David Young is the Founder and Chief Executive Officer of Anfield Capital Management, LLC. With over 30 years of investment experience, David has worked with many of the largest and most sophisticated institutional and private investors in investment strategy, portfolio management, and asset allocation.  

At the end of 2008, he retired as Executive Vice President with Pacific Investment Management Company to rejoin the U.C. Irvine Merage School of Business as Adjunct Professor of Finance, and create Anfield Capital Management, LLC.  From 1999 to 2006, David was head of PIMCO’s account management group in London where he built a team of 25 investment professionals managing over 200 client accounts and approximately $50 billion in assets across the UK, Europe, the Middle East, and Africa.

 

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Overcoming False Beliefs of The Deferred Sales Trust with David: Part 2

 

Brett:

I am excited about our next guest. He’s a repeat guest. In fact, this is, I believe, his third time on the show. And I like to call him a Hall of Famer when it comes to all things investing and all things wealth. In fact, he’s the founder and CEO of Anfield Capital Management, he has over 30 years of investment experience, and he has worked with many of the largest and most sophisticated institutional and private investors in the investment strategy, portfolio management, and asset allocation world. At the end of 2008, he retired as the Executive Vice President with Pacific Investment Management Company to rejoin the U.C. Irvine Merage School of Business as Adjunct Professor of Finance, and create Anfield Capital Management, LLC. We’re excited to bring back David Young to the show. Hey, David, how are you doing?

 David:

Doing great, Brett, thanks for having me back.

Brett:

Absolutely. Good to see you on the restream that we’re streaming here live on Youtube, and Facebook, and such. And so let’s start with your story for our listeners. You know, give us a bit about your story and your current focus.

David:

I will happily do so. Then maybe afterward or now, you tell me, I am reminded by our Compliance Department that I need to read this compliance disclosure.  I’m just going to offer a dramatic reading. Thought you know, we could kind of jazz it up a little bit but I’m not sure I could really pull it off. So let’s just give you a straight-up fiction reading. Pardon me if I have to read while we go. 

Anfield Capital Management, LLC is a registered investment adviser with the SEC.  Registration as an investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made.  This interview is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any securities.  While many of the thoughts expressed in this podcast are stated in a factual manner, the discussion reflects only Anfield Capital’s beliefs about the financial markets in which it invests portfolio assets at this time and may change at any time.  The descriptions I make are in summary form are incomplete and do not include all the information necessary to evaluate any investment.  Prospective investors are referred to our Form ADV 2A for a more detailed discussion of risk factors, which can be (a) found on the SEC’s Investment Adviser Public Disclosure website at: http://adviserinfo.sec.gov, or (b) provided upon request.

Brett:

Excellent. Thank you so much, David. And so now let’s dive right into the interview. Give our listeners a little bit more about your story, please, if you could, and your current focus.

David:

The story is simple at least it seems when you look back in time and seeing all that simple at the time. You know, I often say that if someone had told me 10 or 15 or 20 years ago that, you know, I would end up here and we would end up here doing what we’re doing and working with great people like Breton working on you know, doing a pad podcast and, and working on, you know, with clients who you know, deferred sales trust and other tax minimization strategies as well as just general investment strategies. I would have said No way. But you know, long story short, it started off a number of years back out of undergraduate, actually at Rockwell International. So we’re going way back, but we’ll do it fast. And that was an aerospace contractor, many who would know that name. And it was aerospace and defense contracting, it was pretty dry. It was during the bull market of the 80s, which many of you will not remember. That’s a good thing. And that was Go go go. And so I joined Smith, Barney Harrison up, venerable old name on Wall Street was there for a while and then after that went on to business school and it found my niche, I really enjoyed it business school then got a CFA, which is a Chartered Financial Analyst designation, that’s sort of a credential choice in our business, you know, drafted, then to go over to PIMCO Pacific investment management company, both here in the US, and then many years overseas in London and Munich offices, mostly London, we’re ahead of the group there, and it’s just been a great wild ride came back to the US sort of folk 6, 7,8, after many years overseas and saw an opportunity to, you know, a spin-off from that very large, very good investment management firm and just kind of go on almost a dream, right? If you could, if you were at a point in your career, when you knew what you wanted to do, you had the opportunity, and you had the means to do only the parts of your day that you wanted to do, right? We’re all like, I really like talking to clients, I really like you know, whatever, I have to do all this other stuff. Because my boss tells me I have to, well, we said I have an idea. Let’s go, let’s step out of PIMCO, very fond memories, great firm. And let’s see if we can make a business out of doing only the things we really enjoy doing. And one of those things is what you and I are doing right now. And the rest is kind of history. We manage money for endowments, foundations, deferred sales trusts, the list goes on. And these markets are crazy, but we’re having a good time.

