The Best Summary of John Maxwell’s “The 21 Irrefutable Laws of Leadership”

The Best Summary of John Maxwell’s “The 21 Irrefutable Laws of Leadership”

John C. Maxwell is a renowned author, speaker, and leadership expert who has written over 100 books, many of which have been New York Times bestsellers. He is an internationally recognized leadership expert named the #1 leadership expert in the world by Inc. magazine.

Maxwell has trained millions of people in leadership through his books, speaking engagements, and leadership programs. He is also the founder of The John Maxwell Company, The John Maxwell Team, and EQUIP, a non-profit organization that provides leadership training to people worldwide.

His leadership philosophy is based on the idea that anyone can become a great leader with the proper training and development. Leadership is about influencing others to achieve a common goal. Maxwell’s work has had a significant impact on the world of leadership, and he is widely regarded as one of the most influential leaders of our time.

In this book summary, we will review the business week best-selling author’s book: The 21 Irrefutable Laws of Leadership.

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Types of Leaders

  • Good Leaders: Good leaders get the job done and meet expectations. They are dependable and reliable but only sometimes take their organization to the next level.
  • Better Leaders: Better leaders have a vision and can inspire and motivate others to work towards that vision. They can create a positive and productive work environment and bring out their team’s best.
  • Great Leaders: Great leaders are those who not only have a clear vision but also can execute that vision. They have a deep understanding of their organization and its people, and they can bring out the best in everyone. Great leaders can create a legacy that lasts long after they have moved on.

Strong Leadership

Studying strong leaders such as Winston Churchill, Theodore Roosevelt, Harriet Tubman, Maurice Mcdonald, and Mother Teresa, John Maxwell keenly understands what successful leaders do and how they live.

Teaching his team members to take suitable action and understand how to develop each of their leadership abilities is an example of why John Maxwell is considered an authority on the best leaders.

There are several books on effective leadership laws, each with its laws or principles. However, one popular book that outlines 21 laws is “The 21 Irrefutable Laws of Leadership” by John C. Maxwell. 

The 21 Irrefutable Laws of Leadership

The Law of the Lid: Leadership ability determines a person’s level of effectiveness.

The Law of Influence: The accurate measure of leadership is influence, nothing more, nothing less.

The Law of Process: Leadership develops daily, not in a day.

The Law of Navigation: Anyone can steer the ship, but a real leader must chart the course.

The Law of Addition: Leaders add value by serving others.

The Law of Solid Ground: Trust is the foundation of leadership.

The Law of Respect: People naturally follow leaders stronger than themselves.

The Law of Intuition: Leaders evaluate everything with a leadership bias.

The Law of Magnetism: Who you are is who you attract.

The Law of Connection: Leaders touch a heart before they ask for a hand.

The Law of the Inner Circle: A leader’s potential is determined by those closest to them.

The Law of Empowerment: Only secure leaders give power to others.

The Law of Reproduction: It takes a leader to raise a leader.

The Law of Buy-In: People buy into the leader before they buy into the vision.

The Law of Victory: Leaders find a way for the team to win.

The Law of the Big Mo: Momentum is a leader’s best friend.

The Law of Priorities: Leaders understand that activity is not necessarily accomplishment.

The Law of Sacrifice: A leader must give up to go up.

The Law of Timing: When to lead is as important as what to do and where to go.

The Law of Explosive Growth: To add growth, lead followers, to multiply, lead leaders.

The Law of Legacy: A leader’s lasting value is measured by succession.

In conclusion, John Maxwell’s “21 Irrefutable Laws of Leadership” is a comprehensive guide to becoming an effective leader. The book covers many topics, from the importance of character and integrity to the value of vision and communication.

Through his insightful and practical advice, Maxwell teaches readers how to cultivate the skills and traits necessary to lead excellently. By following the 21 laws outlined in the book, readers will understand what it takes to be a successful leader. They will be equipped with the tools they need to impact their personal and professional lives positively.

“The 21 Irrefutable Laws of Leadership” is a must-read for anyone seeking to develop their leadership skills and become a more effective leader. Whether you are a seasoned leader or just starting, this book offers valuable insights and practical advice to help you achieve your goals and lead excellently.

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Sales Aholic

Sales Aholic

If you’re a sales professional who lives and breathes the thrill of closing a deal, you might be a sales aholic.

With an insatiable drive to exceed your targets and push your limits, you’re always looking for the next big sale.

It can be a source of pride and motivation, fueling your passion for the job and inspiring you to reach new heights of success.

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As a sales professional in the United States, there’s nothing quite like the thrill of the hunt. Whether you’re pounding the pavement, networking at industry events, or scouring social media for new leads, the excitement of chasing down a potential sale keeps us going. It’s actually these free things that are a real adrenaline rush. 

For many salespeople, the ultimate payoff of all that hard work is the commission check that comes with a successful sale.

