within the European Community.

Not true. We have tax treaties, and the rule in almost all of them is basically that you pay where you have your primary residence/base.

 

[Shorty]

Not true. We have tax treaties, and the rule in almost all of them is basically that you pay where you have your primary residence/base.

Errr… you pay taxes where you make money, no? If I earn money in another (than my residence) EU country, then that’s where I pay taxes on that part of my income.

 

[ahofer]

The solution is to have enough money so it doesn't matter. Have enough so that after the tax hit, well, you still have enough. The goal is not to keep every last dollar, the goal is to remain independent of any shenanigans that seem to continuously arise.

"start with a million dollars..." as they say?

So let's stipulate that one has enough. Say an eight figure net worth. How would you diversify it to protect against the debt overhangs, taxing proclivities and uneven valuations in the world today? Can you do it in freely tradeable assets, or would you suggest higher friction assets such as land, timber? Speculative assets such as crypto? How is one's 'enough' portfolio invested.

As someone approaching retirement, I'd be interested to know.

 

[Willem]

Not in my experience, and not according to many tax treaties. But to be sure, just look up the treaty, which is what I did in the cases I had to deal with.

 

[Willem]

Errr… you pay taxes where you make money, no? If I earn money in another (than my residence) EU country, then that’s where I pay taxes on that part of my income.

Not in my experience, and not according to many tax treaties. But to be sure, just look up the treaty, which is what I did in the cases I had to deal with.

 

[Shorty]

Not in my experience, and not according to many tax treaties. But to be sure, just look up the treaty, which is what I did in the cases I had to deal with.

Aahh well, you’re probably right - I have very limited experience in these matters. Sticking to the rules buys one the comfort of peace of mind, a luxury tax dodgers can‘t afford.

 

[Willem]

The tax dodge for the rich is to move to comfortable places like Monaco, with zero tax. Max Verstappen is an example.

 

[Shorty]

The tax dodge for the rich is to move to comfortable places like Monaco, with zero tax. Max Verstappen is an example.

Monaco…. a sunny place for shady people.

 

[EJ3]

Monaco…. a sunny place for shady people.

But, when there, if you can become accepted by the higher rollers (shadier people, perhaps) you can make more money than you where before, while still paying zero tax.

I lived in a country where the max tax rate was 11% for 17 years (that was only if you where making millions a year). It almost met my goal of only 10% taxes. There were no City taxes, there was a slight tax (fee) on automobiles, there was a sales tax (but you never knew what it was because it was included already in the price: so if something was $10.00, then $10.00 was what you paid. Was it actually $1.00 & $9.00 tax (yes, for demonstration purposes, an extreme example)? Was it $9.00+ $0.50+the store rounding up $0.50 to make it $10.00? You had no way of knowing.
But, overall it was quite nice. Heat was available & not needed, though AC was 24/7. & the power bill would usually easily exceed your leas payment.
The last whole year I lived there, working only 40 hours a week, receiving room & board, taking 2 three week paid vacations + 1 week unpaid for each, with my airfare for both paid for, I only made about $56,400, a pittance. + filling jointly, with my wife, brought it up to $66,400.
But the point is what you get to keep:
My income tax was about $3,400, as I had a fair amount of deductions. In most years I did not have those deductions & it would be about $4,600 in tax.
I thought that was a pretty fair deal.
And did not feel bad about giving them what they deemed their fair share. There, I paid my taxes quarterly.

 

[EJ3]

Among those few countries: those within the European Community.

I was born a USA citizen in Austria.
Some years ago I had to close my Austrian bank account that my Austrian grandmother had set up for me because the U.S. government (I am a US Citizen & do not have dual citizenship) considered it an asset.
Money given to me over 30 years in Austria that just sat in a bank account for me for when I came to visit became a taxable asset in a country that had nothing at all to do with it.
One of the many reasons that I now believe that there is NO good government, just better or worse governments.

 

[Blumlein 88]

I was born in Austria.
Some years ago I had to close my Austrian bank account that my Austrian grandmother had set up for me because the U.S. government (I am a US Citizen & do not have dual citizenship) considered it an asset.
Money given to me over 30 years in Austria that just sat in a bank account for me for when I came to visit became a taxable asset in a country that had nothing at all to do with it.
One of the many reasons that I now believe that there is NO good government, just better or worse governments.

Bad government, is the price of government. Think about it.

 

[EJ3]

Bad government, is the price of government. Think about it.

Well

Bad government, is the price of government. Think about it.

My point exactly!
There is bad & there is less bad but the tendency is for the less bad to become bad & the bad to become worse than bad.

 

[Willem]

There is bad & there is less bad but the tendency is for the less bad to become bad & the bad to become worse than bad.

No modern society can do without pretty big government and significant public expenditure. The only question is who pays for this (the rich or the poor?) and what is done with the money.

