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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: 2019
Dec 30, 2019

Are you in the Social Security tax bubble?

Tax rules are complicated enough, and Social Security benefits during retirement years add another layer of complexity.

Watch corresponding Youtube video here: https://www.youtube.com/watch?v=0RnQY0NxhSM&t=39s

Your Social Security income can cause your actual tax rate to be much higher than expected. Not understanding how and when Social Security benefits are taxed can lead to an unpleasant surprise when Uncle Sam comes calling.

You’ll also learn why multi-year tax planning is so important in retirement. 

How should you decide when to take Social Security?

If you are approaching age 62 you may be considering when to take Social Security. It can be tempting to take that low hanging fruit as soon as possible. But we often recommend that you delay taking your Social Security benefit for as long as you can. If you don’t take Social Security early then you need to think about how you’ll make enough money to cover the costs of your lifestyle. Do you have IRA’s, 401K’s, or even an old-fashioned pension? When planning your retirement income you’ll also want to think ahead to age 70 ½ when you’ll have to take the required minimum distribution or RMD. Have you decided when to take your Social Security benefit? 

Social Security tax bubble or tax torpedo?

Your Social Security benefit can be taxed like any other income source. But there is a way to determine if and how your benefit will be taxed. You can use a special calculation that is determined by the IRS. To do this, add up your taxable income and add half of your projected benefit. If it is over a certain threshold then it will be taxed. You’ll need to be careful when determining your income since tax rates increase slowly and then suddenly jump from 22% to 41%. You don’t want those taxes to torpedo your retirement planning. Listen in to find out how to plan ahead.

It pays to plan ahead

Sure, you want to pay the lowest amount in taxes each year, but retirement tax planning is a bit more complicated. You’ll want to consider your lifetime tax bill. You don’t want to pay 0% in taxes this year only to be stuck with a 24% tax bill next year. You’ll want to have a comprehensive retirement plan which considers when to take out more money for those big-ticket items that will inevitably come up. With a little bit of planning, you can spread your tax burden out over multiple years. You also need to consider that your 60’s provide you with a unique opportunity to name the income that you won’t have in your 70’s. Discover why your 60’s may be the most important tax planning decade by listening to Will Holt’s tax expertise. 

Understand all the tax opportunities and risks that are out there

There are plenty of risks involved with retirement tax planning but there are also lots of opportunities to save on taxes as well. One tax opportunity you shouldn’t miss is topping out your tax bracket with Roth conversions to help minimize your RMD once you turn 70 ½. 

If you are planning to retire early the Affordable Care Act could throw you another curveball. It is important to understand the income levels needed to qualify for the subsidies available. There is a lot to consider when in retirement tax planning. 

Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients by providing financial planning to the Triangle residents of North Carolina for 20 years.

Outline of This Episode

  • [1:27] When should you take Social Security?
  • [4:12] A brief overview of the Social Security tax bubble
  • [9:00] Why you should not only consider this year’s tax bracket
  • [13:22] Can you change your mind when to take Social Security?
  • [15:44] Why would someone take Social Security early?
  • [17:32] What are other considerations?

Resources & People Mentioned

Connect with Will Holt

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

Dec 16, 2019

What does it take to get to 100 podcast episodes?

In his book, Shoe Dog, Phil Knight describes his emotions upon starting the company that became Nike, as a crazy idea. When describing how he felt, he realized that many of the world’s greatest achievements started as crazy ideas.

Watch corresponding Youtube video here.

What seemed like a crazy idea for us 4 years ago, has turned into more than we could have ever imagined. We recently shared about what motivated us to start the show in our review of FINCON.

In this episode, we’re pulling back the curtain, as we reflect on our 4 year journey to episode 100. We discuss lessons learned, surprises we encountered along the way, and mistakes we made. We also reveal some of our favorite episodes and you’ll also hear what’s next for the Financial Symmetry show. But this exciting milestone wouldn’t have been possible without you!

What we have learned over the past 100 episodes

We were fortunate to start our passion project at a good time. The strong tailwind of meteoric growth for all podcasts propelled our show to a 600% growth rate in downloads since our first year. Most of our listeners find us on Apple Podcasts currently, but we included an article below discussing the growing popularity of Spotify as a podcast deliverer. Podcasts also allow for listeners that would otherwise never hear about us. To that point, 20% of our listeners are in California. The magic of a technical tool that will continue to expand and grow.

We’ve enjoyed using this medium to share our views about unique financial planning opportunities and uncover risks that our listeners may not be aware of. We’ve also learned how much fun creating a podcast can be. After overcoming the difficulties of getting started, we were reminded that consistency is key.

We have learned from our mistakes

Mistakes are inevitable part of any journey. The key is to use them to propel you to be something better. Our podcast was a treasure trove of bumps in the road when getting started. Just dial up our a few of our first episodes, especially if you enjoy hearing someone reading directly from a blog post. Thankfully we learned fairly quickly to ad-lib and play off of each other.

Listening to yourself, also provides a great opportunity to critique your communication style. Inviting other experts in the firm, added a nice potpourri of voices as well. I’m sure our listeners appreciate the fact that we have learned to use an audio editor to improve the quality of our material. A key truth that translates to many areas of life. Bring your expertise to your specialties and find experts in other fields to do the rest.

Our favorite episodes, and yours

Inevitably, some episodes are better than others. Regardless, our aim is to always provide you with content that plants a seed that might motivate you to dig a little deeper on a specific planning topic. But we also try to present the content in an entertaining and engaging way. A few of our favorite episodes include episode 20 where we drew comparisons of common financial planning conversations to one of our favorite movies, The Usual Suspects. Another favorite was episode 27, where we broke down Mike’s top 10 investment lessons he’d learned just after turning 40. We share a few more along with the top 4 most listened episodes since we started.

What’s next for the Financial Symmetry show?

We’re continually learning how to improve our content and provide you with material that you can learn from and implement. We are excited to make better use of an editorial calendar to plan future episodes. Is there a topic that interests you that you think we should cover on the show? Let us know what you would like to hear by sending us an email with your suggestions.

Outline of This Episode

  • [2:27] Some listener statistics
  • [6:27] What we have learned along the way
  • [14:17] Surprises we have encountered
  • [15:35] Mistakes we have made
  • [19:26] Our favorite episodes
  • [25:24] Most listened to episodes
  • [29:12] What is to come on Financial Symmetry?

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Spotify <> Google Podcasts

Dec 2, 2019

Who you gonna call? Retirement Mythbusters!

Short Youtube recap here: https://bit.ly/2R0QJcA

Visit Full Article Here: https://wp.me/p6NrVS-3g5

Not as catchy as Ghostbusters, we know, but these retirement myths can be much more hazardous to your long-term financial health. Many of us have certain beliefs, internet rumors or family hearsay that are passed down about retirement rules of thumb. But believing in these stories could be detrimental to the long-term success of your retirement. On this episode, we do our best Mythbusters imitation (of Discovery Channel fame) to bust these common retirement myths. Listen in to hear why you may want to challenge conventional thinking, and discover what it could cost you to continue to buy in to the hype. 

8 common retirement myths

  1. I’m not going to live that long. So many people don’t think they will live until age 90. But the truth is, men who are 65 today have a 20% chance of living until 90 and women have a 33% chance. Couples have a 48% chance of one of them making it to age 90. You need to make sure your money will last as long as you do. Does your financial plan cover you until age 90?
  2. I’ll work until age 65. The actual median retirement age is 62. Many people plan to work longer, but they are forced into retirement early. Some people try out a second act. Whenever you do choose to retire, be sure that you are retiring to something, not away from something. Do you have big plans for your retirement? 
  3. Social Security will run out. Some people use this myth as an excuse to claim their Social Security benefit early. But claiming Social Security below your retirement age greatly reduces your lifetime benefit. If you delay until age 70 will result in an 8% increase per year!
  4. Once I reach X amount of money I can retire. The reality is that everyone’s situation is different. There is no magic number! There is so much more to retirement planning. What magic retirement number did you have in mind?
  5. Paying the lowest amount of tax is always best. Are you trying to be too tax efficient? Think about optimizing your tax situation rather than minimizing your taxes. Consider working with a financial planner and an accountant to help you consider long-term tax planning. 
  6. When I retire my investments should be conservative. This isn’t always the case. People are living longer than ever so you may need your investment portfolio to last you 30 or 40 years. There is actually a bigger risk of being too conservative rather than risky. 
  7. I need to pay off my mortgage now. A mortgage is the cheapest money you can get in a loan. So not paying it off and investing the difference actually makes more sense financially. But for some people paying off their mortgage provides them with peace of mind. Which camp do you fall into? Would you prefer the peace of mind that a paid-for house provides?
  8. Retirement spending is the same throughout retirement. Retirement planning is more complicated than you think. Your spending in retirement changes throughout the years. In the first 5 years of retirement, people spend a huge amount of money. You may spend it on travel, fixing up your home, eating out, or whatever it is that interests you. You finally have the time to spend all the wealth that you have built. Then spending slows down as you do. Unfortunately, retirement spending tends to increase the older you get, but this time it’s on medical expenses. Have you planned to spend the same amount each year in retirement?

Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for 20 years.

Outline of This Episode

  • [2:47] I’m not going to live that long
  • [5:30] I’ll work until age 65
  • [9:22] Social Security will run out
  • [13:12] I can retire after I have $1 million saved
  • [15:10] Paying the lowest amount of tax is best
  • [18:00] When I retire my investments should be conservative
  • [21:00] I need to pay off my mortgage now
  • [23:55] Retirement planning is more complicated than you think 

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Spotify <> Google Podcasts

Nov 18, 2019

How do you know if long term care insurance is worth it?

Short Youtube video here: https://bit.ly/3akBTVZ

This is a topic we discuss with our clients regularly.  With an aging population comes increased options for retirement living, assisted living and nursing care options.  Along with increased options come increased costs as well which can be exorbitant in some cases. If long-term care insurance has been on your mind, you’ll want to have a listen to our objective viewpoints as we consider if long-term care insurance is really worth it. 

Why do people consider long-term care insurance?

There are 3 different ways that people may fund their long-term care needs. They may self-insure, or use their savings. They buy long-term care insurance, or they may rely on government funding. Many of our listeners are in the sandwich generation, where they are both helping their kids and helping their parents at the same time. As they watch their parents age they begin to see the emotional and financial stress that can arise and it affects the way they think about aging. 70% of people will need some sort of long-term care. Usually, a stay in long-term care is only a couple of years but 1 in 10 men will require a stay of more than 5 years and 2 out of 10 women will stay more than 5 years in long-term care. 

At what age should you buy long-term care insurance? 

As you probably know, long-term care insurance only gets more expensive as you age. But you probably don’t want to buy into it too early, what if the insurance company goes out of business? We think the best time to buy long-term care insurance is in your mid-50s. Costs tend to jump about 6-8% each year that you wait. But even if you do buy early the premiums could increase. Often times the actuaries don’t fully understand the risk and end up raising premiums for current policyholders. 

What does long-term care insurance cover?

Generally speaking, people go into long-term care when they can no longer perform the activities of daily living or ADL. This includes going to the bathroom alone, eating, moving about the home, or they experience a decline in mental state. Often the long-term care insurance covers a maximum period of 6 years or less. There is a daily benefit amount that you can choose from. Often that benefit is between $100-$200 per day. Many long-term care insurance packages come with an inflation rider. Your premiums will be related to the variables that you choose. 

So, how much does it cost?

Long-term care is not cheap. A private room with skilled nursing can cost $100K per year. Going down the scale, assisted living averages about $75K per year. And home health can be about $50K per year, but you do have to factor in household expenses as well. 

A 65-year-old couple can buy a long-term care insurance policy for $4800 per year with basic benefits totaling $180K. If that same couple waits until 75 to purchase a policy that amount will increase to $8700. You also need to consider the fact that not everyone gets approved. The longer you wait to buy a policy the harder it is to get approved. 

It’s important to have as much information as possible before making costly decisions. You need to understand all of the factors before you commit. We’re here to help you make informed choices. Listen in to hear all of the factors that you should examine when considering whether to buy long-term care insurance.

Outline of This Episode

  • [4:27] Why do people consider long-term care insurance?
  • [6:57] At what age should you buy long-term care insurance?
  • [10:14] Won’t Medicare cover this?
  • [10:50] What am I paying for?
  • [13:47] How much does it cost?
  • [16:46] A case study about self-insuring
  • [20:07] What types of policies are there?
  • [23:25] What questions should you be asking yourself?

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

Nov 4, 2019

Does your place of employment offer an equity compensation plan? Are you one of the 76% of people who have not exercised their stock options or sold shares of their company stocks? Mike Eklund is back after a hiatus and he is jumping in with both feet. He dives deep into the nitty-gritty of equity compensation plans. Since this can be a complicated subject you may want to consult a financial professional before making any big decisions about what to do with your company stock options. 

Watch corresponding Youtube video here.

Why do companies offer equity compensation plans? 

Many companies offer equity compensation plans as a part of an overall hiring package. The main reason is to align the company and employees. If the stock price goes up then you make more money. These compensation plans can be a big draw when you are trying to decide where to work. There are 4 main types of plans offered by companies. 

  1. Employee stock purchase plans (ESPP)
  2. Owning stocks directly
  3. Restricted stock
  4. Incentive stock options (ISO). These are non-qualified stock options. 

It is important to know how these types of plans differ and what their advantages are. What kind of equity compensation plan does your company offer?

Don’t let taxes wag the dog

The biggest question of owning stocks is when to sell. Don’t let the taxes wag the dog means don’t let taxes impact your investment decisions. So many people choose not to sell a position simply because they don’t want to pay taxes on it. It helps if you understand how the taxes work in each situation. 

If you own stocks outright for over a year and sell then that is a long term gain and you will be subject to capital gains tax at the rate of 20% at most. If you own for less than a year then it is considered a short term stock and is subject to a higher tax rate of 37%. In this case, you’ll want to own for over a year for the best result. 

If you own ESPP stocks then it is important to know whether you hold a qualifying or disqualifying disposition. A qualifying disposition is better. It is tied to how long you own the stock. You’ll want to own for at least a year before you sell. 

Restricted stock is taxable when it is vested. Although restricted stocks are pretty straight forward your financial advisor can really help you with saving money in taxes. 

ISOs can provide significant tax savings but they have many requirements. They are more tax advantageous than nonqualified stock options. You have more control over when the tax event occurs.

Ask these questions of yourself to discover how much company stock you are comfortable owning

  • What percentage of my net worth is tied to the company stock today?
  • How secure is the company?
  • How long do you plan to stay with the company?
  • Are you willing to wait it out?
  • Am I comfortable with the risk of owning a large share of company stock?
  • Think about your limits. How will you feel when the stock rises or falls? 

What can you do if you own a lot in company stock?

If you own a lot in company stocks you’ll want to lower your risk and make sure that you are protecting yourself from a potential downturn. You can use these tools to think about how to create a framework for making better investing decisions. 

  1. Purchase a put option. This will ensure the stock sells at an agreed-upon price.
  2. Trading plans allow corporate insiders to diversify stocks through prearranged stock selling plans.
  3. Gift it to a donor-advised fund
  4. Gift the stock to family or friends. 

Listen in to hear how you can use a combination of these strategies to help you decide what to do when you own company stock. 

Outline of This Episode

  • [4:17] Why do companies offer equity compensation plans?
  • [7:25] Don’t let taxes wag the dog
  • [14:26] What can you do if you own a lot in company stock?
  • [19:51] Some important questions to consider

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

 

Oct 21, 2019

There’s a lot of conflicting information about buying a timeshare. Some call it the worst financial decision you could make. But is that true? On this episode, we invite Allison Berger to discuss the pros and cons of buying a timeshare. If you’ve ever been roped into one of those high-pressure sales meetings you’ll want to listen to consider if you made the right decision.

Short YouTube video: https://youtu.be/RqfiAvdPS-I

In this episode of Financial Symmetry, host Chad Smith talks with Allison Berger about strategies for spotting timeshare scams and thinking through decisions about timeshares.

If you have ever been on vacation at a nice resort you may have sat in on a timeshare presentation. These high-pressure sales meetings are designed to make you a buyer and they pull out all of the stops to get you to sign on the dotted line. They claim to only need 90 minutes of your time, but those 90 minutes can be pretty intense. According to the American Resort Development Corporation, 2018 was the 9th consecutive year of growth for timeshare sales. Out of 127 million households in America, 9 million own at least 1 shared vacation product. So 7% of families are also timeshare owners. That means they must not be too bad, right? But what exactly are you buying? What is a timeshare?

If you have ever stayed at an upscale resort, you may have sat in on a timeshare presentation. These high-pressure sales meetings are designed to make you a buyer and they pull out all of the stops to get you to sign on the dotted line. They claim to only need 90 minutes of your time, but those 90 minutes can be pretty intense.

According to the American Resort Development Corporation, 2018 was the 9th consecutive year of growth for timeshare sales. Out of 127 million households in America, 9 million own at least 1 shared vacation product. That means they must not be too bad, right? But what exactly are you buying?

We all know about the incentives to get you to buy a timeshare (or even just to sit in on the sales meeting), but what other positive experiences can be had from buying a timeshare? You will guarantee yourself a vacation each year if you buy a timeshare. The accommodations are typically very nice and often include two-bedroom suites with a kitchen. This beats staying in a cramped hotel room. Typically the break-even point of buying a timeshare is between 8-14 years, so if you vacation every year for 20-30 years you’ll come out ahead. 

But there are many negatives that come along with timeshares. Even though the average maintenance fees are only about $1000 a year, the average sales price is $21,000. If you change your mind and wish to resell the timeshare you may be out of luck. There isn’t much of a market for timeshare resales. Timeshares are complicated and can be challenging to book. If you don’t know the jargon of the timeshare company you could be lost and stuck vacationing somewhere you never wanted to be. Tell us about your experiences with timeshares. Shoot us an email, we’d love to hear your stories. 