That sense of accomplishment and the financial rewards that come with it can be a major source of motivation for sales hunters. In this article, we’ll explore the joys and challenges of being a sales hunter, from the rush of the chase to the satisfaction of closing a deal and earning that coveted commission.

As a sales hunter, the thrill of the chase and the ultimate payday of a commission check are what keep you going. 

It’s no secret that high-performing salespeople can earn some serious money. And when the commission checks start rolling in, it’s tempting to indulge in a few of life’s luxuries.

From fancy dinners to luxury vacations, high-performing salespeople often live well and enjoy the fruits of their labor. 

However, balancing the thrill of the hunt and the excitement of earning a commission with the need for long-term financial planning is important. 

In this article, we’ll explore some of the common temptations that salespeople face when it comes to spending their commissions, and offer tips for making smart financial decisions that can help you build a secure financial future. 

So whether you’re a seasoned sales veteran or just starting out in the world of sales, read on to discover how to balance the thrill of the hunt with the importance of financial planning.

But as the years go by, you may start to wonder how you can make your hard-earned money work for you. 

Perhaps you’ve already indulged in a few of life’s luxuries with your commissions, but you want to do more than just enjoy the fruits of your labor. That’s where passive investing comes in.

Passive investing puts your money to work for you. A couple google checks will show you that for many high-performing salespeople, real estate is a popular choice for passive investing. 

That’s exactly what I discovered in 2015 when I decided to take the plunge and invest in a rental property.

At first, I wasn’t sure what to expect. The idea of being a landlord and dealing with tenants was daunting. Being a hunter, I was looking for great deals. 

Eventually, I found a property that met my criteria and had the potential to generate passive income for years to come.

After purchasing the property, I set to work getting it rent-ready. 

I worked with contractors to make necessary repairs and upgrades to give it a fresh new look, and I even added some special touches to make the property more appealing to potential tenants. 

I was thrilled when I found the perfect tenant and even more thrilled when I saw the rental income roll in.

As time passed, I had more responsibilities and challenges as a landlord. 

I had to be available to handle maintenance issues, collect rent, and address any concerns or complaints from my tenant. 

I also had to be prepared for unexpected expenses, such as repairs or legal fees.

Despite the challenges, I found that being a landlord was a rewarding experience. 

Not only was I able to generate income, but I also had the satisfaction of providing my tenant a safe and comfortable home. 

I managed my property and successfully built a profitable rental business. 

Since 2015, that same $20,000 commission check has earned over $150,000. Other commission checks have done the same; however, each path has yet to be equal and not without some hard work in addition to keeping my sales job and family. 

Eventually, finding deals on the internet was not financially feasible anymore. To get easier access to discount properties, I began networking with real estate groups. 

This became like a job in itself. Prices were moving faster than rents were, and I still had to manage the property and find tenants. 

I feel that all the best sellers I read about passive income through rental properties were just a bunch of fake content. Not to mention that over time, some properties become average performers.


I’ve had the opportunity to flip several properties over the years. 

Each project had its own set of challenges and opportunities, but the end result was always the same – a successful sale and a profit to be reinvested into my next project.

Which, inevitably, is the challenge with flipping…you are constantly pushing profits into the next project and never really in a comfortable spot. 

Finding a distressed or undervalued property is my 2nd favorite part. The hunt for the deal, putting it together, and buying it is a rush. 

This involves research and due diligence, including analyzing the local real estate market, evaluating the property’s condition and potential resale value, and calculating the costs of repairs and renovations. It also involves some risk and a bit of luck. 

Once I’ve found a property that meets my criteria, I begin renovating with modern and favorite features. 

This usually involves a complete interior and exterior overhaul, from replacing the roof and updating the electrical and plumbing systems to installing new flooring and fixtures to give the whole house a new look. 

In addition to a discount on the house, it is critical to find great deals on all materials where possible. 

Throughout the process, I work closely with contractors and other professionals to ensure the work is completed on time, within budget, and to my specifications.

Once the renovations are complete, I work with a real estate agent to market and sell the property. This involves staging the home, creating high-quality photos and videos, and holding open houses to attract potential buyers. 

Flipping houses is not at all passive income; this is a genuinely active job, and I don’t suggest this for people that have a full-time sales job. 

My work suffered, and it was also pretty hard on my marriage. 

This form of real estate investing does not work well with sales professionals.


After purchasing several single-family rental properties, I realized that scaling my portfolio would be slow and arduous if I continued. 

I began to explore other investment opportunities and eventually found myself drawn to multifamily syndications.

Making the transition from single-family rentals to multifamily syndications was an exciting but different experience. 

One of the main benefits of investing in multifamily syndications is the truly passive nature of the investment.

Unlike single-family rentals, which require a lot of hands-on management and maintenance, multifamily properties are typically managed by professional property management companies. 

