3 Ways to Preserve Your Wealth at Tax Time

Posted by on 7:44 am in Uncategorized | 0 comments

As the third quarter comes to an end with the arrival of cool autumn weather, this is one of the best times to get serious about planning how to minimize the inevitable. Over 65% of the year has transpired so by now a more factual attack strategy can be implemented because much of what has occurred during the year is known or can be anticipated. At this point, your financial planner may now be more precise with recommendations to delay income for subsequent years as a tax strategy, and can be more specific about deductions you should take or delay to limit your estate’s tax exposure. Here’s a little primer on what to consider. 1. Defer Your Income: The first strategy to consider when planning ways to reduce your annual income tax is to discuss with your financial planner if it’s possible to defer your current tax year income until a future year. This could reduce your immediate tax liabilities and may also place you in a lower tax bracket as well, saving tax costs in two important ways. The strategy as possible with certain retirement plans, or if you own a business there may be ways to shift income to another year. 2. Shift Income to Family Members: It may also be possible for you to reduce your federal income tax liabilities by shifting income to other members of your family who are in lower tax brackets. For example, you may own a stock that generates a lot of dividend income; when you gift the stock, the tax responsibility is also shifted, and assuming you don’t exceed the $13,000 ceiling on tax-free gifts, you can reduce your tax burden. A family limited partnership might also be an appropriate way to shift income so tax liabilities can be reduced. Of course, there are a number of factors involved with shifting income to family members so you’ll need a tax advisor to guide you on the feasibility and the consequences of moving income to family members, including children, and whether or not your income is from a C corporation, an S corporation, or a Family Limited Partnership. 3. Deduction Planning: By knowing all the deductions for which you are entitled, you may be able to significantly reduce your income tax liabilities. Part of the discussion between yourself and your tax advisor should include the value of placing a deduction in one year or another, which could increase your tax liability reduction. It’s important you plan as well as you can to legally limit your taxation. When means are provided so you can save more of your hard-earned money, it is in your own best interests to accept the opportunity! Remember, your retirement may last three decades or longer, and you may need every penny that’s available, especially in the final years of your life you may not be able to work at a job anymore. Unless you have an MBA in finance, it’s quite likely you don’t know the many choices available that could allow you to conserve your wealth and legally pay less in taxes. This is why it’s so important you receive advice from a competent financial professional. With the recent tax law changes and your own unique personal circumstances, it will probably be worth your while to...

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Secure Success with Your Personal Financial Pyramid

Posted by on 9:09 am in Uncategorized | 0 comments

Using a Personal Financial Pyramid is a great way to understand how to plan for your financial future because it structures your financial health and financial growth in a way that helps you take care of the basics while also helping you achieve your midterm and long-term goals. The pyramid’s base is composed of four elements you need for daily life: Cash Flow: The money you need for your daily living expenses includes funds to pay your rent or mortgage, purchase food and supplies, and pay for your utilities. Insurance: The base of your pyramid also covers all your insurance expenses such as the premiums on your home insurance, car insurance, medical/dental, long-term care, and life insurance. You should also consider having disability insurance as part of your shield. Though most people are eligible for Worker’s Compensation, the amount you’ll receive in case of a physical disaster won’t be a lot and will probably be insufficient to handle your monthly costs when you’re not able to work. If something happens that prevents you from working and you wind up in rehab for six months or a year, your family will need sufficient revenue until you can return to work. The price of this insurance is less costly than suffering without income for a lengthy period of time. Discretionary Funding: In the base, such items as household supplies, clothing, cell phones and entertainment can be included as extras if they are reasonable and not too much of a splurge. Your Emergency Fund: This segment of the pyramid also includes your emergency fund so you have money you can use when the disaster arises and won’t have to dip into your investments to rescue yourself. Protecting your wealth is as important as creating it because the future, by definition, is unknown. Remember it’s important to retain your money for more important purposes than squandering cash on your daily $5 cup of coffee. Every dollar invested at 10% becomes $8 in 21 years and because of inflation, every dollar today may only buy a third of what you’ll need in the future. The Pyramids Core: The middle section of the pyramid focuses on helping you build your wealth and includes three types of investment portfolios: Short-term Investment Portfolios: Your short-term portfolio is where you save money for short-term needs such as your annual vacation, to replace an aging appliance, or to buy an extra car for your high school aged child. Otherwise, short-term investing is generally considered risky or a misuse of your investment potential. Midterm Investment Portfolios: These portfolios are for expenditures that are about 3-5 years away. This category includes such things as your child’s college fund, your daughter’s wedding, and maybe installing a new bathroom in your home or repairing the roof. Investments for this mid-time range should be in conservative funds so you’re generally assured the funds will be there when you need them. Long-term Investment Portfolios: These portfolios are intended to secure your financial future. The more time you have, the more risk you can reasonably absorb. We’ll discuss the topic of risk in a future article, but for now, understand that the funds in this category should remain there so you can benefit from the anticipated increase of your funds over time. Time is an ally,...

