Financial Emancipation: A Blueprint for Building Wealth and Acquiring Your First Million in the Global Super Affluent Economy

FINANCIAL EMANCIPATION

A Blueprint for Building Wealth and

Acquiring Your First Million in the

Global Super Affluent Economy

Martin Killingham

A Nigel Media Group Empowerment Book

Published by Nigel Media Group Publishing

A Division of Nigel Media Group

Potomac, Maryland

Copyright © 2015 by Martin Killingham

All rights reserved. This book or parts thereof may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission of the Publisher.

Printed in the United States of America

Cover design by Francois Sargologo

To my Parents Carrie and Bragg Killingham

TABLE OF CONTENTS

Acknowledgments

Disclaimer and Disclosure Statement

Introduction

Chapter 1: The State of Global Millionaires

Chapter 2: Mental Barriers to Millionaire Status

Chapter 3: The Playing Field

Chapter 4: The Millionaire Mindset

Chapter 5: The Global Super Affluent Economy

Chapter 6: Demystifying the One Percenters

Chapter 7: The Millionaire Machine

Chapter 8: Neil and Martina

Chapter 9: Lizzie

Chapter 10: Practical Concerns for Acquiring Wealth

Chapter 11: The Concept of Wealth

Chapter 12: Money is Your Worst Enemy

Chapter 13: Entitlement

Chapter 14: Prescription for Building Wealth

Chapter 15: I Bonds

Chapter 16: The Argument for Stocks

Chapter 17: DRIP Yourself to Wealth

Chapter 18: Red Flags

Chapter 19: Wealth-Building Starts at Home

Chapter 20: Follow in the Footsteps of these Great Investors

Conclusion

Appendix

List of sub headings

Bibliography

Resources

Index

About the Author

ACKNOWLEDGEMENTS

I would like to thank my wife, Autumn Killingham, for giving me the inspiration to begin the writing process. Watching her write her mystery novel Deadly Secrets motivated me to write an unpublished mystery. After years of compiling notes for this book, I decided to shelve the idea and work on writing another work of fiction. I have to thank my two sons for convincing me to take a second look at the notes for the finance book and begin work on Financial Emancipation. After their births, I realized the children of the world needed this book published. I also must thank Adele Brinkley for her superb editing and proofreading services. I would also like to thank Francois Sargologo for designing the book’s cover and WordCo Indexing Services. Lastly, I would like to thank Jean-Pierre Sargologo for marketing the book.

DISCLAIMER AND

DISCLOSURE STATEMENT

I wrote Financial Emancipation to provide a motivational framework for investing in a global economy. The book discusses general investment concepts intended to aid new and existing investors. Although the book’s title references the acquisition of your first million dollars, the book has a primary goal of motivating readers to build long-term wealth by saving and investing. Readers discover how a disciplined plan for building wealth allows them to control the time period to accumulate a million dollars in financial assets. The author makes no guarantee of accumulating a million dollars; instead, the book attempts to assist investors with reaching whatever level of financial success they seek to achieve. Financial Emancipation was written to help investors realize how the acquisition of a million dollars in financial assets remains today a realistic goal.

All the information contained in this book serves the readers’ general interests. Readers should not consider the material definitive of the subject matter. Nothing was written in Financial Emancipation to provide or offer financial advice and readers should not consider the material as such. Financial Emancipation also makes no recommendation as to an investment planning approach investors should follow. Investors should not read this book with the idea it serves as a replacement for a qualified financial planner or other licensed financial professional. Financial planners have the expertise to assist with selecting individual stocks, mutual funds, index funds, exchange- traded funds (ETFs), and other financial products. Investors do themselves a disservice by not seeking the guidance of a financial professional when building a wealth portfolio.

None of the information in this book makes a recommendation for non-professionals to select financial products without the advice of a qualified financial planner. Although it’s expected for investors to make financial decisions, the investment equation needs the input of a financial professional. A professional financial planner or money manager can determine an investor’s tolerance for risk and prepare a financial plan appropriate for the investor’s investment objectives.

The topics referred to in this book have not been included for the purpose of investors making financial decisions. The topics addressed represent my family’s experience in building wealth and continued participation in the financial markets. The book was written to provide investors with an investment motivational framework. One of the objectives of Financial Emancipation is to get people to take a critical look at their finances.

In Chapter 7, The Millionaire Machine, reference is made to gifts and trusts. The transfer of family assets involves complicated issues because of the implication of federal tax laws. This book makes no statement as to whether investors need to consider gifts and trusts as part of their financial plan. Financial Emancipation also offers no financial or legal advice regarding the subject of estate planning. Estate transfers require the benefit of an attorney specializing in the field of estates and trusts.