This means that the property’s day-to-day operations, such as leasing, rent collection, and maintenance, are handled by someone else. 

As a passive investor in multifamily syndication, I can sit back and collect monthly cash flow without worrying about the day-to-day management of the property.

In addition to the passive income benefits, multifamily syndications also offer the potential for higher returns compared to single-family rentals. 

By pooling funds with other investors, I’m able to invest in larger properties that generate higher rental income and have more potential for appreciation. 

Additionally, the economies of scale associated with multifamily properties mean that expenses, such as maintenance and management fees, are often lower per-unit than for individual single-family homes.

While the transition from single-family rentals to multifamily syndications required a lot of learning and adaptation, the passive income benefits and potential for higher returns have made it a worthwhile investment strategy for me.

The cash flow returns are the same, or slightly less; however, overall returns are on par with single-family rentals. The primary difference is the time requirement. 

There is very little due diligence up front, and no maintenance or tenant calls after. 

There is only cash flow distributions and appreciation and tax benefits.

Investing in syndications is similar to buying stock except having much better tax benefits and adding an actual asset to your portfolio.

In conclusion, real estate syndications offer a unique opportunity for sales professionals to diversify their investment portfolios and generate passive income. 

By pooling funds with other investors and partnering with experienced real estate professionals, sales professionals can access larger and more profitable properties than they could on their own.

 Syndications also offer a truly passive investment, allowing sales professionals to focus on their careers and personal lives while still earning monthly cash flow from their investments.

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Depreciation to Reduce Taxable Gains

Depreciation to Reduce Taxable Gains

By definition, depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It is a way of spreading the asset’s cost over the years in which it is expected to be used rather than taking the total cost as an expense in the year of purchase.

And, you can USE this IRS code to earn tax – free passive income.

Depreciation is calculated using a specific formula, which considers the asset’s cost, estimated useful life, and the expected salvage value of the asset at the end of its useful life.

The result of this calculation is the amount of depreciation that can be claimed as an expense each year.

Depreciation is used to reduce the taxable income of a business, which can result in a lower tax bill.

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Real estate investors use depreciation as a tax strategy to reduce their taxable income and thus lower their tax bill. They can claim depreciation on the cost of the property and any improvements made to the property, such as renovations or additions, strictly for tax purposes.

To use depreciation as a tax strategy, real estate investors must first determine the cost basis of their property.

This includes the cost of the asset (physical asset), as well as any closing costs, legal fees, and other expenses related to the acquisition of the property. 

From this cost basis, they can deduct the value of the land, which is reasonable since it does not wear out over time.

The remaining property value is depreciable over its useful life, which the Internal Revenue Service determines is the depreciable amount.

For residential rental property, the useful life is 27.5 years, while for commercial property, it is 39 years.

Real estate investors can claim a portion of the depreciation expense each year as a tax deduction, which reduces taxable income and lowers their tax bill for several years.

Depreciation is a powerful tax strategy for real estate investors because it allows them to generate income from their property while reducing their tax burden. 

Sometimes, it will allow investors and business owners to receive a tax return despite having earned significant capital gains on a fixed asset.

There are several different methods of depreciation for various businesses and Accounting professionals to consider. 

The type of business, asset, total amount of cost, carrying value, and rate of depreciation will vary with each.

Different Methods of Depreciation

The Matching Principle

The matching principle is an accounting concept that requires companies to match expenses with the revenue they generate in the same accounting period. 

This principle is fundamental to accrual accounting, the accounting method most businesses use.

With the matching principle, expenses are recognized in the period they are incurred, not necessarily when cash is paid.

For example, if a company provides a service to a customer in December but receives payment in January, the revenue would be recognized in December, when the service was provided.

By matching expenses with the revenue they generate, the matching principle ensures that a company’s financial statements accurately reflect its performance in a given period. 

This allows investors and other stakeholders to make informed decisions based on the company’s financial results.

Straight-Line Depreciation Method

It is called a “straight-line” because it assumes the asset will lose equal value each year over its useful life. 

This is the most common method for real estate investors and their accountants.

The straight-line method calculates the annual depreciation expense by dividing the asset’s cost by its estimated useful life. 

For example, if an investor purchases a property for 1,000,000 with an estimated useful life of 39 years, the annual depreciation expense would be $25,000 ($1,000,000 / 39years).

Other assets are added to the depreciation, such as new HVAC, floors, lighting fixtures and amenities. 

These will be depreciated at a 5-year rate, adding to the tax depreciation.

The advantage of the straight-line method is its simplicity to calculate and its predictability in the  amount of depreciation expense each year. 

This makes it easier for companies to plan and budget for future expenses.

Accelerated Depreciation Method

Accelerated depreciation is a method that allows for a higher amount of depreciation expense to be recognized in the early years of an asset’s useful life. 

This results in a lower taxable income in the early years and a higher taxable income in later years.