Resources Mentioned in the Episode

Oct 7, 2019

Every year there are approximately 140 million tax returns filed with the IRS and of those, 4 million will receive an IRS letter stating that there is a discrepancy. Your first instinct might be to panic, but don’t overreact. Grayson Blayzek is here to help us understand what you can do if you receive the dreaded CP2000. You’ll want to listen in not only if you have received a letter, but also to learn what you can do to prevent receiving one in the first place.

Short Youtube video recap here: https://bit.ly/2NBiVkm 

You can take a proactive approach or a reactive approach to receiving an IRS letter

There are 2 different approaches when dealing with an IRS letter. You can take a proactive approach or a reactive approach. The reactive approach happens after you receive the letter, but a proactive approach helps you get in front of any tax confusion and reduce the chances that you will receive a letter. Here’s what you can do to take the proactive approach. 

  1. Keep accurate and complete tax records, including W2’s, 1099’s, and investment documents. 
  2. Make sure you receive all the tax information before you submit your tax return. Be patient as you go through the filing process.
  3. Check your records as they come through. Make sure the information looks accurate.
  4. Include all of your income. Make sure you don’t underreport any income
  5. Follow the instructions when you fill out the 1040 and fill it out completely and accurately. 

How can you amend your tax return? 

The first step to amending your tax return is to realize where your mistake was. Did you transpose a number? Did you receive a tax document after your return? A tax professional can help you look at your return and find the problem. Sometimes a backdoor Roth strategy is the culprit in a tax return error. Funds that were converted to IRA’s might get reported on the tax return when they shouldn’t. The process of filing an amended tax return is similar to filing an original return. But instead of filing a 1040, you’ll file a 1040X. 

What should you do if you do receive the dreaded IRS letter?

If you do receive a letter from the IRS it will come via snail mail. They will never email you, text you, or send you any other type of message. The letter you will probably receive is a CP2000. 4 million taxpayers receive a CP2000 each year. Basically this form is stating that something in your tax return doesn’t match the IRS records. It isn’t a bill, but do realize the burden of proof is on you to correct the error. Here’s what to do if you receive the CP2000:

  1. Review the letter and determine what the IRS is saying and make a note of the response date. 
  2. You typically have 30 days to respond. If you don’t respond to the 30-day letter they will issue a notice of deficiency or 90 day letter. At this point, you’ll have fewer rights to appeal, so it’s very important to respond to the first letter in a timely manner.
  3. You can agree or disagree with the letter. If you agree, then complete the response form, send in the taxes due and you’re done.
  4. If you disagree you’ll need to gather the relevant information and mail it to the IRS. 
  5. After you have responded to the notice it will typically take 6-12 weeks before you get a response. 

Don't overreact

Taxpayers spend the first 3-4 months of the year gathering documents and working through the tax filing process so it can be frustrating to receive an IRS letter stating that there is a discrepancy. But make sure that you don’t ignore it. Read it carefully and don’t overreact. Take time to digest the information to get a clear understanding of what the IRS is proposing. Get tax advice if you need it. No one likes paying taxes but it is a function of our society. Annual tax planning can reduce your tax burden but we still have to pay the appropriate level of tax fro our level of income. Maintaining appropriate tax records is a great way to avoid a tax notice from the IRS.

Outline of This Episode

  • [1:40] Every year there are approximately 140 million tax returns are filed with the IRS
  • [3:22] What should you do if you get a letter?
  • [8:40] How do you amend your tax return?
  • [12:54] All information you receive from the IRS will be through the mail
  • [15:30] What steps should you take if you receive a CP2000?

Resources & People Mentioned

Connect with Grayson Blazek

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

Sep 23, 2019

Many of you are inching closer to retirement and the decisions you make now will have a big impact on your retirement lifestyle. It’s time to start thinking ahead and seriously consider your retirement strategy. Are you concentrating on the best ways to save to set up for the life you want in retirement?

This is why we have created a pre-retirement checklist with 8 key wealth builder areas for you to consider. Listen in now to discover what you need to think about now that you are rounding the final stretch in this race to retirement. 

Your pre-retirement checklist

  1. How will you spend your time in retirement? Explore what you might enjoy doing and give it some practice. Try to structure a calendar of your average week. How might you allocate your time? How will you challenge yourself? What new skills will you learn?
  2. How will your income change? What will it take for you to retire? How much will you need and where will that money come from? Most people have a combination of 6 sources of income to provide for their retirement which includes: social security, pensions, deferred compensation, withdrawing from savings, part-time work, and passive income.
  3. What will your retirement lifestyle be like? The more you spend the more income you’ll need and the less you spend the less income you’ll need. Think about how much you plan to spend and how will you spend it. 
  4. What is your current net worth? In retirement, your accounts will no longer grow and they may start to fall in value. Take an inventory of what accounts you have. Are they pre-tax or post-tax? Do you have an HSA? Brokerage accounts? Annuities? Where do you stand financially? Lay it all out on paper so that you can decide what you need to do next. 
  5. Tax diversification is as important as investment diversification in retirement. How tax-efficient are your savings? A 401K conversion is a great way to save in taxes. You should also consider what your tax bracket will be in retirement. 
  6. What is your investment strategy? How do your emotions play a role in investing? What is your risk capacity? What is your risk tolerance? You will need to understand when and how much you will need from your investments and have the appropriate asset allocation. Know what your expected returns will be. This will help you understand how long your portfolio will last you.
  7. Healthcare can be the deciding factor for how and when you retire. If you are planning to retire before the age of 65 you’ll want to factor in healthcare costs. How will you bridge the gap until Medicare kicks in? Will you take COBRA or use your state’s health insurance exchange? You should also consider whether you want to get long-term care insurance. 
  8. Do an annual review of your estate. Block off some time each year to check if your estate plan still reflects your wishes. 

Are you in your catch-up years?

Your 50’s are often referred to as the catch-up years when it comes to retirement planning. There are lots of opportunities to think about as you approach retirement. Successful retirees look at all of these considerations as they make decisions. The decisions you make now can have a major impact on your retirement lifestyle. Use this pre-retirement checklist to help you begin to plan your retirement strategy.

Outline of This Episode

  • [2:27] Are you on the final stretch to retirement?
  • [6:33] How will you spend your time in retirement?
  • [7:37] How much income will you need?
  • [11:35] What is your net worth?
  • [14:24] What is your investment strategy?
  • [20:11] What kind of insurance do you have?
  • [23:45] Do an estate review

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

 

Sep 9, 2019

Are you looking for money and/or time-saving tips now that the summer is over and the kids are back to school? Summer can always feel expensive with summer camps, vacations, and then back to school shopping. With fall approaching and the kids back in school, we put together a list of ways you can save time and money to make this year better than the rest.

Time-saving tips

  1. Look at how you spend your time at home and see what you can contract out. Can you hire someone to clean or cut the yard? The more you can hire out the more quality time you’ll have with your family.
  2. Back to school means back to fundraising. If you have a volunteer requirement at your kids’ school get the volunteer hours in early. You could also see if the grandparents would be willing to volunteer. It’s a great way for them to get involved in their grandkids' lives. You can also check if you can donate goods rather than time. 
  3. Online grocery shopping saves lots of time. Oftentimes online shopping will save you money as well since there is less impulse buying. Another bonus is your kids won’t be asking for sugary snacks. Have you tried online shopping?
  4. Try meal planning. Some people use traditional meal planning using pen and paper, but you can also utilize services like Clean Eats or Donavon's Dish. These services will save plenty of time while still managing to feed the family a healthy meal. Have you tried using a meal planning service or a subscription service?
  5. Get the kids to help. Kids can pitch in from a young age. They can help set the table, make a salad, sweep up or wash the dishes. You may get pushback at the beginning, but after making dinner chores a regular habit they will feel proud of their hard work. 
  6. Skip the carpool line. The morning and afternoon carpool line can suck up to an hour out of your day! You can utilize before or after school programs to help you get more out of your time at work. Another idea is to have local grandparents help pick the kids up after school. 
  7. Strategically work from home. You can skip additional time in the car by occasionally working from home. This may not work out for the whole day. But you could come home after lunch and work before having to go pick up the kids for their after school activities. 

Money-saving tips

  1. Think about the holidays now. Consider how much you want to spend and create a budget. Do you want to travel? Plan out the travel in advance so that you know what you are going to spend. You can use an Amazon Wishlist to help you plan the gift-giving. Make sure to start saving for the holidays now.
  2. Reassess your monthly expenses. Fall is a great time to think about your expenses. If you have any decrease in your monthly expenses you can think about increasing your savings. Up your 401K contributions or max out your Roth. It always helps to have an automatic draft to savings. Focus on putting more toward long-term goals rather than short-term. 