Brett:

That’s a great segue, right? Because a lot of our clients, they’re faced with highly appreciated assets, right? That they want to transition into the next phase of their life, right, they want to be done with the toilet trash liability, they want to be able to retire from their business or, or even launch a new business. And we just did a deal in Alabama for a gentleman who sold a business and he’s in his 40s, he’s young, he’s like, hey, I want to go launch my next business. And he was able to use it, defer the tax and use the funds to be able to go launch another multifamily investment. business. You know, it’s, it’s, it’s remarkable. When you focus on what’s most enjoyable, what’s your highest and best use, you know, I believe we’ve all been given certain gifts, and these gifts are given to us to be a blessing. But if we are at times in certain circumstances with either job work, businesses, sometimes we can as things grow and get bigger, we can lose track of that or energy gets Hess has to focus on other things. So if you can sell something, defer tax and use that as a vehicle to launch your next thing, or maybe use the gifts that you want to be giving or traveling or whatever it might be. Freedom is the key here, right. So we like helping people escape feeling trapped by capital gains tax. That being said, it’s kind of a long-winded way to introduce this question. Would you help our listeners understand your journey to deferred sales trust? What were your thoughts when you first heard about it? Take us to day one, you know, and take us to also maybe even 30 years of this because I’m sure there’s a lot of day ones with certain strategies that have come around. And you say no to those for whatever reasons. And then walk us through why you said yes to the deferred sales trust.

David:

First and foremost, we’re economists, we’re money managers, we spend all day watching markets looking at, you know, Bloomberg screens and debating whether or not you know, the Fed is going to raise interest rates they elected today not to, which was not a surprise, I think the markets going to do that hard work for them. And I think Fed Chairperson Powell and the rest of the Fed knows that and fortunately, over my career, I had an opportunity to work with a couple of the current federal reserve presidents and so I have some sense of how that body thinks but I’m specific to the capital gains tax What did I think I thought deja vu, oil, and gas limited partnerships. Let’s, you know, I thought windmills in you know, and out in the California desert, you know, right over our career, and during different tax periods. We’ve seen, you know, these tax avoidance, tax minimization offshore, all these different strategies were undertaken to minimize or avoid taxes and then I can tell you that you know, some of them are just not worth the trouble. And so I was skeptical, admitted I was skeptical. I thought, Oh, yeah, here we go, another one of these right? And then they say no, no, it really is different. Right. So so look more closely, we look more closely. We had I honestly two years of conversations, two years. Now we were doing due diligence, but two years is a long time to be, you know, sort of flirting with the idea of and getting to know the people and getting to, to really understand the transaction. And I still don’t think I’m an expert. Not that it’s that complicated, but its power to a degree and its flexibility. And so it’s sort of like every time. I’m like, that’s slightly different. That’s a different setting, different contexts, different opportunities, different challenges. So it almost feels like even though the ground is very sort of, well, well worn, at least in the way estate planning team, and this deferred sales trust is operated. That, you know, it seems like that there’s just still new information all the time. And that’s good. Yeah, long story short, um, you know, we got comfortable although we are not Tax Attorneys, Lawyers or Estate Planning Attorneys, that at least you know, from an investment perspective, that, you know, it made sense to sell in a probably appreciated asset, get liquid, hold that in this type of a, you know, a deferred or installment sale type of instrument, and then just be in a position then to do the most important thing, I’m probably stealing your next question, which is time, they say, Well, you can’t make more time you can’t you but actually, you can. The deferred sales trust in a way allows you to lengthen the investment time horizon for those assets after getting liquid but before having to feel the tax impact. And from an investment manager’s perspective, the time horizon is the most important element in investing.

Brett:

Got that great, great introduction to that. So the two-year time period, yeah, getting to know the visionary, the founder, co-founder, the deferred sale trust, Robert Binkele. And then the tax attorney who started this as well, you know, I think there was I didn’t correct me wrong, but, you know, there were flights to meet with the tax attorney day, you know, maybe a day or two, I don’t know, spend looking at, you know, the boxes and where things go. And, and, and at the end of it, I think it was I don’t know if I heard the quote, right, everybody was, that might be the smartest person we’ve ever met, right? I don’t know, at all put words in your mouth. But talk us through just how you came to the conclusion of this thing works. We like it, we’re, you know, we want to, you know, move the relationship forward if you will.