When using accelerated depreciation, the asset is depreciated faster in the early years and slower in the later years. 

This reflects that many assets, such as machinery and equipment, lose more value in their early years of use.

There are several accelerated depreciation methods, including the declining balance method, the sum-of-the-years-digits method, and the double declining balance method. 

These methods allow for a higher amount of depreciation to be recognized in the early years, which can help businesses to reduce their tax bill and free up cash flow.

Accelerated depreciation can be especially beneficial for businesses with high capital expenditures in the early years of their operations.

Accumulated Depreciation Method

Accumulated depreciation is a contra-asset account that reflects the total depreciation charged against an asset over its useful life. 

It is a running total of the amount of depreciation expense that has been recorded on an asset since it was acquired.

As an asset is depreciated, its book value (which is the asset’s original cost less its accumulated depreciation) decreases. 

The accumulated depreciation account is used to reduce the asset’s value on the balance sheet, which accurately reflects the decreasing value of the asset over time.

For example, if a company purchased a machine for $100,000 and depreciated it at $10,000 per year using the straight-line method, the accumulated depreciation would be $30,000 after three years ($10,000 x 3 years). 

The machine’s book value would be $70,000 ($100,000 – $30,000).

Accumulated depreciation is an essential account for financial reporting because it allows businesses to accurately reflect the value of their assets on the balance sheet. 

It is also used to calculate the gain or loss on the sale of an asset. When an asset is sold, the difference between the sale price and the book value (which is the asset’s original cost less its accumulated depreciation) is recognized as a gain or loss on the income statement.

Double-Declining Balance Depreciation Method

The double-declining balance method is an accelerated method of depreciation that allows for a higher amount of depreciation expense to be recognized in the early years of an asset’s useful life. 

This method assumes that the asset will lose value more quickly in its early years and therefore applies a higher depreciation rate to the asset in those years.

Under the double-declining balance method, the asset depreciates twice the straight-line rate. To calculate the depreciation expense for each year, the asset’s book value is multiplied by the depreciation rate. 

The asset’s book value is its original cost, less its accumulated depreciation.

The depreciation calculation for this method would be a company purchases a machine for $100,000 with an estimated useful life of 5 years and uses the double-declining balance method with a depreciation rate of 40%, the asset’s value upfront (or depreciation expense for the first year) would be $40,000 (40% x $100,000).

The machine’s book value at the end of the first year would be $60,000 ($100,000 – $40,000). The depreciation rate for the second year would be 40% of $60,000, or $24,000. The book value at the end of the second year would be $36,000, and so on.

The double-declining balance method can be a valuable depreciation method for assets that lose value quickly in their early years, such as computers or other technology equipment.

However, it can also result in higher depreciation expenses in the early years and lower depreciation expenses in the later years, impacting a company’s balance sheet and income statements.

What is a Real Estate Equity Waterfall?

What is a Real Estate Equity Waterfall?

Due diligence in alternative investments can be complex, and when reviewing commercial real estate syndications, there are many critical factors to consider.  While reviewing the dizzying terms and understanding the capital contribution, you want to be thorough in your due diligence to confirm if there is a high degree of risk and what this fund manager’s performance history is.

The distribution waterfall model is a common model in real estate syndications that gives return hurdles (or IRR Hurdle) that ensure the investor’s return prior to the general partner (or management team) compensation. Although it is common, this model is one of the most difficult concepts and there are countless number of ways to run it with various ways to pay the GP and LP.

First thing, let’s review what is entailed in a real estate structure:

Sample Real Estate Partnership Structure

A real estate partnership structure is a joint investment structure used in real estate private equity. In a real estate partnership, commonly referred to as a syndication, a group of investors form a partnership and invest in a real estate asset or portfolio. The partnership is managed by a general partner (GP), who is responsible for the day-to-day management of the assets and the operations of the partnership.

A typical real estate partnership structure might look like this:

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  • Limited Partners (LPs): passive investors in the partnership who provide the capital for the investment. They are limited in their liability and  do not have any control over the partnership’s day-to-day operations or decision making ability. LPs are typicall high net worth individuals seeking to diversify their portfolio into real estate holdings or increase cash flow.
  • General Partner (GP): Responsible for the day-to-day management of the assets and the operations of the partnership. The GP is  an experienced real estate professional who brings expertise and connections to the partnership. The GP is responsible for making investment decisions and is compensated for its services through a management fee.
  • Management Fee: The limited partners pay the management fee to the GP for their partnership management services. The management fee is usually a percentage of the total capital invested in the partnership.
  • Carry: Also known as carried interest, is a share of the profits earned by the partnership that is paid to the GP in addition to their management fee. The carry is typically a percentage of the profits earned above a certain return threshold, known as the hurdle rate.
  • Hurdle Rate: The hurdle rate is the return threshold that must be met before the GP earns their carry. The hurdle rate is  set to ensure that the limited partners receive a preferred return on their investment before the GP begins to earn their carry.