What do you do to save time and money at home? Have you started any new routines this school year? What is working for you? Let us know your money and time-saving tricks. Send us an email at aberger@financialsymmetry.com or csmith@financialsymmetry.com.

Outline of This Episode

  • [2:47] Look at how you spend your time at home
  • [4:08] Back to school means back to fundraising
  • [7:37] Meal planning
  • [11:38] Skip the carpool line
  • [13:02] Strategically work from home
  • [15:15] Think about the holidays now
  • [16:27] Reassess your monthly expenses

Connect with Allison Berger

Connect With Chad and Mike

DISCLAIMER:

This podcast is property of Financial Symmetry Inc. The hosts and guests of the show do not render or offer to render personalized investment or tax advice through this podcast. This production is for informational purposes only and does not constitute financial, tax, investment, or legal advice. Listeners should consult with appropriate advisors for advice specific to your situation.

 

Aug 26, 2019

How do you make financial decisions? Are you intentional with your money?

Short Youtube recap here: https://youtu.be/9g3s36KPm9E

Most people have trouble articulating their framework for making financial decisions. It begins with finding a healthy balance between spending and saving. After these short-term decisions, examining your longer-term goals will have more meaning. So in this episode, we asked Cameron Hendricks to join us to help you understand how to create an intentional framework to make the right financial decisions for you and your family. 

There are only 5 ways to use your money in the short-term

When planning to use your money, you need to consider what your options are and whether you are facing short-term or long-term decisions. Many people will be surprised to discover that there are only 5 ways to use your money in the short-term. 

  1. Lifestyle
  2. Give it away
  3. Pay taxes 
  4. Pay debt
  5. Save

Each one of these short-term ways to use money impacts the other. Think about your spending as a pie chart. If your lifestyle expenses increase then one of the other options has to decrease. If you increase your savings then another option has to give. 

You can start your planning by considering your long-term goals

Making intentional decisions means your short-term decisions should be driven by your long-term goals. It’s a good idea to start with long-term planning and work your way back to your short-term goals. There are 6 items to think of working towards from a long-term perspective. 

  1. Financial independence - are you looking to retire or leave your job with its security?
  2. Charitable giving - this is more than just short-term charitable giving. You will need to have a process to achieve a higher goal.
  3. Freedom from debt - how much do you pay toward your debt? Pay down your miscellaneous debt first before tackling the mortgage.
  4. Lifestyle desires - this could include a second home or a boat
  5. Family needs - Many people want to save for their children’s college but also feel the need to help their elder parents.
  6. Starting a business - This takes planning and capital.

Find ways to simplify your financial decisions

Many people think that financial planning has to be complicated. But actually the more simple you can make your planning the better. Complexity gives a comforting impression of control while simplicity is hard to distinguish from cluelessness. You may seem like you are missing out on things when you plan simply, but it’s really about understanding the flow of money. Understand how your cash flow looks now and how it will impact the long-term financial decisions. You know there will be trouble ahead if you haven’t planned for the long-term. 

Create a financial framework to plan your financial decisions

Financial decisions can seem daunting but if you have an intentional decision framework to help you walk through your financial choices then your choices will be more clear. We all have the temptation to spend, especially if we get a lump-sum payment or a bonus from work. But we need to find a way to balance our short-term satisfaction with delayed gratification. When you layout your long-term financial plans you can then start planning how to spend your money in the short-term. 

Outline of This Episode

  • [2:27] What are your options?
  • [5:44] Find ways to automate
  • [10:40] There are 6 items to think of from a long-term perspective
  • [14:35] What should you do with a large one-time increase in income?

Resources & People Mentioned

Connect with Cameron Hendricks

Connect With Chad and Mike

Subscribe To This Podcast

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Aug 12, 2019

The Mega Backdoor Roth IRA could be the secret weapon you have yet to use in your retirement saving strategy. If you consider yourself a super saver, looking for alternative ways to save tax efficiently, this could be a great option. This strategy is of most interest to those maxing out all other tax-efficient savings accounts. Including standard employee 401k contributions, Roth IRA, 529, and HSA. In this episode, you'll see why we call this the secret weapon for super savers, as we breakdown who the Mega Backdoor Roth is for, why you might be interested in it, and how it compares to other IRAs.

Who should take advantage of the Mega Backdoor Roth IRA?

In order to take advantage of the Mega Backdoor Roth IRA, you first have to have access to a 401k that allows after-tax contributions. These are contributions on top of your regular $19k allowable contributions to a 401k in 2019. Hence the "Mega" moniker. So if you are already maxing out your 401K, Roth IRA, 529, and HSA contributions then the Mega Backdoor Roth IRA could be a great extra additional savings opportunity. Many get confused as to why it's called a Mega Backdoor Roth IRA when we are talking about your 401k. Good question. The name derives from where the money will be after you complete the consolidation process.

You're now seeing more larger companies and solo 401ks allow for "in-service" distributions. Meaning, you could withdraw portions of your 401k savings, while still employed. The real benefit with this savings strategy, is when you can save the extra after-tax contributions and then roll them to a Roth IRA in the same year. Meaning, you could get a larger amount in to a tax-free savings account to grow for years to come.

What’s so great about the Mega Backdoor Roth?

If done correctly, the Mega Backdoor Roth can allow you to contribute up to 6X what you can contribute to a regular Roth IRA. With a regular Roth IRA, you can contribute only $6,000 per year in 2019. The Mega Backdoor Roth allows you to contribute up to $37,000 extra each year on top of your normal employee 401k contributions.

Many people don’t know this, but the limit for 401K contributions is $56,000 or $62,000 and for those over 50. Many people assume that the limit is only $19,000. But this $19,000 limit is for pretax contributions. You can actually contribute up to $37,000 more after taxes are withheld (depending on your employer match amount). You can ask your employer if they contribute to after-tax contributions. If you aren’t sure then you should contact your HR department. They may not even know about the Mega Backdoor Roth, but if you communicate with them you could get it started in your company.

What is the difference between the Mega Backdoor Roth and the regular backdoor Roth?

If your income for a married couple is over $203,000 then you are ineligible to contribute to a typical Roth IRA. Instead, you can implement the Backdoor Roth IRA strategy. But this strategy has multiple steps to assure it's done correctly which we wrote about in a previous post. To be a good candidate for this strategy, you need to first move existing pretax accounts to an existing 401K, if you have one. The next step is to contribute $6000 to a regular non-deductible IRA. After completing this, you can convert the non-deductible IRA to a Roth IRA. The issue with the Backdoor Roth is that you can only contribute $6,000 per year.

The Mega Backdoor Roth allows you to contribute much more and would be a provision of your 401k account. Essentially, is the amount above your normal employee contributions ($19k in 2019; or $25k if over age 50) plus your employer match contributions. It’s important to consider all of your options to see if the Mega Backdoor Roth is right for your circumstances.

Outline of This Episode

  • [2:27] Who is the Mega Backdoor Roth for?
  • [4:31] What is the difference between the Mega Backdoor Roth and the regular backdoor Roth?
  • [12:33] How do you know if you can take advantage of the Mega Backdoor Roth?
  • [17:59] What are the risks?

Connect With Chad and Mike

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Jul 29, 2019

How do you pick the books you read? Do you get book recommendations from friends or are you in a book group? Do you use an Amazon Wishlist or social media to help you discover what you want to read next? In today’s episode, we have some book recommendations for you to consider. We try to bring you a variety of genres ranging from finance to self-help, to fiction. Check out our favorite books of the year and let us know which ones you have read or plan to read. 

Digital Minimalism

Digital Minimalism might be the book for you if you are addicted to your smartphone or tablet. If you feel the need to constantly check your notifications you might want to check this book out. The idea behind Digital Minimalism is to help reduce the time you spend attached to yan electronic device. It discusses the psychology surrounding our need to constantly check those notifications and offers tips to scale back your tech usage. If you enjoy this book you also might enjoy Cal Newport’s other book called Deep Work.

Chop Wood Carry Water 

Chop Wood Carry Water is a quick, 110-page read that offers life lessons that are learned by a kid who wants to become a samurai warrior (think Karate Kid). This book is about learning to appreciate the process behind the mundane work you have to do in life. The thesis is that if you can focus on doing the boring everyday work with excellence then you can make great things happen. The book encourages you to take each challenge you face not as a test but as an opportunity to learn and grow. 

Redemption

Redemption is a work of fiction by David Baldacci which is a mystery-thriller. The main character is a Baldacci favorite, Amos Decker. Redemption makes for an exciting beach or vacation read. Like binge-watching a tv series, you’ll want to rush through it quickly to discover how it ends. 

Principles

The book Principles is another self-help book written by Ray Dalio. It is essentially laying out his 5 step process for building success. He encourages readers on how to deal with setbacks and continue to move forward. These are the 5 steps that he covers in the book:

  • Step 1 - instead of feeling frustrated and overwhelmed see pain as nature’s reminder that there is something important to learn. 
  • Step 2 - potential problems are actually potential improvements
  • Step 3 - diagnose problems to get to their root cause
  • Step 4 - design a plan
  • Step 5 - push through to completion

Books we haven’t read yet but plan to

We also have several books on our wishlist or that we plan to read soon. Mike is looking forward to reading Personal Financial Planning for Executives and Entrepreneurs to help him provide the best service possible for his clients. The Happiness Advantage is another book Mike would like to read that redefines success and happiness. 