David:

Yeah, I think it was probably three things coming together, there was a flight out to Lake of the Ozarks, Missouri. And I remember it because I used to do a lot of business in the great state of Missouri, and had been, you know, to the lake a number of times. And that was together this couple of day event that was quite intensive. Todd Campbell Campbell law is the tax attorney, you’re referencing, obviously a very impressive person, in my opinion. Again, from my estimation, which is all I can speak from, he knew every answer to every question without hesitation, but importantly, was able to put it in such a clear and succinct manner that you knew he understood it at the very essence. Sometimes in money managers are the worst, right? We go into what I call the mumbo jumbo and is the Greek letters and well the Sortino ratio, and Okay, what exactly it’s like too much sauce on food, like what exactly you’re trying to hide in there. So, those who are in lightning are sort of, you know, revelation sort of moments. And then I think I’m seeing the first one go from idea through the process and understanding and I had an occasion to do this probably, this was maybe 18 months ago, right start to finish and just watching it as it unfolded and develop was also very helpful. And then separate to all of that talking to someone that I knew and I didn’t even know this person was working with a different sales stress. It’s a college buddy of mine who lives in the area, and then chatting with him about his experience. So I got to see it from the technical aspect, the practical application, and then the users’ aspect. This person was selling a highly appreciated home right here in the area. And it’s just enlightening to see his take on it. And so, those three things all came together.

Brett:

Excellent. Thanks for sharing. And so yeah, by the way, you can go to capitalgainstaxsolutions.com to learn more about the deferred sales trust. And if you’re a client who’s already listening to this, we would love to bring David on because, by the way, he has an option to help manage the funds as part of what his team does. And our goal here capital gains tax services and also the Estate Planning Team. The goal is aligned with both organizations to try to provide what’s called a dream team. We want to bring some of the best Wealth Advisors and Real Estate ideas and try to help you create and preserve more wealth and that the deferred sales trust is the tool. And the team helps to execute all of this. So you can go to capital gains tax calm. That being said, Okay, so you went from year to year due diligence, you see the technology you see the practical you see the application with a user who’s selling a high-end primary home in Southern California. And now, you know, fast forward, I don’t maybe that’s a year or two ago now, I’m not sure quite on the timeframe of all that. But why are the Deferred Sales Trust? So important or so powerful right now for high net worth individuals selling assets that are, you know, highly appreciate it?

David:

So, what would I say? I would say, number one, your taxes aren’t going down. I think we can all probably agree on that. Some might debate that. But I can tell you as an economist and a market watcher and someone who, you know, reads policy statements from, you know, administration, state-federal, see the amount of debt being issued, see it all, and I think taxes aren’t going down. So if anybody were waiting for a better tax environment to sell, you know, be it stocks or a house or a collection of cars or whatever, whatever life happens to be still on you that that strategy is probably not going to bear fruit. Yeah, number one. Number two. I think diversification is important. It’s always important, I think it’s more important now. And, you know, here’s what we’ve seen, especially in environments where there’s so much liquidity and money sloshing around certain parts of the market, we’re seeing them get very sort of, you know, overstressed other parts, there’s still a lot of opportunities out there, the real estate market is strong prices are up, that’s good. I do always laugh. Sometimes in the stock market, you know, clients will say, Well, you know, I do want to reposition my portfolio and get more diversified. But I have a lot of, you know, gains, I have a lot of capital gains in the stocks. And so I don’t want to pay all those capital gains taxes. So now this is specific to the stock market. So I want to wait for the stock prices to come down. She made a lot of money. And rather than pay a little bit, we could argue maybe more than you should, that’s for another day, and to the government, you want to wait till you give back some of your gains to the market. This is not a good strategy. So certainly, diversification is always important now, maybe more so than ever. I mean, those two things, I think, come together most powerfully. And then I think this ability, as I said before, to get liquid liquidity as it turns out, as we discovered, you know, back in 2007, eight, during the great financial crisis, in the aftermath, we discovered it again, in a very cold water splash in the face. In March, April, and May of last year, remember where we were right around this time last year, right, the wheels were coming off, and liquidity was king. And we always underestimate the value of liquidity until we need it and don’t have it. So here’s the way to get that liquidity, get that diversification. And then the last part I mentioned before I got ahead of myself, as I sometimes do time horizon, right, is to then say, now we can put this money on an instrument and you know, for this 10 year period, and then, of course, it can be extended, it can basically be rolled over after that, by ourselves the most important part, which is control, transparency, diversification, and the ability to move that money around based on what’s happening in the world, be it inflation coming back, interest rates going up, stock market going down. I mean, all these things are coming, I just don’t know exactly whether or in what order, but the deferred sales trust allows us this insulator to do all that maximize return before taxes, let the investor, let the client decide when they want to realize how much of those various proxies. It’s very powerful.