The waterfall is a structure used in real estate to determine how returns are distributed among the different classes of investors.

In a real estate equity waterfall, a series of return thresholds are established, and returns are distributed to different classes of investors based on if and when the return thresholds are met. If the preferred return threshold is met, returns are distributed to the preferred equity investors until they have received their total preferred return. Once the preferred equity investors have received their total preferred return, any other returns are distributed to the ordinary equity investors.

The private equity waterfall ensures that the different classes of investors receive their fair share of returns based on their investment terms. The preferred equity investors receive a priority return, while the equity investors (LPs) share in any residual returns the investment generates.

The Return Hurdle

The return hurdle, also known as the preferred return or the hurdle rate, is a minimum return on investment that must be achieved before distribution of profits. This target rate is usually set as a percentage of the invested capital, and it is designed to ensure that the limited partners receive a minimum return on their investment before the general partner begins to earn its share of the profits.

The return hurdle is a critical component of a private equity investment’s waterfall structure, which is a methodology used to allocate returns and profit distributions among the participants in an investment. The return hurdle is typically set to a relatively low rate, such as 8-10%, to ensure that the limited partners receive a positive return on their investment before the general partner begins to earn its share of the profits. It is a good practice for an operator to include initial capital as a part of the return hurdle to offer additional risk mitigation in their real estate waterfall models.

The Preferred Return

A preferred return, or “preferred yield” or “hurdle rate,” is a minimum rate of return guaranteed to a particular class of investors, such as preferred shareholders, before other investors, such as limited partners, receive any returns on their investments. The preferred return is typically specified in the investment agreement and is paid out before any other share of the cash flow distributions are made to other individual investors.

In real estate investments, the preferred return compensates first tier investors such as a large private equity fund for the higher risk and larger initial investment they take. It provides some certainty for the preferred shareholders about the minimum return they will receive on their investment. The Preferred Return trades upside for lower risk, whereas the limited partners trade risk for larger upside returns such as capital gains.

The Promoted Interest

Promoted interest, also known as a “promote,” is an incentive compensation structure to compensate general partners (GPs) to earn a share of the profits generated by the investment beyond their management fee.  In a promoted interest structure, the GP earns a share of the profits generated by the investment as various equity waterfalls are met. The amount of the promoted interest earned by the GP is proportional to the profits generated above the performance targets. For example, the GP might earn a 10% promoted interest on profits above a 20% return threshold.

Promoted interest is designed to align the interests of the GP and the LPs in the investment. By earning a share of the profits generated by the investment, the GP has the correct incentives to maximize returns for all parties involved. Promoted interest is also a way for GPs to earn additional compensation for exceptional performance.

Who pays for the Promote

Another important consideration is who pays for the promote. In other words, what is this promote percentage applied to? While this could be structured in a number of ways, in practice it is common for the promote to be paid by either the partnership or instead by the investor’s share of cash distributions.

Let’s look at how the promote would be calculated in each of these scenarios.

Promote Calculations

If the partnership pays for the promote, then the sponsor would first get its promote percentage, and then it would get its pro rata share of the remaining partnership cash flow. The sponsor’s share of cash flow would be calculated as follows:

GP Distribution % = Promote % + GP Pro Rata Share x (1 – Promote %)
For example, suppose the GP owns 10% of the partnership and the LP owns 90%. Then, suppose that the GP will earn a 20% promote after a 12% preferred return hurdle is achieved. In this case, the GP Distribution % would be 20% + (10% x 80%), which equals 28%.

If the investor pays for the promote instead of the partnership, the sponsor would first get its pro rata share, then it would get the promote percentage based off the investor’s share of cash flow:

GP Distribution % = GP Pro Rata Share + Promote % x LP Pro Rata Share

Using the same example as above, the GP Distribution % would be calculated as 10% + (20% x 90%), which equals 28%.

Notice that both of these calculations lead to the same result. The distinction here is that the investor would prefer the first scenario in case the sponsor has to be replaced because that means the original sponsor would share in some cost of replacement. This is a minor detail, but important when considering who the project managers are and what to review on a deal-by-deal basis.

Again, although these are two common ways of calculating the promote, the important thing to remember about waterfall structures is that there is no one size fits all solution. These terms and conditions will all be spelled out in the partnership or owner’s agreement.

The Lookback Provision

A lookback provision is a private equity or real estate investment agreement clause that gives the investment manager the option to adjust the preferred return in certain circumstances.

This allows the investment manager to “look back” at the performance of the investment over a specified period of time, such as a given year or several years. Suppose the investment has performed better than the preferred return. In that case, the investment manager may adjust the preferred return upward to a higher rate to reflect the higher returns generated. On the other hand, if the investment has performed worse than the preferred return, the investment manager may choose to adjust the preferred return downward to a lower rate to reflect the lower returns generated by the investment.