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Hot Tips for Shaping Your Long-Term Goals

Posted by on 11:30 am in Uncategorized | 0 comments

The future is not so far away as you may think, and to quote a favorite line from W.H. Auden, “The years shall run like rabbits”. You may have noticed that as you get older, time goes by faster and the months begin to blur into years. Planning for the future you want to enjoy when you’re older, and taking action to secure that future, is paramount! We’ve previously discussed the nature of short-term goals, which are for saving money for emergencies, and six months of income in case you lose your job. Midterm goals, as you know, are for funds you’ll need in the next 3-5 years. Long-term financial goals are goals that may take more than five years to achieve, and consist of substantial outcomes such as saving and investing for a comfortable retirement, paying off all your debts including your mortgage, and perhaps building a legacy to pass on to your children and grandchildren. Achieving your vision depends on several factors, such as how much money you save and invest each month, how many years you save and invest, the amount of time remaining before you’ll need your funds for retirement, and reflecting carefully on the kind of lifestyle you want to enjoy when you are in retirement. We’re fortunate that in the United States there are a number of opportunities for accelerating your savings. One of the best ways to meet your long-term goals is by partly funding your retirement account with your employer’s 401(k) plan. Among employers who offer a 401(k) plan, the plan often includes annual contributions paid by the company into your retirement account, capped at a set dollar amount. This means your money will grow faster and your goals will draw nearer to achievement because of employer contributions. Whenever you can, take advantage of the opportunity to grow your retirement account, especially with “free” money that could be available to you as an employee benefit. If your employer does not have a 401(k) plan, consider asking your employer to establish a company 401(k) plan. The company could save money by diverting funds that would otherwise be spent on taxes, and the owner and top executives can also increase their retirement savings with pretax dollars, benefiting everyone in the company. With a 401(k) plan, not only would a financial program be available that builds everyone’s retirement account, but also, because taxable income is reduced, there is likely to be an additional tax savings benefit as well. If you are self-employed, you can establish your own individual 401(k) plan if you are a sole proprietor with no employees other than your spouse. Just like IRAs, the individual 401(k) has a traditional and Roth version. When saving for your long-term goals, a general rule of thumb for families is saving at least 10% of the family’s monthly gross income for retirement. Single people should allocate an even larger percentage of their monthly gross income because even though there are many exciting things on which to spend your money, it’s inevitable that the day will come when your priorities will change and you’ll want to have a home, maybe raise a family, and certainly prepare now for the funds you’ll need in the last third of your life. Most people don’t really know how much...

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Thinking Ahead with Midterm Financial Goals