Chad is looking forward to reading Messy Marketplace which is about buying companies. He thinks this will help him serve his clients who are in the process of selling businesses. The Family Board Meeting is a book that encourages people to enjoy the experiences they have with their children. The Algebra of Happiness and 30 Lessons for Living are 2 more books that he’d like to read.

Outline of This Episode

  • [2:17] Digital Minimalism
  • [6:05] Chop Wood Carry Water
  • [10:54] Redemption
  • [13:38] Principles
  • [16:01] Books we plan to read

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

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Jul 15, 2019

Most people know little or nothing about sequence of returns risk. The subject doesn’t make for the most interesting topic for cocktail party discussions. Some refer to it as your biggest retirement risk. Reason being, sequence of returns risk can have a major impact on how long your hard-earned savings will last through retirement. This week's episode we dive in to examples of how you could be affected and steps you could use to fight against it.

Dollar-weighted returns vs time-weighted returns

Many people aren’t familiar with the difference between dollar-weighted returns and time-weighted returns. Dollar-weighted returns are the actual returns you get. The dollar-weighted return is a more accurate representation of your actual return. A time-weighted return impacts your cash flow. A time-weighted return assumes you don’t contribute or withdraw any money during a period of time. If you put a lot of money in the bottom of the stock market and pull the money out at the top of the stock market then you will have a better dollar rated return than a time-weighted return. 

An example of sequence of returns risk

Let’s consider a couple that is 60 years old with a million dollars who just retired. In the first example, they earn 8% each year over the next 30 years. They withdraw at 6% which leads them to the ideal scenario and after 30 years in which they end at zero dollars. Their money ran out just as they did. The second example takes the same couple but rather than earning 8% each year they had great returns of 25% for the first 2 years, then they averaged 8% and then the last 2 years they averaged 0%. This scenario left the couple with a million dollars at the end of 30 years. The last scenario has the couple experience a bad market the first few years then 8% returns and then a great market at the end. This scenario leads the couple to run out of money. Although all of these examples had the same average return the end results were completely different. The first few years have a big impact on your long term success. 

Why did Chad and Mike end up with different balances at the end of their careers?

Chad and Mike work for the same amount of years, they make the same pay and save the same amount each year. One of them begins their career before the other and they retire at different times. The last years before retirement Mike experienced poor returns. Chad had poor returns when he was just starting out. This is an example of a good sequence of returns for Chad and a bad sequence of returns for Mike. The difference ended up being a $300,000 difference between Chad and Mike’s final balance. When you are younger your balance isn’t that big so how the market performs doesn’t matter as much. When you are older it is important to your balance sheet that the market rate of returns are high.

What strategies can you implement to protect yourself from the sequence of returns risk?

  1. Diversification is important. Think about a globally diversified portfolio. U.S. stocks, international stocks, large and small cap investments. 
  2. Consider your asset allocation. The time right before and right after you retire is not a time to take on a lot of stock risk.
  3. Adjust your spending based on portfolio performance.
  4. Adjust the amount of stock you own based on market valuations. If the market is expensive you should own less in stocks, if the market is cheap you can own more.
  5. Don’t get nervous and go to cash and bonds. Stocks are a good hedge against rising costs of inflation. Remember that people are living longer, you may need that money to stretch farther than you thought.

Outline of This Episode

  • [4:27] What constitutes good or bad returns?
  • [8:56] The first few years have a big impact on your long term success
  • [11:15] Why did Chad and Mike end up with different balances at the end of their careers?
  • [14:23] What strategies can you implement to protect yourself from the sequence of returns risk?

Connect With Chad and Mike

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Jul 1, 2019

Often in social conversations, it’s not uncommon to hear us say, “That reminds me of a scene in the movie…” to emphasize a point. Movies have a powerful way of presenting memorable situations where real life decisions and money intersect. Given the financial lens we view the world through, these financial themes jump off the screen to us.

So in today’s episode, we put on our movie critic hats and have some fun discussing lessons we’ve spotted in films that we all can learn from. Some are obvious but in others, you have to dig a bit deeper. Allison Berger joins us in this fun-filled episode to discover financial influences in the best and worst that Hollywood has to offer.

Financial references from the best and worst Hollywood films

Many times, the large financial outcomes in life are a result of a lot of little decisions along the way in emotionally-charged environments. The circumstances range from pressure-filled decisions amidst a tragedy to pre-conceived notions of long-held family belief systems around money. Some can seem more cliche, like always have a plan B or pay attention to the small print, but paying attention to the emotions that lead to these moments can provide the most intriguing insights. Other messages reinforce strong values that help position you for long-term success, like the benefit of hard work and having an open mind.

Here’s a summary of the movies we discussed:

Gone Girl – This is an intense 2014 thriller with loads of money themes. The movie begins during the 2008 financial crisis and the featured couple loses their jobs. A twisted and circuitous journey ensues from there.

Money themes: This couple could benefit from better financial communication. Strangely, a financial advisor wasn’t around to help (wink, wink). Separately, she keeps all her money in a money belt after she goes on the run. This is a terrible idea! It’s no wonder her money gets stolen as you should never keep all of your money in one place, even when on the run. Finally, do your best to set yourself up so you are not forced to rely on someone else financially.

Edge of Tomorrow – Tom Cruise stars in this 2014 Sci-Fi film. He plays a public relations guy thrown into the battle who gets stuck in a time loop.

Financial lessons: You may not see a financial theme here but we can’t help but think about what we might do financially if we could do yesterday over again with the knowledge that we have today. There are so many uncertainties when dealing with investing which is why balance is so important. When you have a process to help you deal with all the options that are out there. We all have 20/20 hindsight but this movie can be a great thought exercise. What would you learn from today? Would you invest more? Spend differently? Or maybe create an automatic savings plan to make sure you’re saving?

Crazy Rich Asians– This 2018 film is rich with money themes. It is basically set in a rich fantasyland in Singapore.

Financial themes: Money alone will not make you happy, it’s the experiences money buys that can provide lasting happiness. Related, it’s dangerous to have your identity attached to money. Communicating openly with your partner about finances can prevent larger emotional disagreements along the line. Even further, the pressure of misplaced expectations around money can be problematic between spouses. This is why it’s important to choose your spouse wisely as research shows in The Next Millionaire Next Door.

Miracle – This is a family-friendly 2004 Disney movie. Miracle is the story of an Olympic hockey team before Olympians were allowed to be professionals in their fields.

Money lessons: The movie shows the value of hard work without money attached. At the end of the film, it showed what each character’s career was after their hockey career. This movie holds powerful lessons to show kids not to rely on one thing, especially a sport, to provide income for the rest of their lives.

Be sure and listen to the rest for the our takeaways from 3 other movies, including one in Allison’s favorite classic series of movies.

Resources & People Mentioned

Connect with Allison Berger

Connect With Chad and Mike

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Jun 17, 2019

Nobody likes to talk about the 2 certainties of life: death and taxes. So much so that we delay important decisions on how to deal with our assets for our heirs. On this episode, Cameron Hendricks and Grayson Blazek join in to discuss specifics on how to handle accounts and property, filing taxes and how to better prepare for passing on your estate to your loved ones. Find out how to handle all of this now to save your loved ones added stress during a difficult time.

Ensure that your loved ones are prepared to understand your financial life

To ensure that others are prepared for your own passing, make sure that your loved ones understand your financial life as a whole. This will make your passing a much smoother process. It is important to ensure your will is readily available and is up to date. Another way to be prepared is to have your assets properly titled. It's also important to periodically check all of your accounts’ beneficiaries to ensure that you have the right beneficiaries named and that you don’t have too many. The more information that you provide up front will really help along the way.

How to help your loved ones prepare for your passing

Taxes can be confusing enough, but doing the taxes of for the deceased is even more challenging. This is why it is so important to ensure that your loved ones have all the information that they need to prepare your final tax return during this time. Before making someone an executor of your estate it is important to talk to them and give them all of the information that they may need. This will make sure that everything transitions as smoothly as possible. If you are the executor of the estate make sure that you know where all of these income sources are. The more information that you provide up front will really help along the way.

How to prepare taxes for the deceased

Preparing taxes for the deceased isn’t as complicated as you may think. A person that has passed is called the decedent. Whether you are the surviving spouse or the child of a parent that has recently passed someone will need to work through a couple of tax returns for the decedent. You will have to fill out the final 1040. It is similar to every other tax return that you have filled out. You can continue to file as married filing jointly if you don’t remarry within the year and you will include any income received. The second form you may encounter is the estate income tax return. The last tax form you may need is the gift tax return. Listen to this episode to hear Cameron Hendricks and Grayson Blazek provide their expertise on preparing taxes for the deceased.

