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# Purify Your Goals #


So Far in the Five Talent Series: Talent 3 Investing we have looked at the Net Worth Statement in [Your Net Worth Should be a Blessing Not A Curse](https://steemit.com/life/@lighttorch/five-talent-series-talent-3a-your-net-worth-should-be-a-blessing-not-a-curse) and [Your Wealth Management Process](https://steemit.com/life/@lighttorch/five-talent-series-talent-3b-managing-your-wealth-management-process).  In this post I want to dive into some important constraints that investors face while going through the investment refinement process and provide more context and supportive material for the community.


## Investment Considerations ##

When choosing the right investment approach for yourself there are several considerations you must view as primary that often shape the way you frame your investment strategy.  The purpose of reviewing these investment considerations and restraints is to further solidify your understanding of the very important topic of investing.  

### Time is a Friend of the Patient ###

We briefly touched on the constraint and opportunity time can have in my last post and [Your Wealth Management Process](https://steemit.com/life/@lighttorch/five-talent-series-talent-3b-managing-your-wealth-management-process). I wanted to expand on this notion and provide more context as in the post I simply stated that a 10 years or more long-term time horizon will mitigate much of the shorter-term volatility in your investing.  A time horizon simply stated is the time span that finds itself between your present and the achievement of your future goals. When you reach your saving or wealth accumulation goals at some future date you will proceed to withdraw a portion of your assets and enter a more mature stage of managing the consumption of your portfolio. The concept of time horizon can very easy be broken down into 3 categories which are short-term, medium-term and long-term.  Short Term can be anywhere from 1 to 3 years, medium term is generally 3 to 10 years and long term is over 10 years.  The question that you will want to ask yourself is how long will you need to accomplish the goal you have set for yourself.  By estimating and planning the time frame within which you must invest to achieve your objectives you can better navigate the constraint of time on your hope and dreams. 

### Liquidity is not Always required ###

Everyone has heard the phrase cash is king, and what this is touching on is peoples’ desire to have liquid assets that are storable and transferable to buy other assets anonymously and quickly and flexibly.  Now typically liquidity requirements can vary largely from one person to another and the most liquid asset generally is considered fiat currency in its physical form. You should as best as you can manage find assets that have minimal market cost to liquify.  Generally, there are costs associated with selling an asset such as commissions and transactions fees.  You may also in your liquidity calculation take into consideration the market impact of the spread between how much you are willing to sell an asset for and the price someone is willing to by the same asset for the “Bid-Ask” Spread.  Let’s now turn to the three main consideration that one should be thinking about when deciding how liquid their portfolio should be. 
•	Covering for emergencies is a large consideration when deciding the percentage of liquidity you should maintain in your wealth management plan.  One should always start with $1000.00- $2000.00 in their emergency fund before any investing is done, and once all debts and other obligations are paid then we can consider increasing this to three months of net take home pay.  The reality is that if you are young, employed with kids and own a home something will come up that requires liquidity.  A sudden job loss, sickness, car or home repair and large expense will show up and if you are not ready it will bring its broke cousin debt with it.  If you ask people how they would cover for such problems, it is generally with a credit card or personal line of credit.  For younger families and working professional with many obligations including home and cars or elderly parents the need liquidity in their asset management plan will be increased. 
•	In the case that an individual or family require ongoing income from their portfolio liquidity will be important.   If you have a disability or are retired generally you will need to satisfy your living expenses with the portfolio funds and they should remain liquid.  This may also dictate that you should be in lower risk investment but not necessarily as you can have a higher tolerance for risk yet still have a liquidity requirement so these two elements  need to be balanced one against the other.  For more on deciding your risk level please see the <b>Deciding on your appropriate risk/reward trade-off level</b> in Talent 3b [Your Wealth Management Process](https://steemit.com/life/@lighttorch/five-talent-series-talent-3b-managing-your-wealth-management-process).  
•	If you are a Newly wed or have a family with young children, you will be making many large purchases that will impact your need for liquidity.  As Newlyweds you will buy a home and buy a car and all the other purchases that go with this as such liquidity may be important.  Once you have children your costs generally will increase, and liquidity will also be very important to maintain your standard of living. You need to manage cash flow well to be able to put away substantial amounts of money towards your long term financial plans during these life stages. You need to map out as precisely as possible the amount of these large liquidity constraints and ensure that you understand their impact on your capacity to achieve your long-term goals.   

