Private jets were once viewed as the luxury toys of the world’s elite, from royalty and popstars to high-flying CEOs. However, in recent years, the private travel industry has seen something of a boom, with more customers choosing private jet over commercial flights.
But aside from comfier seats and more leg room, what are the benefits of a private jet? How are people affording to fly this way? And why is chartering a private jet continuing to grow in popularity?
Private flights typically tend to offer shorter flight times. This is because commercial planes fly at an altitude of 35,000 feet, while private jets are able to fly higher, offering more direct routes. Also, there’s no need to arrive hours before your flight, as you can often board and depart within 15 minutes, and your travel time tends to be a lot shorter.
As you would expect, chartering a private jet means you are typically able to fly in comfort and style. In addition, private jets often have a better catering menu, and with less people on board, flyers are able to enjoy a more personalised experience in a private and more relaxing setting. You can also take your laptop on board, too, so there’s no worry about the electronics ban.
Due to the size of commercial flights, the number of departure and arrival points is limited to larger, often regional, airports. However, the size of private jets means they are able to utilise smaller, local airports, so you can arrive at a more convenient location. For example, in the U.S, commercial airlines can use 500 airports, while private jets can land at around 5000.
When booking a ticket with a commercial airline, you’re limited to the scheduled flight times, which can mean travelling at unsociable hours – never a good thing if you’re on a business trip and need to impress at a meeting. However, chartering a private jet allows you to travel when it’s convenient for you, so no arranging your day around a schedule.
This may be surprising, but flying on a private jet is actually becoming increasingly affordable. This is true of both empty leg flights or single seats, but the biggest bargain to be had is if you’re booking last minute, where flying private can be cheaper than commercial.
Flying on a private jet comes with a lot of benefits, such as better service and faster flight times. However, the growing popularity is likely due to the price. After all, why fly commercial when you can charter a private jet for a fraction of the cost?
The financial markets are the biggest industry in the world which is comprised of hundreds of trillions of dollars and millions of people. With interest, money, and participation levels so high, deciphering information becomes incredibly difficult.
Everyone assumes some of the Wall Street experts know everything there is to know about the stock market, however, sometimes the information you hear from them is not accurate. Here is a list of the five gotcha’s that Wall Street tries to hide from you.
1) You Cannot Get Market Returns Yourself
The first gotcha that Wall Street tries to hide from you is that you cannot get market returns yourself, and because you cannot get market returns yourself, you should hand over your money to a “professional” so that those “professionals” can get those returns for you.
This is not true at all. Anyone with a laptop and an online brokerage account can get market returns over the course of the year by buying certain products which were created to mimic returns of the overall market or index.
For example, most professional traders and money managers compare their results to the S&P 500 Index. This is an index comprised of 500 stocks in different sectors such as consumer discretionary, energy, and health care. The S&P being comprised of 500 stocks also gives a large enough sample size for a snapshot of the overall market.
Getting the same returns as the S&P 500 is actually quite simple. In 1993, State Street Advisors created the first ETF known as the S&P 500 Index ETF with the symbol of $SPY. The goal of this ETF was to mimic market returns by having the same exact holdings as the S&P 500 Index itself. With that said, buying the S&P 500 Index ETF will get you market returns every single time!
2) All Dividends Are Created Equal
Everyone loves dividends, right? If you own a dividend stock, you qualify for a dividend payment which most of the time gets paid out once a quarter by the company whose stock you own if they pay a dividend to shareholders.
Besides getting paid to own the stock, many investors like dividend stocks because they are taxed at a lower rate when compared to ordinary income. Taxes on dividends range from anywhere between 0 and 23.8% (capital gains rates), which are typically less than ordinary income.
Dividends make sense. Own a stock that you think will go higher, get paid to do so, and be taxed at a lower rate. Awesome, right?
Unfortunately, not all dividends qualify for these low tax rates. Non-qualified dividends come when a company pays out large amounts of their yearly profits in the form of dividends. For example, REITs pay out up to 90% of their profits as dividends but those dividends are non-qualified, so the dividend recipients of REITs do not get their dividends taxed at capital gains rates, rather, those dividends are taxed as ordinary income.
3) Dividends Prove A Company Is Strong
Wall Street likes to tell people that if a company is strong they will have enough money to pay a dividend. So if a company pays a dividend, it is assumed the company is strong.
There are a few reasons why this is not the case.
First, companies can borrow money and go further into debt just to pay dividends. With interest rates as low as they are now, companies can borrow money at lower interest rates than their current dividend yield. That does not make a company strong, it only proves the point that interest rates are low.