The lookback provision is often included in investment agreements as a way to ensure that the preferred return remains aligned with the project’s returns generated by the investment. The lookback provides the investment manager with the flexibility to adjust the preferred return to ensure that the investment remains

attractive to investors, while also allowing the investment manager to share in the benefits of any outperformance of the investment.

In conclusion, a lookback provision is a clause in an investment agreement that gives the investment manager the option to adjust the preferred return based on the performance of the investment over a specified period of time. This provision is used to ensure that the preferred return remains aligned with the actual returns generated by the investment.

The Catch-Up Provision

A catch-up provision is a clause in a private equity or real estate investment agreement that allows for the payment of accumulated preferred return in the event of sufficient future investment performance.

In a cumulative preferred return structure, if the investment does not generate sufficient returns to cover the cumulative amount of preferred return that has accrued, the preferred return will accumulate and be paid out at a later date when the investment generates sufficient returns. The catch-up provision specifies the conditions under which the accumulated preferred return will be paid out, such as a certain level of investment performance or the sale of the investment.

The catch-up provision assures investors that they will eventually receive their accumulated preferred return, even if the investment does not generate sufficient returns in the short-term. It also allows the investment manager to defer the payment of the accumulated preferred return until the investment is in a better position to generate sufficient returns to cover the cumulative amount of preferred return that has accrued.

This article is for informational purposes only and should not be taken as investment advice.

Work Optional Lifestyle

Work Optional Lifestyle

In today’s work culture, and forever, this standard definition of retirement has been the norm. Go to school, get a job, create a solid financial plan, have a family somewhere in the middle or after or before, and eventually retire. 

If you are one of the lucky ones, you will not die 30 days after you finally ring the retirement bell. This…is your dream life. I learned a few years ago that this definition is half true. And as a result, I may not be retiring at 44; I plan on being work optional.

What is Retirement

The definition (formal definition) of retirement is when a person has stopped working and no longer participates in the labor force. It is a stage of life that typically follows a period of employment characterized by reduced work-related activities and increased leisure activities. 

For most people, retirement is measured as a specific age or, in some cases, by the years of service that an individual becomes eligible for retirement benefits, such as a pension or social security. This age can vary, and due to the fantastic fiscal management of our government leaders (sarcasm), the age is consistently getting higher and higher. 

Corporate America’s retirement package can be voluntary or forced, depending on the circumstances. Voluntary retirement occurs when an individual has reached a certain age or has sufficient financial resources to support themselves, then chooses to retire from work. 

Forced retirement occurs when an individual can no longer work due to health reasons or changes in the labor market. In a volatile market, companies will use retirement packages to trim headcount and avoid a “layoff.” 

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Financial Advisors

Financial advisors provide advice about money management. They help clients develop a comprehensive financial plan considering their unique goals, financial situation, and risk tolerance.

Financial advisors can help clients with a range of financial issues, including:

  • Investment planning: Advisors help clients choose investments aligned with their goals and risk tolerance. They can advise on investment strategies such as portfolio diversification, rebalancing, and tax-efficient investing.
  • Retirement planning: Advisors help clients plan for their retirement years by determining how much they will need to save and what type of retirement account is best for them. They can also guide Social Security benefits and retirement income strategies.
  • Estate planning: Advisors help clients plan to distribute their assets after they die. This can include creating a will, setting up trusts, and naming beneficiaries.
  • Tax planning: Advisors help clients minimize tax liability and maximize tax-advantaged investment opportunities.
  • Debt management: Advisors can help clients get out of debt and manage their credit more effectively.

Financial advisors monitor clients’ financial progress, recommend changes to their financial plans as needed, and provide ongoing support and guidance. They are trained to provide a customized plan that aligns with the client’s goals and financial situation.

Traditional Plan

The traditional path for Americans to work and retire typically involves working full-time for 40 to 50 years and then retiring at 65 or older.

 This involves saving and investing in retirement accounts such as a 401(k) or individual retirement account (IRA) during their working years, working with an investment adviser, and maybe even participating in employer-sponsored pension plans, which provide a guaranteed source of income in retirement.

In the traditional path, people work until they reach their 60s or 70s and then retire, at which point they start living off their savings, investment income, and Social Security benefits. They may also downsize their homes, sell investments, or take on part-time work to supplement their retirement income.

Many people choose to retire earlier, work part-time, or continue working full-time well into their 70s and beyond. There are better options than this traditional path. Some people may also experience unexpected changes to their financial situation, such as job loss or a medical emergency, that can affect their retirement plans. 

In these cases, it is essential to seek the help of a financial adviser to determine the best course of action.

High-Stress Careers

So many people are involved in a high-stress career. This career is characterized by high mental, emotional, and sometimes physical demands, leading to stress and burnout. High-stress careers are common in medicine, law enforcement, finance, and senior-level management.