### Lower Taxation Equals Accumulation ###

Tax efficient investing is such an important topic that I wanted to dedicate some energy to it in this post.  I will try to remain as general as possible, but my area of knowledge focuses on the North American market, yet these concepts should apply universally.  You need to have a complete as possible understanding of your current tax situation.  This includes knowing your tax-deferred accounts contribution limits, your marginal tax rate and having a good idea of all the investment income you are currently earning.  Let’s look quickly at some general tax management techniques that can help give you a grounding in this very important topic.
•	You must be able to adjust your current asset allocation efficiently in between tax deferred and regular investment accounts.  Generally, you should consider holding all of our highest interest-bearing assets in a registered account as interest income is generally taxed the highest and deferring this tax to later in life when your income will generally be lower may be a good strategy.  You may also consider having your capital gains and dividend producing assets outside of a tax deferred account as their tax treatment can often be preferable to investment income. The flexibility that investments outside of your registered tax deferred plan can offer you may be substantial in that a greater array of assets and strategies can be utilized to minimize taxes. 
•	Make sure you are using optimally all the government approved tax deferred investment accounts.  This includes account for your children’s education, retirement and even special government approved tax deferred disability accounts. 
•	You must teach yourself about the use of capital losses.  For the U.S. please consult IRS page [HERE](https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know) and for Canada consult the Government of Canada page [HERE](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/capital-losses-deductions.html).   In a non-tax deferred account, you may generally count any difference between your buying and selling price of an asset as a capital loss so long as the gross proceed are negative.  This Loss can offset some other positive capital gains which you may owe due to the selling of an asset for a gross profit.  This generally does not mean you can offset all the realized capital gains with capital losses it all depends on your situation.  When as an investor you are going to be charged a large amount in taxes due to a capital gain it may make sense to look at the rest of your portfolio and sell some assets that are not performing for a capital loss so long as this is in line with the criteria and requirements you have set on your portfolio.  
•	To avoid capital gains and the subsequent taxes owed on a non-tax deferred account you may want to avoid buying and selling securities often or churning your portfolio.  A longer-term strategy with selective buying and selling will minimize your taxation from this perspective.
•	As much as possible using the current tax and corporate tax codes attempt to split your income with a spouse or common law partner.  There are various rules surrounding when you can and cannot execute income splitting, so I would recommend consulting a tax professional.  The general strategy here is to take income that would otherwise be attributed to a higher tax bracketed individual and divert it to a lower income and tax bracket individual in the family.  
•	In the <b>Insurance Planning</b> section of Talent 3b [Your Wealth Management Process](https://steemit.com/life/@lighttorch/five-talent-series-talent-3b-managing-your-wealth-management-process) I briefly went over the advantage of using the proceed of a life insurance plan to pay the taxes that are owed by your estate upon your passing.  Using this method, the total value of your estate will be available for the benefit of your designated beneficiaries. 
•	There are some additional tax advantages in various offered tax shelters.  Generally, the government has curtailed the use of these structure to mitigate taxes, yet there still remains some opportunities in this area.  Theses structure are offered to high net worth individual who have additional capital to potentially lose in these higher risk investments. I would recommend seeking legal counsel related to these structures before ever investing in them to ensure their legitimacy. 

Final Thoughts
Time, liquidity and Taxes are all extremely important constraints in your capacity to grow the value of your portfolio.  I hope to have clarified to a degree some basic foundational principles surrounding these very important constraints.  In my next and last installment of Talent 3 I will go over the more personal journey of conducting emotional discovery related to our wealth planning process using this to bridge to financial discovery.  Ultimately it is our emotional and spiritual states that must drive our financial desired and dreams and we will investigate this more in our next post.