Posted by on 11:18 am in Uncategorized | 0 comments

The purpose of your short-term goals is to set the foundation that prepares you for the sudden immediate financial needs of daily life, like having enough funds to cover a medical or dental emergency, unexpected car repairs, and stockpiling the equivalent of six months’ income in case your job situation is disrupted. Funding your short-term goals eliminates anxiety and helps you move forward so you can secure your midterm goals without the financial chaos that surprise expenses create. Midterm financial goals are different, and these are the funds you’ll need in the next 3-5 years. Some examples of midterm goals are such things as saving enough money to replace your car, pay off your debts, or finish coursework for a degree or certificate that advances your future financial situation. Because you’re planning 3-5 years out, it’s best to keep your goals realistic but also flexible. If you set your goals too high, frustration can prevent you from reaching them. While we’ve all mastered the ability to save money for an annual vacation or new bedroom set, when it comes to more ambitious goals, sometimes the price tag and the amount of time it takes to achieve goals with a longer timeline can require real personal effort and dedication to your purpose in order to stay disciplined for the length of your savings path. If one of your midterm goals is to save enough money for a down payment on a home, or you want to set aside the funds you’ll need for your daughter’s wedding, or create a savings fund for your child’s college education, you have to have the discipline to save a specific amount of money every month. The importance of establishing a monthly budget cannot be overstated, and one of the ways to have an effective monthly budget is to identify how you might be spending excessively. When you keep a log of all the expenditures you make during the month, you may be surprised to see how much you spend on coffee, cell phone service, birthday gifts and fast food lunches. Once you see how your funds are being spent, you’ll see the value of taming or eliminating some of your spending habits so you can have enough money to achieve your more important financial goals. A wise suggestion to follow is that every time you receive your paycheck or monthly income, the first person to pay is yourself. The first check you write is to pay a deposit into your savings plan just as if your savings plan was a monthly bill. Most people save money as though it were an option, not a requirement, and typically money is spent on a variety of nonessential miscellaneous temptations and purchases. This is why it’s important to change your thinking and recognize the importance of establishing a budget and making a monthly deposit that meets your intended midterm goals. Your Lifestyle Protection Plan will help you organize your thoughts and provide the structure you need to plan for your financial future. With midterm goals, the funds are not needed immediately like they are for short-term goals, so these funds can be invested, allowing the value to appreciate over time and speed up the accumulation of your goal funding. Your midterm savings could be placed in a...

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Have You Met These Short-Term Goals?

Posted by on 7:39 pm in Uncategorized | 0 comments

Very rarely can significant gains be realized without first setting goals, and the first set of financial goals that serve as the base for your financial independence are your short-term goals. Short-term goals are for saving money for emergencies, and six months of income in case you lose your job. While most people focus on their midterm and long-term goals, they may be doing themselves a disservice by not taking care of the basics. Short-term financial goals are important because life sometimes presents unexpected surprises. Having a few thousand dollars set aside and easily available for an emergency is a smart thing to do. Having some handy cash will limit the anxiety and stress many people suffer during periods of uncertainty. Your Lifestyle Protection Plan is designed to help you preserve your current lifestyle until you reach retirement, and being prepared for setbacks like a medical emergency, the sudden need to see a dentist, or perhaps something that happens in your home like the refrigerator giving out, or flooding in the basement, or an unexpected visit to your automobile mechanic are all circumstances that are difficult to handle if you don’t have a set aside fund designed for unexpected emergencies. One of the features of your Lifestyle Protection Plan is being prepared by achieving solid short-term goals. When a difficult situation appears, you can’t keep it on the back burner; the situation needs to be resolved right away, and having some money set aside protects you from having to use a credit card and incurring outrageous interest rates, or having to ask a friend to bail you out. You need an emergency fund for life’s stressful moments because they do happen! The first thing to do is to figure out how much money to set aside in your emergency fund. Start by making a list of the potential costs that might suddenly appear. You probably have insurance for your car, but you might have to have money set aside to cover your deductible, so find out what that dollar amount is and calculate it into the total. You also probably have medical insurance, but there might be an annual deductible that first has to be paid; determine what that amount is and add that into the total, too. What does it cost when your child needs to see the dentist? Make a guesstimate and add that to the total. If you own your own home, think about which appliances might suddenly need to be repaired or replaced; maybe it’s the lawnmower, or an aging tree might need to be taken down; consider the cost and add that into your total as well. You should also think about setting aside six months of income so just in case you or your spouse/partner should lose their job, or your work hours are cut back, you have the resources to get through the hard times until a new source of income can be established. If you haven’t done so already, you should create a monthly budget and write down all the expenses you typically have every month such as mortgage or rent, utilities, food, and transportation. Take a close look at what your monthly expenses are, and then consider which of them are essential and which you could cut-back if your income...

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How Well Are You Protecting Your Future Lifestyle?