People take high-stress careers for various reasons, including:

  • High salaries: Big money is a trade-off for considerable stress
  • Prestige and status: In some cases, a certain level of prestige and social status or recognition attracts people to these positions
  • Personal challenge: This is a personal challenge people want to take on. They may feel a sense of fulfillment and satisfaction from their ability to handle the demands of their job.
  • Career advancement: High-stress careers can often lead to rapid career advancement, appealing to ambitious people who want to climb the corporate ladder.
  • Passion for the field: Some people may be passionate about their work and will endure the stress to achieve career goals.

However, the stress of some careers can hurt one’s physical and mental health. It’s essential to find ways to manage stress and seek support from friends, family, and mental health professionals if necessary.

Careerist Lifestyle

If we enter the daily grind of a traditional life path, we create a set pattern for ourselves. (Or, we already have.) Each day, for our whole life, begins with the same alarm clock and ends at the same time at the same place. 

This is, for the most part, a safe place to be and the traditional goal of our education system. But setbacks can happen. Physical health issues for you or your immediate family can occur. Cracks in the economy happen and cause companies to lay off employees. 

This is the importance of having your plan in addition to traditional financial planning.

  • Do you have enough money to weather a financial storm?
  • How financially secure are you?
  • How well do you know your entire financial picture?
  • What will happen if you make one or two financial mistakes?
  • Do you have a bulletproof plan?

Financial Independence

Financial independence means having enough wealth to support one’s living expenses without relying on traditional sources of income. Savvy people want more control over their time and financial future. 

This can be achieved by saving and investing in cash-flowing assets. The wealth needed to attain financial independence varies depending on individual circumstances, such as lifestyle and expenses.

For our entire life, we are brainwashed into thinking retirement happens at a certain age. It happens when your PASSIVE income matches or EXCEEDS your EXPENSES. 

Suze Orman and Dave Ramsey will have you believe that frugality and reducing your annual spending with zero debt is the practical approach and an excellent long-term plan for the American Dream.

The crack in this simple living plan is that we will never have a zero-cost basis. Taxes, Insurance, and Food prices are always going to increase. We will consistently need to increase income; our ability to earn will decrease as age increases. 

By learning the right things and making some strategic decisions, we can confidently attack future unknowns because our income is working for us.

Work Optional

My non-penny-pinching way to achieve a work-optional life through real estate. Rental Income is how I began my journey into Passive Income, the path to the good life, and being work-optional.

In 2009, I saw the equity in my house disappear like so many others. My neighbors all began selling their houses to investors for a fraction of the price. I’m sure folks had reasons, but one question kept repeating: How can I buy houses in a recession with cash? 

I never wanted to be the guy selling in a down market. This is not a person who is selling on his terms.

I read all of the best books on the subject. Then, I went to a weekend seminar. Here I received some excellent information about rentals in the vast area of Houston and an entire investment strategy. It was there that I created a money mission statement.

As a supply chain and logistics salesperson, I receive commissions for business brought to the organization. The problem was the volatility of the various business cycles. And, it is easy to spend this money on things you are waiting for, especially with a growing family.

I was able to exchange commission (residual income) for rental income (passive income).

This was eye-opening; every month, I had an extra check. I was always looking for deals for work and houses for rentals. Eventually, it got overwhelming, and I sold them all off-turning rental income into capital gains income which is where the real money is.

I took some practical advice as my family was also scaling up. Investing in syndications is the most passive form of investing I can do. My dollars earn around 17-20% per year without my searching for deals, answering calls, filing evictions, or going to title companies.

As a busy professional and full-time dad, I needed a more passive vehicle to enable a work-optional life. Syndications have been ideal for our lifestyle of busy professionals and five kids. 

I’ve stepped out of the landlord and house-flipping side hustles and enjoy being an investor. The same returns as rentals, the same tax benefits as rentals; however, 97% less time commitment!

Supply Chain as a Leading Indicator for the Economy

Supply Chain as a Leading Indicator for the Economy

The Covid Factor

In 2021, global supply chains became scarce. As a result, supply chain pricing jumped to all time highs. Carriers and suppliers were only offering 7 day-14-day rate terms. Orders would not depart for 45 days. This would subject the rates to 2-3 potential (and very likely) rate hikes in this period. This volatility had a ripple effect on goods throughout the globe as pricing for materials could not be fixed. It was clear delays at the factory and increases in production pricing would affect pricing at the consumer level. As delays mounted as carrier reliability index plummeted and there was no predictability when products would arrive in the U.S. (or Europe). We will review why Covid highlighted the fact that supply chains are a leading indicator for the US Economy.

Shanghai Containerized Freight Index

Shanghai Containerized Freight Index (SCFI) and the Consumer Price Index (CPI) are two economic indicators that provide insights into different aspects of the global economy. SCFI tracks changes in ocean freight rates for shipping containers from Shanghai to Long Beach. CPI measures the average change over time in the prices paid by consumers for consumer goods and services.