Brett:

It is powerful, which leads us to the next question, which is this, it seems like it’s too good to be true. David, you know, my CPA would have heard about this, right? I mean, why hasn’t someone else told me about it? Why isn’t everyone doing you know? And so if you’ve heard that yet, I hear that every day but what would be your response to that?

David:

And it’s easily got an element of sort of distrust yourself. Now, wait a minute now you know. And so um, it’s the two edges of the sword that come with wanting to protect something in order to protect something, anything. A great business idea, intellectual property with a patent, a transaction type, which in this case, has certain legal and other protections, so that no one importantly can take the really good idea and go basically Duplo Okay, that’s important. But more importantly, take a good idea and mess it up. So in a strange way when you are protecting anything, right? It also places some limitations on its broad use. Not everybody can see it or access it. It’s not perfectly transparent or out floating around on the internet, we expect everything to be Google Apple, right? Well, this isn’t Google Apple, at least not in terms of the detail, because there’s no way to do that, and make it that broadly available without protecting it to make sure it stays, it’s done, right? Look, we have this conversation about the asset portfolio. Where the nature of it is that the asset, the investments must perform within a range. And the range is fairly generous, and there’s some flexibility. But the point is, all of the parts, the legal structure, the tax elements, different elements, the investment, and so I’ll have to work together in harmony, and they all have to perform. If any one of them breaks, then you know, we have a problem. And it’s my reputation. And it’s your reputation. It’s about being whose reputation and you know, these are serious folks, I think of myself as a fairly serious person, through my entire life, developing my credibility and my reputation. I’m not about to throw it away. So in a strange way, the activity of protecting that sanctity results in the fact that it isn’t as widely known as you otherwise think it might be. That’s actually a good thing.

Brett:

Right? It is actually a good thing, right. And it’s why it’s been 25 years now plus 1000s of closes, billions under management, over a dozen no change, successful IRS audits. And because it’s just an installment sale, right now, we’re created with a third-party, unrelated trustee. This is what the services we provide here at capital gains tax solutions, but it takes a team of professionals to execute this in a way that maintains the law of IRC 453. And that’s important to mention, by the way, we also think and believe and would hope to think that the just the same fact that you can diversify the wealth, the IRS also says that, you know, could think and would believe that you’re going to diversify the taxes being paid, right? Because this is truly deferral, this is avoidance, right? What we’re saying is we’re actually locking in the gain, you know, versus the 1031 exchange where it’s, you know, right, as it stands, right now, it’s kind of you can drop into your swap or swap into your drop. And in 2008, when things were not diversified. And if you’re trading one single asset for another single asset, taking out a bunch of debt, guess what things can stop, and all of a sudden, that gain gets wiped out, and guess who else it doesn’t get the tax on that the IRS, whereas, in the deferred sales trust, we’re taking that gain, and we’re kind of locking it in, and we’re preserving it right, and we’re gonna spread it across potentially 100 different investments in 100 different companies, right, from different countries, different areas, different. It can be real estate, it can be stocks, right? It could be hard money lending, it can be a number of things. And therefore it increases the chances of when you receive payment, you’ll pay tax. Also, by the way, it gets new property taxes, right, because the property sells, the agent gets the listing, he has to be taxed on the commission. So it’s actually a win-win. So would you dispel maybe Warren, folks think it’s not a win? Any thoughts on that? On David with the IRS?

David:

Well, I want to make sure I’m answering the right questions. So um, yeah, folks who, I haven’t had a lot of people who come to the conclusion that it’s not a win-win is, as you described, and as we both described, probably because I’m a little bit further down that food chain, right. So if they’re not seriously interested in having overcome many of those, you know, initial concerns, we’ve talked about a few, which are all pretty easily dispelled, I believe, then, that I don’t have a lot of interaction with them, they never kind of get far enough down the path for me to talk to them about Okay, now, what do we do with the assets? I can tell you in the ones I’ve been engaged with, have gotten nothing but you know, happy clients. I don’t want to over-answer the question.

 

Overcoming False Beliefs of The Deferred Sales Trust with David: Part 2

Overcoming False Beliefs of The Deferred Sales Trust Overcoming False Beliefs of The Deferred Sales Trust Part 2: “In any market, in any country, there are developers who make money. So I say all of this doom and gloom, but there will always be people who make money, because people always want homes.” – Sarah Beeny

 

Brett:

No, that’s exactly right. Which leads to the next one. It’s, you know, that I guess, what is the deferred sales trust? It seems to complicate it, right. It’s too good to be true. Okay. We figured out that legal, it’s proven, it’s done. Okay. But the next thing is, but it’s just too complicated for me or my advisors to understand my counter to that. I’m curious what you think David’s? Well, they haven’t done it yet. Or their clients haven’t done it until someone’s done it that they know and kind of like your story, right? Where you said you had the technical part of it, you had the practical part of it, and you had the application with your friend of yours, right? And you’re saying, okay, all three, you know, and that helps to solidify that. And you can’t, you can also beat them up too much because sometimes they’re calling us with 30 days to go right. You know, and this is a $10 million business sale. All of sudden they’re looked up, they’re like, Oh my gosh, I’m gonna have a $4 million liability tax liability. Oh my gosh, and it’s such an emotional big thing and they go, I don’t understand everything over there. So I’m just going to either not do it or, or acquiesce to what my CPA says who’s never seen it either. So just walk through and try to put us if you’re in their shoes, David right now, trying to take us out of it, you know, being in the industry 15 years or 30 years, take us out of it and help the client right now who’s looking at this and saying, I just don’t fully get it? How do I know I can trust that I’m gonna be okay.

David:

So let’s see, I’m in Brett, I’ll ask you to chime in here a little bit too, we can kind of tagged him on this one, you know, it’s funny someone, at least in terms of conceptually compared and contrasted a deferred sales trust, with a, either a basic IRA or a self-directed IRA, which are so afraid, where someone might elect to purchase a piece of real estate in your IRA, which you can do, there’s such a thing as a real estate IRA. Right? And it’s just like the other one, except it’s buying real estate in there. And, now there’s different because, you know, it’d be an initial purchase, or you’d be, you’d be investing in something that hadn’t appreciated yet. But if you forget about that part, right? What is it really, it’s simple, it’s an IRS tax code, just like 401k and the IRA tax codes, right? There’s a bunch of them, right? which basically says that, if you’re investing money, or owning an asset, for these set of purposes, which we believe to be, you know, good retirement, whatever the case might be, right, right. There are some elements of kind of the tax code wanting to inset, you know, the right kinds of behavior. And you open up this particular type of an account and it’s conforming, right, it’s got to meet these different rules and regulations, that if you put an asset in there, you could buy one share of stock or whatever you put an asset in this instrument, it will grow tax-qualified. In that case, we say tax-deferred right until such time and there are some other conditions about age, which aren’t part of this, that’s because that’s a retirement, right vehicle, whereby you can defer payment of taxes when you turn a certain age or choose to take it out, there might be a penalty if you take it out, it’s really no different. It’s, it’s if you keep it super, super, super simple. The only difference is here, rather than putting $1,000 in an IRA, and then going out and buying some stock or some bonds, and then we start this whole journey right? Here, you’re putting in something you already own. Then there’s a note that comes back to you representing your ownership of this trustee overseeing it, right? It’s there are all these different parties who are in place to manage it and make sure it does what it’s supposed to do. It’s really fundamentally no different. And so when you boil it down to its, you know, its simplest, you know, comparative rapper, something like an IRA, which we’re all very familiar with, most of us are very familiar with, I think you demystify it.

Brett:

Very well, sadly, I couldn’t say it any better, couldn’t agree with you more. And this will be the last one here on the deferred sales trust. And then we’ll shift a little bit to what’s going on with this. How does this bull market and if it does, and in touch on kind of announcement to not raise interest rates for the foreseeable future? We’ll touch on that here in a minute. So this last one is, well, the DSTs is too expensive with the ongoing fees, David, or I guess you could even be for wealth managers like yourself, right? Your fees, they’re so expensive. And so give an example, someone selling I mean, we just did a deal. And like the Santa Cruz area was a $7.9 million sale, and they had about 2.6 million of liability of tax. So they pay it off debt, by the way of about 2 million, and they put about 6 million or so into the trust and deferred the 2.6. And they go, how can you charge you know, this and that deal? I think it’s somewhere around 1.3 or 1.4%. on an annual basis, you know, recurring and the setup fees about one and a half percent of the sales price, you have a little bit of a break over a million. But that being said, just the give us from the fee of the forest or the tree versus the forest. Right. And how would you how if someone’s in the shoes right now thinking it’s too expensive, what would be your response to that?

David:

You know, here’s what I would do is I would take a step back and think about the expenses related. I would just do three things I would do what we call basically a Holding Period Return Analysis. So what investment says if I understood you properly, you make the transaction, you defer 2.6 million in taxes, you’re left with 6 million. Right? And then I say, Well, what are 2.6 million? in taxes deferred as a function of the initial sale amount? Right? What percent? Yep. Divide by 10. Assume a 10 year holding period, we can all do that math. Right, do that right now. So that’s going to be a number. And I would compare that number to the original initial setup fees, right? I think you mentioned, you know, maybe is it and a half-ish percent setup? Right? Okay. Divide that by 10. Because even though you pay it upfront, the reality is it’s buying you this 10-year long transaction, divide that by 10. Goodness gracious, that’s like, a fraction, that’s 15 basis points is very little in the grand scheme of things. And then I would add that to your annual running costs, to manage the money and have the trustee oversight and all that, I think when you compare those, I think you will find out that the the the breakeven rate, right, the amount of time it takes you with some reasonable rate of return, whereby the upfront fees to set up the trust, plus the running fees over that breakeven period of time compared, as a percent of the taxes you save, spread out over time, your breakevens look like a couple of years, not even I mean, you’re and then after that, you could argue, right? I’m not saying it’s free, but you could argue all the time, after that breakeven where expenses, cross tax savings, that’s free that the trust and the transaction are in effect free to you the investor, you know, and so that’s, that’s the way I would look at it, I don’t think you can say, you know, I would have to write a check for this for legal check for that for accounting, and then pay ongoing management fees, and trustee fees, you have to pick a period, make it five years, 10 years is the normal trust period. And just do that very simple back of the envelope. math doesn’t have to be rocket scientists, don’t worry about compounding of interest and all that just do simple straight line arithmetic. And I think you’ll find that breakeven is really very early on this in this transaction type. And the rest is, you know, you could argue gravy

Brett:

Beautiful, let me see if I can encapsulate that. And that was just so articulate. So well said, and I love, I love the way you broke that down. So you take that, you know liability, it’ll say 2.6 million, and you divide that by the price, right? The 7.9 million, or the asset sales price, or even in this scenario two, I would also maybe wonder if you do it by the net proceeds, because they’re gonna pay off about, you know, a lot, 2 million of debt, you know, so let’s just put it six, and you divide that by 10, that gives you a number. And then you can take the 1.5%, let’s say that’s the number. And you divide that by 10. You go guess what 15 basis points are a period of time. And then we’re going to do the plus the annual running cost, at a certain point, you’re gonna compare and contrast those two versus just paying the tax, and you’re gonna get a break-even rate where essentially you can, okay, this 2.6 that I would have paid, I’m earning interest on this net of the recurring running costs fees, and it breaks even at two or three years. And then after that, it’s all free or smaller costing me, right? My return on my investment on this, if you will, is now infinite returns. Is that a fair summary?

David:

Yeah, first summary, a couple of things of caveats. So we know whether or not you do the 2.6 in tax savings on the original sale amount of the base that could be debated. You could do it both ways. It wouldn’t take long, it’s just a pencil and a calculator, Excel, you would want to assume some rate of return for the monies that you didn’t pay on taxes, but in fact, invested. Right? Here’s the very simple point. Just just in a simple snapshot, assume you have an extra 2.6 million cut right to the heart of the matter, you would have had the other money anyway. So assume marginal only assume you have 2.6 million more than you would have because you didn’t spend that on taxes. Now 2.6 million, taking into account, you know, call it one and a half percent per year. That’s on 2.6 million. You know, you’re talking, you’re talking. Yeah, I can’t do the math in my head, unfortunately, very quickly, but you could assume the 2.6 million earns, you know, something very conservative 5% a year. I think we could all figure out that, you know, 5% on the 2.6 million savings is clearly more than what all these other you know what the other startup and running fees are on the total amount. That’s kind of the breakeven analysis.

Brett:

Excellent very well said. And for those who want a full analysis, you know, capital gains tax calm, and we can customize that for you. By the way, don’t charge anything, if anything unless then if you close the deal. And that’s the deal actually closes. So it’s no cost, no-obligation due diligence period. All that being said, Now let’s shift to part of this episode now, which has to do with how does this bull market ends? You know, we’re now recording this March the 17th 2021. Jay Powell came out today and, essentially, and correct me if I’m wrong said that there’s no force in the foreseeable future raising the interest rates? Of course, it could change, these can change, but he doesn’t anticipate that, first of all, give us that summary. Confirm that for us. And then let’s chat about what are some key indicators that you’ll be looking at, to gauge that things are staying healthy as they can be, David?

David:

Sure, quite a lot to unpack there. And as you might imagine, entire, you know, shows are made up if you watch CNB, CNBC at the end of the day, it’s one show after another talking about these types of things. So let’s see, we can’t boil it down into simple terms. You know, context and history always matter. And so here’s what I would say. If we’re asked how does an economic expansion eventually, you know, kind of rollover and turn into a slow period, and then ultimately a recession, how does a rising stock market, we’ll just call it a bull market and assets, risk assets, eventually sort of slow down, and then and then you know, you know, retreat as is the cycle. It’s never exactly quite the same every time. And that’s because the preconditions that started that economic expansion or that bull market and assets are never exactly the same, they can’t be, it’s just not possible. So if we want to know where we are in the cycle, and most importantly, so we can try and figure out how much further You know, it has to go, we have to spend a minute and figure out how we got here, and I’m not going to go into a big you know, economic and market history last except to say, we still to this day have remnants material remnants of the great financial crisis of 2006 778 really, and that is a condition of a tremendous amount of liquidity, excess liquidity, I would argue with, you know, inflated central bank balance sheets, because right around that time, they stopped being pure referees and started being combatants. Imagine central bankers, you know, taking off their strike jersey and donning the jersey of, you know, maybe the jersey of one team and the helmet of running out of the field, it changes everything, and then even the rules started to change a little bit. And so that was a really important period, well, that’s still with us today, you have a very active Federal Reserve in the markets more than ever before, you have this overhang of liquidity from 10, 11, 12 years back, you know, something like that more. And then you have COVID, which is a pile more fiscal activity, right, spending by the government, more activity by the Treasury, more activity by the Central Bank, all of the kind of, you know, the authorities in this game that’s being played, combined with a tremendous amount of liquidity being pumped into the system. And that liquidity was the right thing to do. We had to shore up asset markets and credit markets and the consumer and small businesses. And now we have the $1.9 trillion additional stimulus package, I’m generally in favor of these measures, only time will tell if it’s too much. But the funny thing about medicine, if it’s too much, you can probably deal with that problem. If it’s not enough, you have a whole different problem, which is the patient doesn’t get better, the patient actually gets sicker. Right? So that’s something we’re going to be watching but so the run-up that 10, 12, 13, 14 year period of how we got here matters a great deal and affects how this ends. And you know, we’re watching, in the end, is not here, don’t worry. We’re watching you know, seven or eight different factors to give us a sense of when you know both the economic expansion and listing in New Zealand for the deferred sales trust investors. You know, when the bull market and assets might end.

Brett:

Let’s focus on maybe one or two that you feel the most crucial out of the seven?

David:

Sure thing. Well, I’m in my business maybe like many businesses you develop these you know, age-old adage is and how exactly old they are. I don’t really know but they’re there. They’re old enough to be called age-old adage is and there are a couple that I firmly believe in number one, recession, economic expansions don’t turn into recessions, have their own length or breadth of magnitude. It’s not like there’s some magic tipping point that says, and you’ll hear people say, well as 22 consecutive quarters of growth, that would actually be a quite a long run, right of growth, and then that’s the longest it’s ever been and the post-war and above, that doesn’t matter. Every one of these is different, right. And as soon as you set a record, you better believe that you’re just setting a basis on which to set another record. That’s how the world and life works. So, you know, we don’t spend a lot of time looking at the length and breadth of economic expansions. To try and determine when they end, what I can tell you is they usually, because of one main reason, and that is the central bank, or banks will just pick on the Federal Reserve because we’re here in the US raising interest rates too far too fast. And basically, maybe it was to pump the brakes to slow economic expansion, they hit him a little bit too hard, the economy slows, you know, more abruptly and dips into recession. And then sometimes it’s the follow-on knock-on effects that make that worse, right. And you get a really serious recession, the Fed does not plan to create really serious recessions. But this is also like trying to steer a very big thing. With you know, without all the tools you certainly might want in a perfect world. And so, so that’s first and foremost, there are other kinds of, you know, causes to an end of the recession of an expansion, I’m sorry, the beginning of a recession, we used to have one listed as number seven-way down at the bottom. And it was a global pandemic, and people went global pandemic, that’s never gonna happen. Why do we talk about the end of economic expansions and the reasons why they end. And then the number one cause being the central bank raising interest rates, is because the age-old adage says that, that bull markets and stocks right the stock market going up NASDAQ going up all these dow going up, s&p going up also doesn’t just run out of steam and end, right. What ends up happening is something stops them. And usually what stops them is a recession. So watching what is probably going to bring an abrupt end to this, or at least an end to this bull market is really a lot about watching what’s happening in the environment in which the stock market operates. Right, it operates inside of a global US economy. So these two things are attached at the hip. They’re not the same, but they’re attached at the hip. So with that backdrop, you can probably guess the first couple of things that we’re looking at. But I’d be happy to summarize them for you, Brett. 

Brett:

Please do. 

