SEDNA Wealth Management
SEDNA Wealth Management's mission is to help people to use advanced technology to build better financial habits and to create wealth for themselves and their communities!
Rick is the founder of SEDNA Wealth Management, a fee-only modern wealth planning and investment firm focused on providing cutting edge technology and personalized advice to empower individuals and their money. Rick and his team help successful individuals and families create a plan to implement the smart money habits that will transform their current life into their ideal life. He and his team are there to personally help each client on their journey as they grow their wealth and get the most out of life.
Rick is highly trained in the areas of financial planning and investment management having worked for two decades at some of the top firms in the wealth management and asset management industry. He earned the Certified Investment Management Analyst designation (CIMA).
BS, Business Administration, Florida A&M University
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Congratulations on your financial settlement and having the fore thought to use this money to secure your family’s future. Before you decide which investment option to choose, I would advise you to consult with an accountant or tax attorney to see if you will owe any taxes on the settlement. Second, I highly recommend having financial plan done to really understand what your current investment options will mean for your financial picture in the long run. All three investment options: investing in the stock market, purchasing rental property, and purchasing a franchise are great long-term opportunities. Each investment should be examined for it’s potential return opportunity, liquidity, risk factors, and expertise/commitment needed.
Stock Market: When you invest in the stock market you are owning shares in a business and in most cases creating a diversified portfolio to own shares in multiple businesses. By far, investing into the stock market is the easiest in terms of getting started and exiting when you need access to your money. One of the biggest benefits of stock ownership is that it doesn’t require any work on your part and you can employ a financial advisor to customized a strategy that will help you reach your financial goals. Although, investing in stocks is very liquid, most investors should plan to invest for 5-10 years to manage market volatility.
Rental Property: Purchasing a rental property is a great way to earn income and gain appreciation in the real estate market. One of the primary advantages of owning real estate versus the other options is you can use mortgage loans to leverage your actual investment and potentially invest a larger amount than your original investment. Outside of the market risk for real estate you’d want to ask yourself 1). Do you have or know someone (real estate professional) with the expertise to purchase profitable rental properties, 2). the capital to maintain the property, and 3). the time (or money to pay someone) to manage the property? Real estate also isn’t very liquid, but if you’re investing for the long-term (more than 7 years) it should work for you.
Franchise Opportunity: Most franchises assume that as an owner, you will be investing some of your time and skill into the business, as well as money. An investment in a franchise should provide you a return for both the money and a salary for the time invested in the business. That salary can be paid to yourself if you’re running the business, or to a manager if you’re not. Like real estate franchise ownership is not a liquid investment, but as a long term investment you can plan a successful sale of the business within a 1-2 year period. Questions to ask yourself are 1). Do I have the time, personality and strengths to manage a franchise business? 2). Can you examine and choose the right franchise opportunity for your area?
Deciding what investment is right for you largely depends on your personal circumstances and financial plan. My initial thoughts would be why not start with an investment into a stock portfolio and begin doing your research into successful real estate and franchise opportunities. With proper planning there is no reason that you can’t invest in all three.
Whether you pay a higher amount in taxes on a post-tax Roth IRA or pre-tax 401(k), depends on how you think your income—and by extension, your income tax bracket develop over time. In effect, you’re trying to determine whether the tax rate you pay on your Roth IRA contributions today will be greater or smaller than the rate you’ll be paying on distributions from your 401(k) after you’ve retired (or have to start making them, at age 70½). Yes, it's true that the compounding of interest and earnings will likely leave you with a larger 401k balance that will be taxed as you take distributions, however the amount of those distributions each year will be an import consideration as well.
Another important factor in this equation is future tax rates. It’s hard to predict what federal and state tax rates will be 10, 20 or 40 years from now, but given today’s historically low federal tax rates and the large U.S. deficit, many economists believe federal income tax rates will rise in the future—meaning Roth IRAs may be the better long-term choice. This isn't a certainty, however for many clients a Roth IRA will be preferred if this happens.
If you're thinking of making contributions to your employer's 401(k), two questions to ask would be 1). Does your employer offer a matching contribution percentage? 2). Does the employer's 401k plan offer a Roth option? In most cases if your employer offers a matching contribution you should always take advantage of it (it's extra money in addition to your compensation). Also, many 401(k) plans offer both a Traditional and a Roth contribution option. A Roth 401(k) will allow you to pay the taxes upfront for your contributions, similar to a Roth IRA.
I often mention to clients who can contribute to both pre-tax and after-tax accounts that it’s great to have options to decide which tax pot to pull from in retirement based upon the specific tax year and situation that arises, so you may look at both options if you're eligible.
Some basic questions to ask about your personal situation: Which federal tax bracket are you in today? Do you expect to be in a higher or lower one after you retire? Is your annual income likely to increase or decrease as you build towards retirement? Will your retirement income need to come from your retirement accounts? Does your employer offer a traditional and Roth 401(k)? and contribution match?