Economic Indicators

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Despite the differences in the nature of these indicators, there is some relationship between them. The relationship between the SCFI and the CPI is through the impact in landed costs via the supply chain costs. 

When the SCFI rises, it indicates that the cost of shipping goods has increased. Normally, a 20-40% increase in a container to a west coast distribution center has minimal effect on the actual retail value. However, this cost is an indicator to demand and supply issues. 

This can contribute to higher inflation, which is reflected in the CPI. On the other hand, if the SCFI falls, it can lead to lower transportation costs and perhaps lower prices for consumers, which can help keep inflation in check.

Relationship to Economy

Another factor proving supply chains are a leading indicator to the US economy is the broader impact of global trade on the economy. As the SCFI is a measure of the volume of international trade, changes in the index can reflect shifts in global demand and supply for goods and services. 

The Baltic Dry Index (BDI), which tracks the cost of shipping dry bulk goods like iron ore and coal, fell to a historic low in 2009, as the supply of vessels exceeded demand. In contrast, during the COVID-19 pandemic, the demand for certain goods like PPE, medical supplies, and home office equipment surged due to lockdowns, leading to a shortage of shipping containers and a sharp increase in shipping rates. 

If high shipping prices lead to high consumer prices then the inverse is true and low shipping / supply costs will lead to lower costs for consumers. There is a 9 to 12 month delay for supply chain costs to work through the distribution networks to the consumer. 

Supply chain costs began dropping in June 2022 and as of this writing are 90% lower than the all-time highs. This puts a normalization of consumer pricing between June 2023 to June 2024. Or, for investors, buying. 

Record Highs

The SCFI, reached record highs in 2020 and an all-time high in December of 2021 at $5046, as container shortages led to increased costs for shippers and higher prices for consumers throughout the supply chain.

During the 2009 recession, many shippers reduced capacity by retiring older vessels, leading to fewer options for transporting goods. At this time, the supply chain, as a leading indicator to the economy proved that a recession was in place because pricing dipped to all time lows. During the COVID-19 pandemic, many ports experienced disruptions due to reduced staffing and social distancing measures, leading to delays in unloading cargo and a backlog of ships waiting to dock. 

In 2021, travel and other restrictions to contain the spread of the virus led to reduced availability of air cargo, which further strained supply chains. In terms of recession concerns, the 2009 recession was characterized by a decline in demand for goods and services, leading to a contraction of the global economy. 

COVID-19 pandemic led to massive government stimulus programs and concerns about inflation have increased due to supply chain disruptions, increased shipping costs, and shortages of raw materials, leading to potential risks for future economic growth.

High Prices and High Demand

Regardless of the increases in supply chain costs, demand for import containers rose every month from March 2021 through June 2022.

Below is a reflection of the price increases from the SCFI and the consistent rise over the past 13 months.

shanghai containerized freight index supply chain indicator

In this period, consumer goods remained flat. Flat consumer prices combined with additional access to cash (money printing) added to the demand for more. Customers were consistently questioning how much higher can pricing go as the economy continued upward.

Pricing is a reflection of the demand and as the demand for containers rises, so will the price. However, once the demand ceases, carriers will be forced to reduce rates. See the below chart from freightwaves highlighting the demand, mirroring the price above. With demand rising since March 2021 and remaining high….until June 2022. But then what happens? Why?

inbound index supply chain indicator

In Q4 2021, I had the opportunity to sit in on an economist speaking about this very phenomenon. He went into granular detail about the US Economic state at the time and moving forward. The elevated shipping prices we were seeing had not made their way all the way through the supply chain yet. These elevated prices would not be felt by the consumer until earliest Q1.

Consumers Feel the Pain

These elevated supply chain prices have resulted in a wave of inflationary concerns across the nation; yet, the economy reportedly is doing well. . The Ukraine Invasion is also having an effect on food goods and some increase on fuel.

Consumers see the increase in total supply chain costs from the past 2 years and it is drastically reducing demand. Perhaps it is due to the tripling of the fuel + grain increases + transport increases that have caused this sudden drop. 

The overall decrease in imports is 36% from all countries. Already, ocean prices have begun to fall and the “premium” rates. As of February 2023, shipping rates have decreased 90% in some lanes with no delays at Asia ports.

Is this a sign that prices will come down as well? Already, factories are reporting decreased lead time which is a sign that US Purchase orders are decreasing and/or cancelling. Inventory levels are fully stocked here in the US already. If the transportation increases were not felt for 6-9 months, perhaps consumers will begin to see these “REDUCED” prices by Q1-Q2 2023? 

The X Factor in this scenario is the Ukraine conflict and the effect it is having and will continue to have on fuel and food products. However, it does seem logical that at least 1 factor causing inflation is on a downward trend. 

Update 2023

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