Second, what do Facebook, Amazon, Netflix, and Google (FANG stocks) all have in common? They are all growth companies! But what else do they have in common? They all do not pay a dividend. The reality is, a lot of companies feel it is a better proposition to reinvest profits back into the company to grow the business. A lot of the time, when companies do not feel reinvesting profits is a good strategy, they will just pay people to hold their stock in the form of a dividend.
I don’t know about you, but I want to own shares of companies who are reinvesting their profits because they think that is worth it.
4) You Have To Hold Stocks For A Year To Receive Capital Gains
Most of the time, capital gains are created when a stock is held for one full year. Wall Street will tell you this is the only way to receive capital gains.
Unfortunately, this is not true. According to IRS Section 1256 Marked to Market, there are significant tax advantage to trading options in broad based indexes (such as the S&P 500 Index) or future options (such as the E-mini S&P 500 Futures contracts). 60% of all gains in those products (regardless of the length of time in the trade) can be taxed at the capital gains rate while 40% of gains in those products have to be taxed as ordinary income.
This tax advantage for broad based index options and futures options is a large advantage to investors and traders with larger accounts as these products require substantial capital to participate in trading/investing in them. However, 60% of the gains made in a broad based equity index trade that lasted for all of five minutes are able to be taxed at capital gains rates.
5) It Is A Stock Picker’s Game
If you turn on the television and tune into the likes of a CNBC or Bloomberg, you will undoubtedly find the one screen commentators speaking about individual stocks; stocks that have huge potential to go up, down side, or be acquired by another company.
This focus on individual companies creates the belief that individual investors should go out there, focus on individual stocks, and look for diamonds in the rough such as the next Amazon or Apple.
The top money managers in the world do own individual stocks and bonds, however, the majority of their holdings are in index products; those products which give a diversified approach to investing by spreading our across multiple sectors and asset class.
Rather than picking stocks, I recommend choosing index products or ETFs.
To summarize what we have spoken about, here are the five gotcha’s that Wall Street tries to hide from you:
You Cannot Get Market Returns Yourself
All Dividends Are Created Equal
Dividends Prove A Company Is Strong
You Have To Hold Stocks For A Year To Receive Capital Gains
It Is A Stock Picker’s Game
Anyone have any other gotcha’s to add to this list?
Finances are finances. Whether you are a global corporation with assets in the billions of dollars or an itinerant busker living from gig to gig, the way you use the money you have is a comparable process. To make money, in business or personal life, using the assets you already have is the key.
Large corporations all started out with one person who was willing to invest his time to make money. There are no exceptions to this. No company started out fully built and funded, ready to take on even bigger challenges. Your personal life is similar.
Note: If you did start out with plenty of money and time, through inheritance or pure luck, this article could introduce you to some concepts that might have been skipped, like working for a living.
Investing time or money is still investing
Investments can be either time or money. When we work, we are investing our time in expectation of getting compensated for it. You clock in, do your job and get paid. Businesses invest their money in expectation of being rewarded by making even more.
Successful businesses invest their assets wisely. They are constantly looking for the most efficient, least expensive way to make or sell a product to make them money. Look at Apple, for example. They don’t manufacture their iPhones in China to increase the standard of living in that country. They manufacture them there because it is much cheaper. The bottom line for Apple (and many other companies) is that keeping the cost of their products down means they have more profit in the company coffers.
Delayed gratification can reap benefits
By keeping costs down, you have more money to invest in your future. Working hard while young means that your quality of life should improve through your career. As we go from minimum wage jobs to careers that give us a living wage, maintaining a lower quality of living allows us to invest more money into our future.
Adapting that philosophy to your personal life means that you should look for the most cost-effective way to do everything. Balancing cost vs standard of living gives us reason to strive to succeed. It is cheaper to eat Ramen noodles than a Porterhouse steak, but our standard of living should eventually rise high enough where we can choose the steak.
Keeping your reputation pristine
A business that pays its bills slowly or sporadically gets a reputation. They have difficulty finding sources for stock and have trouble keeping employees. They have allowed the needs of the moment to override long-term advantages.
We see the same problem with people who get into trouble living above their means. A corporation may have a line of credit for account receivable that gets overdue, while a person may have overextended their credit, but the result is the same. In the short term, you will have trouble getting credit to cover your expenses and in the long term, you will have trouble buying the more expensive things – such as houses or cars – that most people cannot pay for out of pocket.
Protect your credit rating like your life depends on it. Having less-than-good credit makes it much more difficult to increase your quality of life when you reach the point where that becomes an overriding concern.
There are fundamental differences between people and corporations, but there is a great deal of overlap in the importance of fiscal discipline and wise investments. For most of us, the one thing we have to invest is our time. Unlike money, time is finite. Once you have used it, it’s gone with no way to get it back.