Posted by on 1:07 pm in Uncategorized | 0 comments

Thoughtful people think about the lifestyle they want when they retire, and make plans to accomplish their goal. They think about where they plan to live when they reach retirement age, how much annual and monthly income they want to have, if their retirement includes travel for fun and to visit their children, how they choose to spend their time, and the activities they value. Usually people wonder if they’ll have enough money when they retire, a question that can be answered through the calculations of an experienced financial advisor. All the details of a retirement lifestyle can be monetized and a very accurate financial picture can be established that clearly articulates the amount of money that must be set aside annually in the time remaining before retirement to reasonably assure the desired lifestyle can be achieved. The key to attaining the lifestyle of your choice depends on the amount of time available before your retirement age is reached, of course. Another key factor is the amount of savings and investments that can be developed in the time remaining so there are sufficient resources steadily building wealth toward the total amount of money needed for the desired lifestyle. As you know, not everyone can achieve the retirement lifestyle of their dreams because of the interference of various factors that erode wealth. Divorce, illness, and poor choices are some of the detrimental factors that become obstacles to people’s hopes for their confident and comfortable financial future. Having a retirement plan may not be essential to retiring, but it does provide the best chance for having a decent retirement. Think about the last vacation you took. One of the things you probably did on your trip was pull out a map, and maybe you consulted the Internet about some of the important details to include on your trip. Just as you would not get into your car and take a 3,000 mile road trip without a map and some idea of where you were going, neither should you assume that the money you’ll need in retirement will be available in 10, 20, or 30 years without making some plans now on how you expect to have enough. Money is quite a magical thing. If you’re careful with your money, and save a reasonable amount of it, the time value of steadily adding to your savings and carefully investing these funds will multiply what you have many times over. Even if you won the lottery, you would still need to know how to prepare for your financial security. The news regularly relates stories of people who had fortunes and squandered them. There are three steps that can provide you with the security of a Lifestyle Protection Plan. Your Lifestyle Protection Plan is designed to serve your current lifestyle, and help you preserve this lifestyle when you reach retirement. The three steps are: Setting short-term, midterm, and long-term financial goals; Understanding your financial pyramid and developing it; Setting a pattern of allocating resources toward your goals that result in your financial success. Your Lifestyle Protection Plan will be more thoroughly explained in the next several articles, and is a tool that should become an essential feature of regular interest to you throughout the year. No one but you and your family will have...

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Plan B: When Your Gap Is Too Big

Posted by on 8:00 pm in Uncategorized | 0 comments

It may happen that because of a wide range of circumstances you don’t have enough time to close the gap between the amount of wealth you have today and the amount of wealth you need to enjoy the retirement lifestyle you want. Any number of reasons could have led to this situation, of course. Perhaps you started investing too late, or suffered heavy losses with your investments, or needed to use your funds for personal reasons such as health issues for yourself or a family member, or you were divorced…the reasons can be diverse. Nevertheless, this is the situation you find yourself in now, and you need to develop a Plan B going forward, and right away. There are a number of things you can do now to prepare for retirement and still build a nest egg that will support you in your later years. Here are five things you can do to improve your situation. 1. First and foremost, you should make an appointment with a financial advisor who can take a close look at your circumstances and help you create a plan to make the most use of the time and resources you currently have. Remember the adage, “You don’t know what you don’t know.” There could be a number of options available you haven’t thought of which could be brought to bear and make your path easier, less stressful, more effective, and comprehensive. Perhaps looking into a reverse mortgage could provide the financial security you seek, or buying a rental property and earning monthly income is a solution that’s right for you. Meeting with a financial planner could get you back on track in ways you can’t imagine because an experienced professional often knows strategies you haven’t thought of. 2. Second, you and your financial planner can discuss the possibility of putting off retirement for a few more years. Your advisor can calculate the outcomes of different scenarios that may result in securing the future you hope to have, either by working a few more years to build your business to the point where you can retire the way you choose, or working longer as an employee so you can continue to build your 401(k) or some other retirement funding plan that can contribute to your ultimate success. 3. It might be a good choice to consider decreasing the amount of funds you wish to have in retirement, realizing you can live well with less and can enjoy the remaining years without having to sacrifice more time or your health. By reducing your retirement spending plans, you’ll need less money to cross the finish line into your new life. 4. Without question, you should review your current assets with an eye toward preserving and protecting your wealth from predators such as taxes and fees. Your financial planner can review your accounts with these costs in focus, and possibly help eliminate their drag on your wealth-building. 5. Your financial planner could recommend purchasing some form of insurance to protect and mitigate a multitude of risks that will help protect the wealth you’ve built because insurance, when applied properly, is a marvelous tool. These are some of the ideas that could form the basis for your Plan B, and your financial advisor may be able to offer several...