Financial Emancipation is not an offer or invitation by the author to any person to purchase or sell securities or any other financial products of any kind or description. The book makes no attempt to suggest an investment or strategy applicable or appropriate for a specific investor. Nothing in Financial Emancipation constitutes a recommendation of financial strategy for investors to adopt as part of their investment approach. Again, investors should always discuss their investment ideas with a professional financial planner.

The author has never maintained a professional or employment relationship with any financial company, domestic or foreign. The author received no financial assistance or help in writing this book from any financial company, political party, or any individual involved with financial investments or planning.

The author relies upon statistical data obtained from outside sources and makes no express or implied warranty or guarantee regarding the accuracy of the content. The data provided have not been included for investors to make financial decisions. The author accepts no responsibility as to the accuracy of the data presented or to any omissions regarding the material.

The book refers to specific companies in order to explain the material presented. For purposes of full disclosure, my family’s investment portfolio holds shares directly in some of the companies mentioned. They are Johnson & Johnson, Procter & Gamble, Merck, Coca-Cola, Kraft Foods Group, Colgate, Abbott Laboratories, Walgreens Boots Alliance, Brown-Forman, McDonald’s, McGraw-Hill, Sysco, Wal-Mart, Wells Fargo, Altria, Union Pacific, Caterpillar, Pfizer, Phillip Morris International, Home Depot, General Mills, IBM, Berkshire Hathaway, Mondelez International, PepsiCo, Walt Disney, Kroger and Microsoft.

FINANCIAL EMANCIPATION

A Blueprint for Building Wealth and

Acquiring Your First Million in the

Global Super Affluent Economy

Martin Killingham

INTRODUCTION

Billionaires aside, America is divided among households possessing substantial investment assets and those whose financial security depends on earnings and the rate of inflation. Due to this wealth divide, the U.S. economy has far reaching implications on neighborhoods, education, health care, employment, retirement, and upward mobility, resulting in the American landscape undergoing an economic transformation in large and small cities across the U.S. It’s impossible not to notice America’s changing economy in every major U.S. city.

Income inequality, a popular topic of discussion today, plays a large part in America’s changing demographics. Income has a direct bearing on a family’s quality of life. It’s the tool that makes the accumulation of financial assets possible. Those households having more disposable income, whether it’s the result of higher wages or a smaller monthly debt obligation, have a better chance to build lasting family wealth.

Narrowing the widening household income gap is vital to achieving an upwardly mobile society. Attacking income inequality is essential. But meeting the goal of upward mobility requires tackling wealth inequality, the root cause of the growing economic separation in America and the global community. The wealth divide results from a growing investment class versus those households that rely primarily upon what I have termed the currency-dependent economy in which earnings power, cash savings, and home equity are the keys to economic survival. Wealth inequality represents the primary reason for the widening economic separation in the global community.

In a country with a history of offering the hope of a better life to those who entered the gates of Ellis Island, one would hope for more equality in the distribution of wealth and income. Economic inequality in America has developed into an issue society must address with a sense of urgency. One percent of the population owns 42% of the country’s financial wealth and 35% of household wealth. Extreme wealth inequality should not exist in a country where 2013 ended with a record high of $80.7 trillion in household wealth from the asset value of bank accounts, stocks, other financial assets, homes, and other assets minus debts. Never in the history of America has wealth been so concentrated in the hands of so few. Wealth and income inequality are nothing new to undeveloped countries; however, in the United States, it’s an unacceptable condition. In a nation with a gross domestic product (GDP) of 16.7 trillion dollars, based on the World Bank’s 2013 data, compared to a GDP of 9.2 trillion US dollars for China, 4.9 trillion US dollars for Japan, 3.7 trillion US dollars for Germany, 2.8 trillion US dollars for France, 2.6 trillion US dollars for the United Kingdom, and 2.2 trillion US dollars for Brazil, there’s a need for a greater sharing of its riches.

In America today is the beginning of an economic revival. I can think of no reason why working Americans cannot profit from the reinvention of the American economy. People should not think they lack the necessary investment skills and information used by Wall Street insiders to benefit from an economic turnaround. It’s true; there are money managers overseeing billions of dollars using investment strategies based upon the work of Nobel Prize winning economists to enrich their investors. Fortunately, their expertise and sophisticated investment tools are not required for you to build lasting wealth and acquire your first million dollars.