What are some common financial questions people ask about death?

There is a myth that people think everything is going to be taxed upon death, but that is untrue. Life insurance is not taxed and 401K’s and IRA’s will not be taxed in the way you think. When passing wealth to your heirs think about whether they are ready to be heirs. You can set up a testamentary trust and create rules around the trust to prepare your heirs for receiving an inheritance. You want to make sure to have an estate plan. The default estate plan will certainly not be what you actually want. Remember, you won’t be around to clarify your wishes so make sure you clearly state your intentions.

Outline of This Episode

  • [2:47] Ensure that your loved ones are prepared to understand your financial life
  • [7:17] What kind of income tax return will you need?
  • [18:28] The estate income tax return
  • [21:48] How to handle the 709
  • [26:58] What are the common questions people ask?

Resources & People Mentioned

Connect with Grayson Blazek

Connect with Cameron Hendricks

Connect With Chad and Mike

Subscribe To This Podcast

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Jun 3, 2019

You may have seen more news stories mentioning Opportunity Zones of late, but there are still plenty of questions surrounding this part of the latest tax reform. Today we're discussing the ins and outs of investing in Opportunity Zones to help you understand how, in the right circumstances, they could help you save thousands on your taxes. We’ll discuss what opportunity zones are, why they were created, what the tax benefits are and how to spot the risks involved when investing in opportunity zones.

What are opportunity zones under the new tax law?

The new tax law was created to spur economic investment in low-income areas throughout the U.S. by providing individual investors with tax incentives for investing in impoverished communities. The low-income areas are called opportunity zones and are identified by governors of each state. Although it was rolled out in 2017 it wasn’t until recently that the IRS updated investors on how the program is actually going to work. This program is geared toward long-term private investors with a high net worth. There are 3 benefits to the tax side of this law: tax deferral, tax reduction, and tax elimination for an investment held for more than 10 years. The primary purpose of the reform is to help economically distressed communities and in turn, it can help you save thousands in taxes. Find out how by listening to this episode of Financial Symmetry.

What are the benefits of the new tax reform law?

Under the new tax reform law, you can defer capital gain tax from the sale of real estate, a business, or stock. You can also reduce your taxes on something you recently sold and even completely eliminate taxes by reinvesting.

Here’s an example:

You sell something and earn a million in capital gain. Normally you would pay $240,000 in taxes on that capital gain. Now with the opportunity zones if you reinvest your capital gains into a qualified opportunity zone fund within 180 days you get to defer the capital gain tax on the million dollar sale. So instead of paying those $240,000 in taxes in 2019, you won’t have to pay that until 2026. Then in 2026 if you continue to hold that investment in the opportunity zone then you only pay tax on $850,000 of the million dollar original capital gain. So you’ll save about $36,000 there. But the biggest benefit overall for the program is that if you put that money into a new investment for 10 years or more you’ll pay no capital gains tax on the original investment.

What can you do to do to take advantage of the new tax reform?

To invest in opportunity zones and save on capital gains taxes you can invest in a qualified opportunity fund. A qualified opportunity fund is a corporation or partnership that is created for the purpose of investing in qualified opportunity zone property and holds at least 90% of its assets in qualified opportunity zones. The typical investment options are real estate, such as multi-unit apartment buildings, or a business located in a qualified opportunity zone.

You have to spend 100% of the purchase price in the first 30 months. So if you purchase a property for $800,000 then you have to spend another $800,000 within 30 months. The idea is that you are substantially improving the property for the amount that it is valued at. If you buy a business the same rules apply. You have to improve it somehow for that purchase amount. Remember, this is not an investment in the stock market, there is a higher degree of research involved.

What are the different risks involved?

There are different risks involved in taking advantage of the new tax reform law. As with all investing situations, attention to detail is key. Here are some of the risks with this type of investment.

  • What happens if there is a political change? If Congress changes its course over the next few years they could overturn this law.
  • You are invested in a limited partnership so you have to pay fees to the managers of the funds. They may charge 2% or you may pay a percentage of the profit. The fees involved may eliminate the tax benefits completely.
  • The money isn’t liquid. You have to hold it in the investment for at least 10 years and you won’t receive the benefits if you pull out early.
  • You’ll have to be an accredited investor.
  • You must not only buy but improve the property.
  • The 180-day rule may spur some people to rush into an investment rather than do their research into the options.

Many people don’t take advantage of things because they don’t know about it. We’re here to give you ideas and strategies that you may not be aware of. The overall goal of the new tax law is a great cause but the investment options are still pretty new. This was just an overview of rules and regulations, so do your own research. Don’t let taxes decide your investment decisions. Remember a bad investment is still a bad investment no matter what the tax benefits are.

Outline of This Episode

  • [4:07] How should the tax strategy be implemented
  • [9:19] What do you need to do to take advantage of the new tax reform?
  • [12:03] There are 3 benefits to the tax side
  • [13:45] What are the risks involved?
  • [20:27] What are other alternatives for capital gains?

Connect With Chad and Mike

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May 20, 2019

Rolling over your 401K is a complicated process so we brought in a few experts that have helped our clients rollover hundreds of 401K’s. Understanding the unexpected roadblocks surrounding a 401K rollover is a vital step in making the best decisions with your money. So listen to this episode to hear steps of how to properly rollover a 401K quickly and efficiently.

How to rollover a 401K?

Maybe you just left a job or maybe you need an in-service rollover but you are at the point that you need to rollover your 401K. So how do you do it? Unfortunately, there isn’t only one way. It depends on the type of account you have and where you want the money to go. If you have a brokerage account linked to your 401K it will make the task a bit easier. Brokerage links give you the opportunity to invest in funds at a lower cost. If you have just quit or left your job you need to ensure that all of your contributions and your employer contributions have settled before you move your 401K or you will have to redo the process again once it does settle.

How do you tackle the 401K rollover paperwork?

401K rollover paperwork can be quite daunting. Nowadays there are many forms that you can fill out online, but there are still actual papers that must be completed in person. The paperwork can be a bit confusing and overwhelming, but it is important to fill everything out correctly. Even if you mis-check just one box they won’t process your rollover and you’ll have to start the process all over again. Oftentimes you may need your spouse to sign, a notary to sign, and you’ll also need your plan administrator to sign. Sometimes finding the plan administrator can be tricky. If you know the right people to call the paperwork really doesn’t take much time. It can take a few days or even a few weeks to complete the paperwork. If you feel daunted by all the paperwork you might want to consider hiring a professional to help you out.

What are some problems that can arise with a 401K rollover?

It's important to reduce your risk of being out of the market. You want to ensure that your money is out of the market for as little time as possible. Pay careful attention to the timing and ensure that you have all your ducks in a row first. This means that you need to have the accounts where the money is going set up beforehand. If you have a brokerage link you can reduce the time out of the market. You’ll also want to double check where your allocations are in case you need to change those settings. There are many steps involved in moving your 401K and you may have to contact different service representatives to get all of your questions answered.

How can you reduce your risk?

Having your money pulled out of the market for any amount of time can be costly. If there is a way to expedite getting your check you’ll want to do it. Think about it, if you have your money out of the market and it goes up a few points you’ll be losing out trying to get it all back in. Getting the money back in as quickly as possible is important. Having a brokerage account linked to your 401K can give you the opportunity to invest in funds at a lower cost. Listen to the experts, Heather and Angela, to help you understand how to rollover a 401K to make your transition run as smoothly as possible.

Outline of This Episode

  • [1:27] How do I rollover my 401K is one of the most frequent questions
  • [6:16] How do you tackle the paperwork?
  • [7:24] How much time does it take?
  • [11:03] What are some problems that can arise?
  • [17:05] Where does the money go?
  • [27:07] What can go wrong?

Resources & People Mentioned

Connect with Heather Gudac and Angela Keeley-White

Connect With Chad and Mike

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May 6, 2019

What does your financial future look like? Do you feel it is secure and well planned out or are you just winging it? Winging it is a great idea for a Sunday afternoon drive or deciding to what to eat for dinner, but winging your financial future is a dangerous decision that will put your future stability at stake. Learn why people decide to wing it and what you should be doing instead, on this episode of the Financial Symmetry show.

Short video recap here: https://www.youtube.com/watch?v=UCFFhFpRpVc

What are the numbers and why are people winging their financial future?

We love numbers on this show. They help to illustrate the point we are trying to make and sometimes they are truly shocking.

  • 75% of Americans are winging it when it comes to their financial future
  • Less than half of Americans cannot cover a $1000 emergency
  • Most people feel they make about $1200 worth of financial mistakes per year
  • 4 out of 10 Americans simply guess how much they will need to retire.

Why do people do this to themselves? Why do they choose to leave their financial future up to chance? I think there are 3 main reasons.

  1. They don’t want to pay for professional advice.
  2. They can’t afford professional advice (or think they can’t afford it).
  3. They think they can handle the work themselves

Are you letting overconfidence power your financial decision making?