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Why Would You EVER Hire a Fee-Only Financial Planner?

Posted by on 1:03 pm in Uncategorized | 0 comments

There are generally only two types of financial planners…advisors who are fee-only and paid solely on the work they do for you, and the other group of advisors who receive commissions on the investments they recommend for your purchase. The difference between the two is that a fee-only advisor has no inherent bias to steer you one way or the other because they have no self-interest in the products they suggest…except to do their best for you so they retain you as a client. This does not mean that a commission-based advisor would willfully misdirect your investments because they also have self-interest in wanting your portfolio to perform well so you’ll retain their services as well, but human nature can be subtle if only subconsciously, and selecting a fee-only advisor could be the better choice for you. Let’s back up a square. A registered investment advisor, or RIA, is a financial advisor with a fiduciary responsibility to act in the best interests of his or her client, which means they are required to put your financial interests above their own. Not all financial advisors are fiduciaries, but all RIAs, who are regulated by the Securities and Exchange Commission (SEC), are fiduciaries and must perform their duties with undivided loyalty and the highest good faith dedicated to their clients. There are three ways RIAs are typically paid: 1) a flat or hourly rate for work performed; 2) fees for a particular service; 3) a percentage of the funds being managed. A fee-only RIA does not earn commissions on sales or trading fees, so their compensation is not dependent on the investments they recommend for your portfolio, keeping their opinions independent of the pressure to sell you self-serving investment products. For this reason, fee-only advisors have less inherent conflicts of interest. Recently there has been some confusion in the industry as commission-based advisors have used the term “fee based” when they charge a fee as well as ALSO receiving a commission, so investors need to be aware and clear about these terms when interviewing a financial advisor. The difference between “fee-only” and “fee based” could mean a lot to your bottom line! The leading professional association of fee-only advisors is the National Association of Personal Financial Advisors (NAPFA), and this agency is widely and highly regarded for the expertise of its members and their forms of compensation. A portion of the fiduciary oath NAPFA members annually sign states, “The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client’s business.” By contrast, the sales commissions the non-NAPFA advisors receive come from the sale of specific investment products (mutual funds, stocks, bonds…) that may or may not be precisely suited to the investment goals of your portfolio or your needs for wealth management. If an investment product is not completely aligned with your investment goals, as stated in your Individual Investment Plan (IPA), or is not a good fit for the combination of investments you own and which work together as a single well-structured investment system, why would you purchase it? Being aware of the difference goals of the fee-only and fee-based advisors can give you a serious investment edge! Wouldn’t you rather have the money you’d pay in commissions...

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The 6 Key Aspects of Your Personal Finances