Financial Emancipation provides readers with an understanding as to why ordinary Americans, lacking the business acumen of professional money managers and with nominal earnings power, have the ability to acquire and preserve wealth. To create a more upward mobile society, households operating primarily in the currency-dependent economy must begin participating in the investment, asset-based economy. By following the suggestions and concepts in this book, investors can embark on a journey to participate in America’s present and future prosperity. Chapters have been included to give the reader a mindset for building wealth. Providing a blueprint to acquire long-term wealth presents a step toward one day stabilizing the wealth divide.

Building wealth and the acquisition of a million dollars in financial assets require a different investment strategy from managing a multimillion-dollar family wealth portfolio. For this reason, certain concepts in this book may conflict with what we have been exposed to in the media. Why? The road to building wealth and becoming a millionaire has more to do with the investor than specific investment instruments and strategy.

Financial Emancipation in no way serves as a substitute for the role of the investment professional. The book seeks to entrust with readers the lessons my family learned in accumulating long-term wealth. A skilled money manager has the expertise to assist investors with investment choices and to recommend strategies to preserve assets and assure their continued growth.

I am not a Wall Street analyst, a wealth manager, a financial planner, or a professional writer of financial topics. I’m an outsider to the world of professional finance. My life is no different than most of the people who purchase this book. Just like my family, households can develop an investment plan to secure their financial security.

My education includes a law degree from the Ohio State University Moritz College of Law and a Masters degree in political science from the University of Toledo. I have been an attorney for thirty-nine years, licensed in the jurisdictions of Georgia, Maryland, and the District of Columbia. My career has included employment as an attorney with the Chief Counsel’s Office of the Internal Revenue Service and a full professor of business law and taxation at Brooklyn College. None of this experience prepared me to write this book. The countless hours of reading, studying, and giving serious thought about solutions to financial security and independence served as the foundation for the following pages.

Financial Emancipation would not have been possible without the support and financial teamwork of my wife. The fifteen years of our marriage has served as the stage for applying the principles set forth in this book. Initially, the idea of becoming millionaires never crossed our minds. Our debt from credit cards, lines of credit, and loans reached an unmanageable point. We struggled every April 15th to pay the additional taxes due. We lived each day trapped on a sinking ship, needing to find a way to stop sucking in more water.

Even with my wife’s income as a government lawyer, the cost of living in an expensive metropolitan area such as Washington, D.C. negated much of the benefit of our joint income. Attempting to live what we considered a comfortable lifestyle, absent the touches of luxury, was only possible by our ability to take on debt. We did not have an inheritance or other sources of income to pay down our accumulated debts. We adopted the mindset and concepts discussed in Financial Emancipation into our daily life as an act of desperation. Our disciplined approach to our finances empowered us to adopt a different method regarding saving and investing. Committed to an asset accumulation plan, we turned our resources into family wealth comprised of assets approaching $4 million in valuation. Our household wealth includes a portfolio of investment assets (financial assets) exceeding $2.3 million in valuation. The term investment assets includes stocks, bonds, annuities, and retirement accounts. Our primary residence, collectibles, luxury goods, and the value of insurance policies are excluded from investment assets.

Readers have a right to know what motivated me to write this book. Was it written as part of a promotion for financial products and services? The answer is no. Financial Emancipation resulted from a desire to share with readers my family’s experience in building lasting wealth. I wanted to provide an investment reference to guide individuals in their quest to achieving financial security and independence. The book has a goal of starting investors on a journey of acquiring capital assets to finance a retirement they can look upon as a period of jubilation with the option of continuing employment or pursuing other life enriching experiences.

A major objective of the book is for readers to start the process of gaining financial security and share with their children the concepts of building wealth. A theme of this book relates to the worldwide merging of wealth, education, and leadership positions. Because of this developing fact, I wrote Financial Emancipation primarily for the children of the world. The original inspiration for the book came one Saturday afternoon while watching my son, 18 months old at the time, playing in the sand box at Wheaton Regional Park in Silver Spring, MD. I wondered whether the children he played with would have a financial future as secure as his. The moment gave me the inspiration to share my investment knowledge for the benefit of children everywhere.

Financial Emancipation is not a step-by-step guide to investing. It’s a motivational book with financial concepts to guide investors in the process of asset accumulation. Investors can find hundreds of books instructing them as to how to invest. The problem is finding a finance book stressing why people need to begin a wealth-building program and how financial security is achievable irrespective of household income. Financial Emancipation emphasizes the investor’s attitude toward investing and his or her perception of the global investment community.

Chapter 1

The State of Global Millionaires

Reaching millionaire status requires a disciplined approach to managing limited household income sources. Motivation also plays a large part in the acquisition of wealth. Nothing motivates individuals more than having knowledge about why they need to build long-term wealth. This chapter discusses the significance of a million dollars in today’s global economy, the growth of global millionaires, wealth classifications defining the new global economy, statistics on the number of millionaire households in the U.S. and worldwide, and why it’s important to understand the impact of the global wealth effect.