David:

So, it will break this down by what’s green, what’s green right now, meaning we’re not worried about it, meaning it looks fine. But if one of these three things were to turn yellow, or red, we would start to get worried fast. Number one, you know, the expansion appears well entrenched with a lot of good forward momentum, no recession in sight. We just talked about the importance of recessions in this whole scheme of things, number one, number two, there is very little sign, if any, in fact, quite the contrary. There are confirmatory and affirmative statements, even today by Chairperson Powell, that the Federal Reserve is not planning on hiking interest rates at any point in the future kind of foreseeable or actionable future, right. That was not a surprise. We expect the Federal Reserve and other central banks to leave this liquidity in the system to keep kind of trying to fuel economic growth and COVID recovery in all the different forms it takes. And so that’s a bright green indicator, no problem there. So what do I think is going to really matter this time? There are a few changes in investor sentiment right now. Investors, investor sentiment is green. You see it every day. In fact, so green, it’s like flashing neon, sparkly, bedazzled green, it’s a really you’re right. Everything is a reason to buy. Everything is a reason to buy the dip, oh, I just got hammered in my Whatever. I’m gonna buy more. I mean, that’s the only solution you buy more, right? Well, that isn’t always the case. Ultimately at some point in time, investor sentiment will shift, and rather than buying those dips, which would obviously help, you know, keep the market up, people will turn to sell those dips, and it can turn very quickly. So we’re going to watch for things that might change investor sentiment, from buying the dips to selling the dips in for us that’s things like asset valuations getting very high. It’s things like recession we talked about It really has to do with things that affect the US consumer psyche, unemployment, and other such things can very quickly. Just backwash right into the consumer and who is the investors’ sentiment? Remember that the economy is made up of people and the markets demand people. Those are the things we’re watching. But right now, our dashboard is largely green, few indicators are flashing a little bit of yellow, nothing is really red to speak of, except some of the frothy behavior around certain individual stocks and parts of the economy. So we think 2021s going to be a good year for returns.

Brett:

Amazing, David, I mean, hold dissertation. A couple of books right there. And I want to just thank you for being on the show, we have run out of time, we’ve covered so much for our listeners, or our clients or people are looking at the deferred sales trust. They want to find out more about you, David, would you give them the best website of the best way to connect with you?

David:

Yes, we are very simple. It’s just anfieldcapital.com.

Brett:

anfieldcapital.com. I’m looking at it right here.

David:

Yeah, number one, but I want to make sure you get.

Brett:

All the websites, you get paid the big bucks to analyze all of the numbers in the marketplace is right. So yeah, you can find more about David Young, CEO of Anfield Capital at anfieldcapital.com. I’m gonna put that here, right now on the below the show notes here. So anfieldcapital.com. And if you want to learn more about the deferred sales trust, you can learn more about capitalgainstaxsolutions.com. That being said, David, I want to thank you for being on the show sharing a bit about your story given us so much wisdom, helping us to overcome false beliefs with a deferred sales trust, given us tangible indicators to take a peek at keeping an eye on right now it’s staying green or light for most stuff. But it certainly is a time to be aware of what’s going on and the types of podcasts we like to produce. So you have some good content to think about. Okay, so that being said, I want to thank everyone for listening to another episode of the capital gains tax solutions podcast. As always, we believe most high net worth individuals and those who helped them, struggled clarifying their capital gains tax deferral options, not having a clear plan is the enemy using a proven tax deferral strategy, such as the deferred sales trust, and hiring and bringing on groups like Anfield Capital, especially if you’re a Financial Advisor, by the way, I forgot to mention this. They help financial advisors, you know, they might, their money managers for financial advisors. That’s typically the flow of how this Anfield Capital works, is the best way to grow your business, help your clients and grow your wealth. With that being said, thanks again for watching or listening. We appreciate everybody.

 

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About David Young

 

Overcoming False Beliefs of The Deferred Sales Trust with David: Part 2David Young is the Founder and Chief Executive Officer of Anfield Capital Management, LLC. With over 30 years of investment experience, David has worked with many of the largest and most sophisticated institutional and private investors in investment strategy, portfolio management, and asset allocation.  At the end of 2008, he retired as Executive Vice President with Pacific Investment Management Company to rejoin the U.C. Irvine Merage School of Business as Adjunct Professor of Finance, and create Anfield Capital Management, LLC.  From 1999 to 2006, David was head of PIMCO’s account management group in London where he built a team of 25 investment professionals managing over 200 client accounts and approximately $50 billion in assets across the UK, Europe, the Middle East, and Africa.

David holds the Chartered Financial Analyst designation, an MBA with a concentration in finance from the Paul Merage School of Business at the University of California, Irvine, and degrees in Economics and Political Science from the University of California, Irvine. He has taught finance and investments courses at the Paul Merage School, the Financial Times Knowledge programs (UK), and CFA exam preparation courses sponsored by the CFA Society of Orange County, the USC / Los Angeles CFA Society, and U.K. CFA societies.  Mr. Young sits on several non-profit Investment Committees and Boards of Directors including The County of Orange (California) Healthcare System “CalOptima.”

 

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