Posted by on 5:58 pm in Uncategorized | 0 comments

There could be some measure of relief, or perhaps consternation, in knowing the exact dollar value of your net worth. For good or ill, it’s important to know the precise value of all your holdings so you can more accurately plan your financial future. When you don’t know what you have, it’s hard to know how much you need to step into the dream life you envision. When you work with a professional financial advisor, you will be asked questions about your salary, your spouse’s salary, savings accounts, portfolio investments, real estate and the other material assets you own so an accounting can be made that determines your current financial worth. Similarly, there will be a discussion about your liabilities, such as your mortgage, credit card balances, loans, and any other forms of indebtedness. The difference, of course, between your assets and liabilities is your net worth. Once your net worth is known, your assets can be reviewed in relation to the capacity of time to enhance your wealth, and plans can be developed to help you meet your goals. Here is an overview of the six key areas to study when conducting an analysis of your personal financial circumstances: 1. Retirement Planning: Retirement planning is a complex and serious activity because so much is at stake and there are limited second chances. Planning for a future based on guesswork requires knowledge and experience, and is best conducted by hiring the services of a financial professional specializing in retirement planning. Just as you wouldn’t entrust an appendectomy to a carpenter or drilling an oil well to a dentist, you need a professional with the right kind of experience and training. Food and gas prices are continually increasing, health and technology advances are extending lifespans, and the social patterns of our daily lives keep changing which impacts the amount of funds needed for securing a potentially lengthy retirement. 2. Estate Planning: Most people want to leave something for their heirs, and wish to distribute as much as possible to their families, friends, and to special causes they support. A careful plan will ensure your legacy is not lost to creditors, predators, or squandered by your children. The estate tax can reduce your assets substantially, but smart planning is likely to fulfill your intentions. 3. Insurance Planning: The proper use of insurance can protect you and your loved ones from the financial risk of the unexpected, and can also provide financial security and benefits such as long-term care. There are varieties of special and standard insurances that can protect your financial well-being when you and your family need stability. 4. Tax Planning: Taxes are needed by local, state and federal governments to fund various community programs, but there are also many incentives available that can reduce your personal tax burdens. Research shows that taxes are the greatest expense to a person’s net income and knowing how to apply tax reduction incentives can serve ably to retain and build your financial strength. 5. Investment Planning: Precision investment planning can help an investor employ his or her current resources to accelerate return while guarding against risk. Each investor has their own unique circumstances, so a customized portfolio built to suit the investor’s personal financial needs should be crafted to protect the investor’s resources...

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Looking into the Crystal Ball of your Financial Future!

Posted by on 7:04 pm in Uncategorized | 0 comments

Wouldn’t it be great if a crystal ball could tell you today what you need for a financially secure tomorrow? Maybe you remember that Twilight Zone episode when a man goes back in time and knows exactly what to buy to build his fortune. And then there was the TV show called Early Edition when a man receives a newspaper with tomorrow’s news. We all wish we had an inside edge that could make investing easier, but nothing about the future is guaranteed. Food and fuel prices can be volatile and unrestrained. A bag of regular groceries in the good old days would cost about $10 but now that same bag will cost about $30+. A gallon of gasoline was $1.43 in 2004, rose to about $3.50 in 2013, and is still about $3.00 in 2018, double its price 14 years later. It’s evident that your retirement funds need to exceed the pace of inflation. Remember, too, that people are generally living longer than ever before and therefore will need their retirement funds to last longer. Clearly, you need to know what you’re doing when investing for the future, and because there is so much to know, your best decision may be to hire the services of a fee-based financial advisor. A financial advisor is a licensed professional trained to take advantage of and protect against the complexities of investing, possessing years of experience studying the markets and recommending investments that are individually appropriate for each client. Your financial advisor, serving as your retirement analyst, will inquire about a variety of factors that define your current circumstances and your desired retirement lifestyle. Expect to be asked the following, and more: 1. Your current age and planned age of retirement: This information indicates the range of time available for investments to build. 2. Your current and projected income: An accounting of the funds you are receiving today today, such as salary, dividends, or annuities, will be considered along with your anticipated income from pensions, inheritances, and Social Security benefits. 3. Your current and projected expenditures: A review of your monthly and annual spending will determine if the money could be spent more wisely, resulting in savings that can be applied now to your investments instead. As you remember, simply saving the expenditure for a cup of fancy coffee could save $2,000 a year, money that could augment your future lifestyle instead. 4. Your current and future income tax rate: Depending on your income today, your tax rate might be high but it is likely to be less in the future. Your advisor can help you structure your investments to benefit from reduced taxes. 5. Your rate of return: Your investments need to be closely analyzed to assure they are earning the rate of return you need so you can achieve your retirement goals without endangering your portfolio with excessive risk. Portfolio construction is a science and an art, and you need to find a financial advisor who can customize your portfolio to precisely match your needs. 6. Projected inflation: Inflation has measured 4% annually in the last 50 years or so, but this is an average. As you get closer to your retirement, a higher inflation rate might prevail, so you need to guard against this by making appropriate investments...

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