The acquisition of a million dollars in financial assets no longer serves as a status symbol. It’s a necessary goal to achieving a comfortable and enriched retirement. For those who have a secure pension covering most of their retirement needs, they need not worry about not reaching millionaire status. Retirees should, however, take notice that there’s always a chance of congressional action decreasing those guaranteed payments. Even with a pension’s guaranteed monthly payouts, the potential for rising inflation acts as a constant threat to a retiree’s standard of living. My two sons and their playmates have no chance of ever having a pension.

There are financial planners who say retirees need a least 75% of their current income to maintain their standard of living. Beyond the income calculated for monthly expenses, retirees need to maintain reserves for unexpected medical care, the rising cost of health care insurance deductibles, and home repairs. A portfolio of investment assets provides the cushion to help retirees navigate around the financial turbulence in today’s global economy.

China, Brazil, India, Vietnam, Indonesia, Nigeria, and other emerging markets are creating a growing middle class that wants to enjoy all the material items Americans are accustomed to having. For instance, an increasing demand for chocolate from developing countries has caused a demand for cocoa beyond the present available supply. Going forward, consumers can expect to pay higher prices for their favorite chocolates. Hershey recently announced it was raising prices on its chocolate products in response to higher global cocoa prices. The growth of the new, affluent, millionaire economy has developed to a large extent as a defensive response to the reality of a changing global economic platform.

World events have not been a source of positive news for those seeking to achieve millionaire status. As of October 3, 2014, unemployment in the United States dropped to 5.9 %, but the underemployment rate (workers no longer looking for jobs, part-time employees who desire full-time positions, and the unemployed) remained in double digits at 11.8%. Human tragedies continue in the Congo, Somalia, Kenya, Ethiopia, and Djibouti, where starvation has reached the level of a humanitarian emergency. A civil war continues in Syria, and the world recovered from a global recession starting in December 2007 and ending in June of 2009. During 2013, international media outlets reported on police pummeled by Italian students with rocks, protesting financial cutbacks regarding the school system. The media also reported on Spanish and Portuguese workers engaged in a general strike in response to rising unemployment and austerity measures, causing extensive rail and airline disruption. The front page of The Washington Post reflected the social turmoil during 2013 with a picture of a man holding the body of his 11-month-old son killed by what appeared to be a Palestinian rocket that fell short of Israel, according to a United Nations’ report. Geopolitics reached a danger point on September 10, 2014, when President Obama announced to the American people his plan for airstrikes in Syria in order to address the threat of the Islamic State terrorist organization. Investors have also not received good news in regards to global economic stability. Brazil’s economic output, GDP, fell for two consecutive quarters as of August 2014, and the country slipped into a recession. Russia’s economy during 2014 moved in the direction of experiencing a major recession and high inflation during 2015. The Russian financial crisis was triggered by a decrease in global oil prices and economic sanctions imposed by the U. S. and other countries.

With all of the troubling issues facing the world, it’s hard to imagine the state of global millionaires as anything other than negative. One would think the issues facing the global society would act as a disruptive force on the increase in millionaire households and rising inequality. On the contrary, millionaire households are on the rise with increasing wealth inequality in most countries. The U.S. is a prime example. Based upon the Phoenix Marketing International’s 2012 Ranking of Millionaires Per Capita by State, released December 12, 2012, David Thompson, Managing Director of the Phoenix Global Wealth Monitor, stated, Millionaires in the U.S. now number just over 6 million households out of about 118.5 million, or about 5%, but control over $22 trillion in liquid wealth.

Skipping to 2013, The Spectrem Group, a Washington, D.C. based consulting and research firm specializing in wealth management and retirement markets, reported an increase in the number of U.S. millionaire households for 2013. The group’s 2014 Affluent Market Insights Report, released March 13, 2014, indicated a total of 9.63 million U.S. households with a net worth, not including primary residence, of at least a million dollars. The number reflects an increase in the number of U.S. millionaire households for the fifth straight year and eclipses the 9.2 million millionaire households recorded in 2007. Other statistics include the value of residences and businesses, reflecting a million more affluent U.S. households. At the end of this chapter are the following tables on the number of millionaire households: Table 1(Countries with the Largest Percentage of Millionaire Households), Table 2 (World Cities with the Most Millionaires), Table 3 (U.S. Cities with the Most Millionaire Households), Table 4 (U.S. Cities with the Largest Percentage of Millionaire Households), and Table 5 (Millionaire Households Per Capita of the Top Ten States).