Are you overconfident about your ability to handle your finances? 57% of adults feel more confident today than they felt 3 years ago about their finances. Do you feel a bit overconfident due to the recent success of the financial markets? Overconfidence is a villain when it comes to good decision making. Usually the more intelligent you are the more overconfident you are. Mark Twain had a powerful quote that sums up overconfidence well, “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.” A great way to ensure that you aren’t being too overconfident in your financial decisions is to hire a financial advisor. Having an objective 3rd party view of things can really help you keep things in perspective.

Is your confirmation bias affecting your financial future?

The internet is starting to play a major role in creating greater confirmation bias. People tend to follow their own views and they will seek out news that confirms what they already think about something. If someone has a negative worldview and they read an article about how the market will be crashing they will nod their heads and think, yes this is the truth. To combat confirmation bias think of the acronym WRAP from the book Decisive by Chip and Dan Heath.

  • Widen your options
  • Reality test your assumptions
  • Attain distance before deciding
  • Prepare to be wrong

Recency bias can affect your thinking about the future

People think they know more than they do about how the future will unfold. More often than not, the future will surprise us. Our conclusions about the future are often based on our emotions. They can also be affected by recency bias. Recency bias is a bias based on the fact that people tend to think that what happened to them recently will happen to them in the future. This can be seen frequently with finances for instance, if you have received a big bonus, or especially when it comes to stocks. Are you allowing recency bias to affect your financial future?

Outline of This Episode

  • [5:27] Overconfidence can spoil your financial decisions
  • [11:15] Are you allowing confirmation bias to affect your financial future?
  • [13:46] Recency bias affects many financial decisions

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

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Apr 22, 2019

Financial advice has long been a male dominated industry.  Women represent 51% of the US population, but only 23% of CFP® professionals are women and this percentage has stagnated over the past decade.  Why is there a feminine famine in financial planning?  Today we’ve invited Allison Berger and Grace Kvantas back on the show to discuss the 6 main challenges that prevent women from becoming financial advisors. As we shed light on these topics, we share ways we are fighting against these stigmas.  We also celebrate Grace as the latest partner of Financial Symmetry. Listen to this episode to hear why there aren’t many women in financial planning but also why that should change.

See show notes here: https://wp.me/p6NrVS-3ar

Why did Grace become a financial advisor?

Grace is a rarity among women in the field.  She knew that she wanted to become a financial advisor at the age of 15.  Her dad was a CFP® and it was at that young age that she realized that she was taught money lessons at home that many others never received.  She wanted to help others learn what her dad had taught her. In college, she learned so much more about finance, but she still didn’t understand the depth of what one learns as a CFP®.  It was only on the job that she began to understand all that a financial advisor really does.  Listen to this episode to hear about Grace’s journey to becoming a CFP®.

What does it take to become a CFP®?

Many people don’t know the difference between a financial advisor and a CFP®.  The CFP® designation is the standard of excellence in financial planning.  Becoming a CFP® takes a bit of work. You must have a bachelor’s degree and take the coursework first prior to taking the CFP exam. Candidates also need to have 3 years of qualifying experience or 2 years working directly with CFP professionals. After obtaining the CFP designation, Certified Financial Planners must maintain continuing education.

Why is financial planning a great field for women?

Now is a fantastic time to become a financial advisor. The average age of financial planners is over 50 and ⅓ of advisors are projected to retire within the next 10 years.  Women are uniquely positioned to excel as financial advisors in the years ahead.  Listen to this episode to hear why 72% of women who pursue the CFP® designation report high levels of career satisfaction.

Why aren’t more women in financial planning?

We walk through the CFP Board whitepaper detailing recommendations to increase the number of women CFP® professionals and the reasons women are not pursuing this career path.

  1. You can’t be what you can’t see.  Financial planning is not top of mind as a career path for many women. Grace and Allison discuss their efforts to increase awareness and encourage others to consider financial planning.
  2. There are misperceptions about the work.  Most think that this career path is very math heavy. Make no mistake, the CFP® exam and coursework require math skills and you will use math every day in this field.  However, math is only one tool in the process toward helping clients reach their goals.  Successful financial advisors also require the ability to build relationships and counsel clients as life changes.
  3. Women’s own behaviors may be holding them back. This phenomenon was detailed in Sheryl Sandberg’s book “Lean In,” which we discussed in Episode 73.  Women may not feel as comfortable taking the career risk this industry may require.  This is a multi-faceted issue but learning more about the inner workings of the career can help break down these barriers.
  4. Gender discrimination and bias exist in the field.  Unfortunately, there are still biases and many women don’t feel welcome in the industry.  Both Allison and Grace are sometimes asked if they are someone’s wife or secretary.  The good old boys’ network is still alive and well in financial planning, but this is changing, and it is easier than ever to connect with other women on this journey.
  5. Work/Life Balance is not an issue.  When asked to respond to the statement, “Financial planning offers good work/life balance,” only nine percent of Men and 10 percent of women disagreed.  Contrary to popular belief, work-life balance is no longer a predominantly women’s issue.
  6. There are not enough female role models. Grace and Allison are working to change that.  Listen to this episode to find out where to turn for helpful advice and encouragement.

Resources & People Mentioned

  • WIN CFP - The CFP Board’s women’s initiative

Connect with Grace Kvantas and Allison Berger

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Apr 8, 2019

You've just sold your business. Or maybe you received an inheritance. Making decisions on how to handle the lump sum proceeds can be paralyzing. We all have that fear of making a mistake with the money and when the stakes are high, the fear is heightened. You might be wondering how wise it is to invest a big chunk of money with the markets near all time highs. When dealing with a lump sum, there is more to consider than just investment decisions. Listen to this episode to hear about the things you may not have thought about when considering your lump sum investment options.

You have 3 options when you come into a large sum of money

You may have received an inheritance, sold a business, or received stock options or restricted stock. However you received the money, there are really only three things you can do with it. You can spend it, pay down debt, or invest it. In fact, spending a portion of your newfound wealth to treat yourself is a good first step. Then take a step back and analyze your new financial picture. How have your goals changed? Is retirement now just around the corner? How will you need to invest to accomplish your new objectives? Many people are quick to want to pay off all debt. But first analyze the kind of debt you have before rushing to pay it all off. Paying off credit card debt is generally a good idea, but you might want to rethink paying off your mortgage. Before you make any decisions on what to do with the money you should take some time and consider all of your options carefully.

Analyze the tax implications

When receiving a lump sum of money, it is important to estimate the tax burden that comes with it. You don’t want to spend all of the money and then discover that you owe a large amount in taxes. No one likes to pay penalties so it is important to do some tax planning first. Take a comprehensive view of your tax strategies with a professional to help you consider all the options. There are many strategies you can consider to help ease the tax burden. A donor-advised fund is a great choice for the charitably inclined. Are their retirement accounts (SEP-IRA, 401k, Roth IRA, HSA's)  you haven't been maxing prior to the lump sum? Could front-loading a 529 account be right for you? What's your plan for health insurance and how will the premium tax credit affect you? You also want to consider the timing to ensure that your strategies are used in the same calendar year that you receive the lump sum.

What are some lump sum investment options?

We would all love to have a crystal ball to tell us the perfect time and place to invest our money. Instead, we ask questions like, should you invest it all at once? Should you invest in small increments over time? Or do what too many people do, and don’t do anything. Vanguard had an article which analyzed these lump sum investment options from a historical perspective. It turned out that about two-thirds of the time it was better to invest all at once. But, if you were prone to sell if experiencing a big loss in first few months, then investing over the next year may be best. Bottom line was that if you wait too long, you could end up regretting it. We all have that fear of making a mistake, but that fear of missing out in a rising market compounds the difficulty of long-term decision making. Understand that your decisions won’t be perfect but at the end of the day, it's all about the big picture. Think about your investment strategy. What assets make the most sense for your goals? Implementing a customized strategy for your specific desires will give you the comfort of being able to sleep at night, knowing you have a plan in place.

Outline of This Episode

  • [3:27] What are your options if you come into a large sum of money?
  • [7:53] Analyze the tax implications
  • [10:55] How to invest the lump sum
  • [16:08] Update your estate documents
  • [20:05] What is your cash flow?

Resources & People Mentioned

Connect With Chad and Mike

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Mar 25, 2019

Have you checked out the new federal tax forms? You probably don’t want to wait until the last minute to prepare your taxes this year. With the new tax code here you’ll want to give yourself plenty of time to get familiar with the new federal tax forms. But before you get started you need to arm yourself with as much information as you can about the new tax code. That’s why today we brought our very own tax extraordinaire, Grayson Blazek to share his extensive knowledge of the new federal tax forms. Listen to this episode as Grayson helps us understand what the new tax forms look like, what’s changed, how to save and be more efficient on taxes, and what planning opportunities there are to prepare for next year.

What’s different on the new federal tax forms?