 

[Willem]

Since this a thread on wealth building, let me give my European example. My quite well off parents taught me that you have to start early, and avoid spending unnecessarily (the calvinist ethic). So, for much of my life I avoided sinking money into the black hole of car ownership. I always lived in cities with good train connections and where I could go around on my bicycle. As soon as I had a real job I bought an affordable apartment that I paid off in just over a decade. My next move was into a new job in another city. We decided to have a nice big expensive house built for us at a very good location in town, precisely when the market was a bit slack and builders were looking for work. The money from the apartment was enough to persuade the bank to give us a pretty large loan. We have now almost completely paid off the mortgage, and the house is worth at least three times more than what we paid for it. It was an excellent investment.
This is all very nice because I have now retired (I am 70). Our pension schemes in the Netherlands consist of essentially two components. The first is the state pension of currently about 1400 euros per month net of taxes for a single person or 1880 euros for a couple. This is funded by the current contributions of those of working age. So this is the minimum income retired people can count on. The second component comes from the pension fund from your former employment. You contribute to this during your working life (this is compulsory). Unlike with the state pension scheme the money is invested, and you get a pension once you have retired. These pension funds are independent from your employer, and are supervised by the central bank of the Netherlands. If your former employer goes bankrupt, there is no issue - your money is safely out of harm's way. Between them, the pension from the state pension fund and the additional private pension fund add up to about 60-80% of your last income. So as long as you make sure that you have reduced your outgoings by the time you retire (in most cases paid off your mortgage), you are fine (the Central Bank's rules also ensure that your mortgage obligations after retirement are doable). Last year and this year, my pension fund added 12% and another 3% to cover for inflation.
So unless you are self employed you don't have to think about how to invest your life's savings. Just make sure that you invest in the right house at the right time, and make sure it is (mostly) paid off by the time you retire. I find this a very relaxing thought. Once upon a time, early on in my career, I was on the supervisory board of a large university investment fund, and I could see up close how hard it is for a private person to beat the professionals, or do at least do as well as they do, and over a long period of time. One year you may do well, but next year you discover that you were just lucky.

 

[EJ3]

No modern society can do without pretty big government and significant public expenditure. The only question is who pays for this (the rich or the poor?) and what is done with the money.

Why not all an equal percentage of what one purchases. The poor don't buy Super Yachts, but the rich do, even though the percentage tax is the same, they buy higher priced stuff & more of it, so the for actual overall percentage of the budget, they will pay more. What would be wrong with that?

 

[Willem]

Why not all an equal percentage of what one purchases.

That, of course, is a political choice. And indeeed, in countries with too much tax evasion a value added tax is often the only option. From economic theory the argument against it would be that income has a declining marginal utility. Therefore, the disutility/pain hurts more for the poor than for the rich. Is that morally right? The effect would also depress national income given the declining marginal propensity to consume. Only relying on a value added tax to cover the required tax income would raise that tax to levels that would seriously depress demand and stifle economic growth, and is impossible if other countries do not follow suit. Right now, all EU countries have fairly similar levels of VAT. Just imagine if the Netherlands would more than double its VAT rate to make up for lost income tax. People would simply go abroad for their shopping.
Most economists agree that too much inequality is a bad thing for the economy (see e.g. Acemoglu and Robinson, Why Nations Fail). However, many countries have witnessed increasing (within country) social inequality over the last few decades, after many post war decades of declining inequality. The net effect has been that much of the gdp growth of the recent decades has ended up in the pockets of the top few percent. The rest of the population has hardly seen any income growth for many years, or worse. This, I think, is at the root of much current populist discontent. One other thing to add is that inequality between countries has decreased, because of the rapid economic growth of some emerging economies, in Asia in particular. Lower income groups in Western countries now have a lower standard of living than some middle class people in the emerging economies. Finally, one more piece of bibliography: read the work by Branko Milanović on inequality. Sorry, professors want you to read - Branko is a good read, and the world's leading expert on this.

 

[TheBatsEar]

Tried a few things in Germany over the decades, Riester, Allianz, Bausparen, it's all BS, nothing has performed for me as good as DCAing into a simple ETF and hopefully harvesting some tiny alpha while reducing volatility by balancing against cash.
The asset allocation is 80% cheap worldwide ETF and 20% cash, i balance once a year or if the ratio is out of whack.

 

[EJ3]

That, of course, is a political choice. And indeeed, in countries with too much tax evasion a value added tax is often the only option. From economic theory the argument against it would be that income has a declining marginal utility. Therefore, the disutility/pain hurts more for the poor than for the rich. Is that morally right? The effect would also depress national income given the declining marginal propensity to consume. Only relying on a value added tax to cover the required tax income would raise that tax to levels that would seriously depress demand and stifle economic growth, and is impossible if other countries do not follow suit. Right now, all EU countries have fairly similar levels of VAT. Just imagine if the Netherlands would more than double its VAT rate to make up for lost income tax. People would simply go abroad for their shopping.
Most economists agree that too much inequality is a bad thing for the economy (see e.g. Acemoglu and Robinson, Why Nations Fail). However, many countries have witnessed increasing (within country) social inequality over the last few decades, after many post war decades of declining inequality. The net effect has been that much of the gdp growth of the recent decades has ended up in the pockets of the top few percent. The rest of the population has hardly seen any income growth for many years, or worse. This, I think, is at the root of much current populist discontent. One other thing to add is that inequality between countries has decreased, because of the rapid economic growth of some emerging economies, in Asia in particular. Lower income groups in Western countries now have a lower standard of living than some middle class people in the emerging economies. Finally, one more piece of bibliography: read the work by Branko Milanović on inequality. Sorry, professors want you to read - Branko is a good read, and the world's leading expert on this.

I like reading, unfortunately don't have time for much lately.
And with some surgeries coming up (during the Holidays I'll get to enjoy not being in crowds by being in the hospital instead.
I have no investments, no working ability due to an accident, therefore no income at the moment. Fortunately all of my mortgages, vehicles, credit cards & what not are a zero balances and I owe nothing to anybody
Even my power, water & other utilities are paid up until the end of February.
And I should start getting some retirement income starting Feb 14th.
March 1 will be my mother's 90th birthday & March 8th will be my 67th.
After that, I guess we'll have to see how these various wars pan out to decide what to do.
One thing that I am hoping to do is more reading.
Thanks for the suggestions.

 

[Willem]

I am sorry to hear of your health and income insecurity issues. Get well soon.