Can this global rise in millionaire households exist, for instance, in the Middle East? On May 14, 1948, the British Mandate over Palestine expired, and armies from Egypt, Syria, Transjordan, and Iraq marched into what previously was known as Mandatory Palestine. The invasion into Mandatory Palestine represented the beginning of the Arab-Israeli war. The Arab-Israeli conflict continues to this day. It’s not unreasonable to think that the Middle East, an area engaged in constant warfare, has a small and dwindling number of millionaire households, but the statistics do not support this assumption.

Despite limited natural resources, Israel, the sole democracy in the Middle East with a population of 8 million people, has emerged as a technology research and development powerhouse. The Boston Consulting Group (BCG), a global management-consulting firm, in its BCG 2013 Global Wealth Report’s listing of countries according to their proportion of millionaire households ranked Israel number 10 with a percentage of 3.8%. The (BCG) report included in its calculation of private financial wealth cash and deposits, money market funds, securities, and other assets. Excluded are the value of businesses, residences, and luxury goods. Knight Frank, an independent real estate consultancy, in its 2013 Knight Frank Global Wealth Report, projected Israel’s present population of high net worth individuals (HNWIs), defined as having $30 million or more in net assets, to increase by 41% from a total of 309 to 437 by 2022. Tel Aviv exemplifies a city where the strength of its people refused to let ongoing international conflict overpower the desire to make progress toward a better life. From Rothschild Boulevard’s coffee kiosk, luxury hotels, and multimillion-dollar apartments to the award winning designed Tel Aviv Museum of Art and the Design Museum Holon, Tel Aviv has benefited from the global wealth effect.

As to capital formation, the global economy has decided not to regulate its growth by the headlines of The New York Times and The Washington Post or by traditional economic indicators. The Middle East is evidence that regional conflict is not a barrier to wealth creation. The Arab press, pan-Arab newspaper Asharq Al-Awsat, has reported that a lucrative smuggling economy has created at least 600 millionaires residing in the Gaza Strip. The front-page stories of internal disruption in Africa have not slowed the continent’s ability to create wealth. Egypt’s violent summer of discontent and military rule did not bring the country’s economy to a standstill. As of September 1, 2013, Egyptian businesses forced to discontinue production began returning to normalcy. To measure the long-term impact of Egypt’s military rule on the country’s economy and the global community, look no further than the Suez Canal. In the midst of the unrest, the canal operated without interruption. South Africa’s extreme income and wealth inequality has also not been able to halt the global economy’s wealth effect. Johannesburg is home to more multimillionaire households (financial assets of at least $30 million) than anywhere in South Africa. Cape Town, initially a slave colony, has quietly transformed into a world-class international city with foreign real estate investment on the rise.

The global economy has created its own set of rules governing the accumulation of wealth. The result has been the growth of a new class of wealthy households worldwide. These households are not defined by any definition of new versus old money, nor are they classified by age groups and include all racial and ethnic brackets of the world’s economy. In the following pages, these wealthy households are referred to as part of what I have termed the global super affluent economy (GSAE). The test is whether the household possesses investment assets that meet a threshold test of $1 million up to $100 million. Included in the definition of investment assets are financial assets, annuities, retirement funds, and non-financial assets, such as real estate and art. The value of insurance policies and personal dwellings are excluded.

With the rise of the global affluent class, the world now has three economies, the rich, the GSAE, and everyone else. This book primarily focuses upon a segment of these wealthy households I have chosen to designate as global diamonds. Entry into this affluent global diamond class requires a portfolio of investable assets and non-financial investment assets, including retirement funds, ranging from $1 million to $25 million. The value of insurance policies, luxury goods, and an investor’s primary residence are excluded from the calculation.

Regardless of the state of the overall U.S. and worldwide economy, expect the number of global millionaire households to explode during the next twenty-five years. According to the 2013 Boston Consulting Group (BCG) Global Wealth Report, there were 13.7 million millionaire households worldwide during 2012. The BCG report indicated that private global financial wealth grew to $135.5 trillion in 2012. The report projected $171.2 trillion in global private wealth by the end of 2017. The 2014 BCG wealth report stated an additional 2.6 million millionaire households joined the global economy in 2013. The report also stated that millionaire households worldwide total 16.3 million, reflecting an increase of 19% and representing 1.1% of global households. Global financial wealth rose 14.6 percent in 2013 to $152 trillion according to the 2014 BCG wealth report.

The BCG wealth reports do not include real estate and businesses in determining millionaire status. If the value of personal residences and businesses are included, global wealth has increased by 4.9% to a record high of $241 trillion according to the 2013 Credit Suisse Global Wealth Report. The report