Detroit – Beyond Thunderdome

Last week I read an article in The Wall Street Journal titled, ‘Detroit and Decay’. It was truly disturbing. To me it tells a story about where this country is heading. In the early days of the industrial revolution, Detroit was the hub of innovation and capitalism. Today it more closely resembles a landscape scene from the movie ‘Mad Max’.

The Detroit school district is facing a $327 million budget deficit and has closed 59 public schools over the past 2 years. Read that number again – $327 million budget deficit. Keep in mind this isn’t the state of Michigan or even the city of Detroit. This is just the school district!

Imagine how the state of Michigan is doing with its finances…

Recently I was in Detroit attending a wedding. While staying at the downtown Marriott (which happens to be in the same complex as the GM headquarters), I looked out my window onto the streets below at 8:30am on Monday morning. I saw 3 moving cars in the city. Three!

I am fairly certain I saw more tumbleweed blowing around that cars driving in the city.

Back to the Detroit school district…

This year the school district is proposing a closure of another 70 of its remaining 142 schools by 2013. This will leave the student to teacher ratio at 62 students to each teacher. I’m sure that will improve the productivity in Detroit.

This is just one story among the thousands around the country of a similar tone. Everyday reading the newspapers we are seeing cities and states effectively in default on debt obligations. There are now a couple of cities in CA and a few others around the country planning their bankruptcy filings.

There are also discussions about allowing states to file bankruptcy. If you are currently holding municipal bonds, the writing is on the wall. Sell now. Get out while you can still do so. Inevitably there are going to be defaults.

Tax free income does you no good when the income itself dries up. And even if your bonds continue to pay the coupon, the other defaults will drag the entire market down forcing you to stay in your investment till maturity. This will tie up your capital and limit your investment options.

Protecting your wealth requires both a defensive and an offensive strategy. But we are living in an age where a passive investment strategy is a recipe for disaster.

I had a meeting earlier this week with a prominent real estate investor who was seeking to restructure his asset portfolio in order to minimize his risk. He made the comment, “Maybe I am just being a bit paranoid and all of this (asset protection planning) is unnecessary”.

I told him, “The guy living in a $400/month rented apartment driving a 1981 Toyota Corolla working at Home Depot for $11/hour is being paranoid when he calls me. You are not being paranoid; you are being proactive in your wealth preservation strategy.”

I encourage you to take a proactive strategy. Remember, no one else is going to do it for you. At a minimum, I suggest the following steps;

• Take stock of your current situation. Make a list of your assets, liabilities, and income. Take it even further by projecting the future asset value of your holdings, any situations with your debt service, and future earning capacity. Look at where you are at risk. Leave no stone unturned.
• List your goals. I have written about goal setting before so I won’t overdo it, but categorize your goals and rank them in order of importance. Beyond the goal setting, detail your action plan to attaining those goals.
• Talk to friends and business associates that you trust and admire to see what they are doing to protect and grow their wealth. Just by spending time with other likeminded people, you will expand your network and gain from the positive influence of those associations.
• Seek out expert advice. The expert advice will vary depending on your situation and your goals. Just remember that no one reaches the pinnacle of success without help. Get your own Sherpa’s.
• Act now. Do you drive a car? Would you wait until you had a car accident to buy insurance? Of course not. It always amazes me the time people will spend planning a vacation to Disney World, but won’t invest the time into planning their future. Procrastination is not your friend. Get off your ass and act.

Call today for your free 30 minute asset protection consultation. Until next week, live well.

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