Well, that time of year is here again, everyone’s favorite season: tax season! You may have heard that there are many new changes this year to the 1040. The idea behind the new federal tax form is to simplify the tax filing process. The new 1040 is touted as a postcard, while not exactly postcard sized, it is down from 79 lines to 23. Although there are only 23 lines on the new tax form there are several addendums which utilize a building block approach. There might be a touch of confusion for the first few years, but the new tax forms should be pretty easy to get used to. Listen as Grayson explains the new federal tax forms and takes us on a tour of the new 1040.

Here is the lowdown on the new schedules 1-6

  • Schedule 1 is similar to lines 10-36 of the old 1040. It is used to report extra income items like rental income and real estate and other above the line deductions.
  • Schedule 2 generally covers the old lines 45-47. It is used for the alternative minimum tax. You may not even see this one since most people won’t come across it.
  • Schedule 3 replaces lines 48-55 on the previous tax form. Schedule 3 covers child tax credits and dependent care credits.
  • Schedule 4 is a replacement for lines 57-63 and covers self-employment.
  • Schedule 5 is used for estimated tax payments and amounts paid with extensions
  • Schedule 6 is the 3rd party designee.

Besides the new federal tax forms, what else has changed?

Obviously, the changes in the tax code are not only in the format. There are several other changes made as well. They eliminated personal exemptions which were $4500 per taxpayer on the 2017 return as well as dependents. The child tax credit used to be $1000 per child but has been increased to $2000 per child. The income threshold has been increased. There has also been a substantial change to standard and itemized deductions. And it is estimated that the number of people that will itemize their deductions will lower from 20% to 5%. Although there are fewer deductions your overall tax burden may be similar. Listen to this episode to hear what else has changed with the new tax code.

What are the planning opportunities?

When preparing your taxes each year you have the opportunity to reflect on what you could have done to decrease your overall tax burden and what you can do in the future to ease your tax burden. Consider whether you should be taking advantage of your retirement savings accounts or health savings accounts. You can also think about your deductions and how efficiently you can space your charitable deductions. Decide whether you could donate every other year to get past the new threshold for itemized deductions. A donor-advised fund is a great tool to use when planning for your taxes. There are many other planning opportunities to consider so listen in to discover how you can begin planning next year’s taxes.

Outline of This Episode

  • [1:47] A tour of the new 1040
  • [7:01] Besides the form what else has changed?
  • [9:31] Changes to the schedule A were the main overhaul
  • [14:26] How has the overall tax rate changed?
  • [18:17] What are the planning opportunities?
  • [27:20] What has changed with the qualified business income deduction?

Connect with Grayson Blazek

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Mar 11, 2019

It wasn't that long ago that the most popular television show in America was named "Who wants to be a Millionaire?" Before that, in the 1980s, we were enamored with "Lifestyles of the Rich and Famous." There's something about the idea of becoming a Millionaire that fascinates us. But what is it about the wealthy that sets them apart from the rest of the population? How are their choices different from the average investor? If you've ever read Thomas J. Stanley’s The Millionaire Next Door, you might have a bit of an idea. We recently read The Next Millionaire Next Door by Dr. Stanley's daughter, Dr. Sarah Stanley Fallow, to learn about new insights into the minds of the next generation of millionaires. If you're curious about the strategies, discipline, and characteristics of millionaires and how they may have changed over the past 20 years, you'll want to listen to this episode.

See the full show notes here: https://wp.me/p6NrVS-39r

What does today’s millionaire look like?

It may be surprising to find out that wealthy people are just like you and me. Most millionaires that were surveyed drive practical cars like Toyotas, Hondas, and Fords that are about 3 years old. Remember millionaire is a term that describes wealth, not income. Your income is what you have today, and wealth is what you have tomorrow. In the U.S. in 2018 there were 11 million households with a net wealth greater than a million dollars. The book separated the wealthy into 3 groups, under accumulators of wealth (UAW’s), average accumulators of wealth (AAW’s), and prodigious accumulators of wealth (PAW’s).

What Are the Most Common Characteristics of the Wealthy?

There are 5 important characteristics of the wealthy.

  1. Wealthy people are well-disciplined.
  2. Millionaires are resilient and can persevere.
  3. Rich people are honest with others.
  4. Millionaires understand how to get along with others and work well with others.
  5. 90% surveyed were married and had a supportive spouse. (Divorce decreases wealth by 70%!)

Do you have these characteristics of rich people?

What are some success factors that lead to wealth?

There were many interesting findings of the characteristics of millionaires in the book. Not surprisingly, education was critical to the success of most millionaires. 93% of those surveyed had a college degree and 60% had a graduate degree. What may be surprising to some, is that attending a private school or even a top-rated school was not important. The ability to focus is a key factor in the success of the wealthy. Another important characteristic mentioned, is the ability to track spending. The vast majority understand where their money goes.

These are the least important success factors of the wealthy.

  1. Attending private school
  2. Attending a top-rated college
  3. Graduating at the top of the class
  4. Undertaking an internship in college

How do millionaires spend their time?

It sounds like wealthy people spend their time just as carefully as they spend their money. Wealthy people work more than the average American. They work about 38 hours a week on average, whereas the rest of Americans average 32 hours a week. Millionaires read more too. Books build a framework of knowledge for you to look back upon and analyze. Wealthy spend much less time on social media than the average Joe. They average only 2 hours a week and other Americans average 14 hours a week. Rich people also exercise more and spend more time caring for their family. How do you compare to the millionaires around you?

Outline of This Episode

  • [6:07] What are the different groups of millionaires?
  • [6:29]What are some characteristics of the wealthy?
  • [14:08] What are some success factors that lead to wealth?
  • [18:52] How do millionaires spend their time?
  • [22:06] Where is rich people's money invested?
  • [26:08] What is Chad’s takeaway from the book?

Resources & People Mentioned

Connect With Chad and Mike

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Feb 25, 2019

Money and relationships don’t always go hand in hand. Making you wonder if you and your partner are speaking the same financial language. If money is causing stress in your relationship, you are not alone. 31% of couples say that the biggest cause of stress in their relationship is money. We want to help you communicate better with your partner about money. On this episode, Allison Berger joins us to discuss four common financial disagreements in couples. Listen in to learn how to better your relationship with your partner and with money.

You spent how much on that?

Does one person in your relationship spend more than the other? Oftentimes one partner feels that the other spends too much. This is so common since opposites attract in relationships. Our partners help to balance us out. So what can you do if you feel that your partner spends too much? Communication is key. It is important to be on the same team and make sure that you have the same financial goals. You can create a financial plan to keep you in check and keep you both on the same page. This way you can see if you are meeting your financial goals. Having a financial advisor can also be a great way to get a 3rd party’s view on the situation. The advisor can help take an objective opinion when there are arguments about spending that arise.

Saving and investing takes coordination

One spouse generally enjoys security more than the other and the other prefers to spend more money. When you have a financial plan in place, you can coordinate how best to save and invest for your specific objectives. Paying yourself first is a great first step. Automating your savings makes life so much easier. One way to easily increase your savings is by doing so when your income goes up. You can simply increase your 401K contribution whenever you get a raise. Another way to save more is to look for opportunities to increase your savings. If you pay off a car you can use the money you used to pay each month for savings instead.

Deciding on how much risk to take with Investments

The most common question we hear centers around people wondering if they will have enough? To best answer this question, the amount of risk in your strategy will play a tremendous role. Everyone has a different risk tolerance when it comes to investing. Sometimes one partner prefers to take risky investments and the other prefers to play it safe. Once again communication is key to understanding how your partner feels about investing. First, you should think about what your financial goals are as a couple. Open communication and education can help you understand each other’s feelings about risk tolerance. Learning about investments can also help you feel more comfortable about investing.

Differing philosophies on debt

Debt can be an unnerving issue for some causing some to lose sleep at night. Understanding your feelings on debt as well as your partner’s feelings can help defuse arguments before they even pop up. People have different feelings about money based on past experiences. Often our concerns about money manifest in childhood. Learning both why you and your partner feel the way you do about money can help you better communicate your needs and come up with a financial plan that you can both agree upon.

Outline of This Episode

  • [1:27] The biggest cause of arguments in relationships is money
  • [3:22] What are the biggest disagreements with couples related to money?
  • [6:12] Does one person in the relationship think the other is too spendy?
  • [12:14] How much to save and invest and how much to spend?
  • [17:33] What is the best practice on the difference in risk in investment strategy?
  • [21:18] There can be a lot of emotions around debt

Resources & People Mentioned

Connect With Chad and Mike

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Feb 11, 2019

Our listeners and clients often ask: Is now a good time to invest? Or what should I invest in? We give feedback on both these questions in our 2019 Investment Outlook episode. Be sure to check out the show notes for this episode in particular as we provide detailed charts to help demonstrate our discussion. If you are curious as to whether now is the time to jump into the stock market, what role bonds play in your portfolio, or what the experts say about the future of the markets then you'll want to listen to this episode.

2008 Review

After logging strong returns in 2017, global equity markets delivered negative returns in US dollar terms in 2018.  Common news stories in 2018 included reports on global economic growth, corporate earnings, record low unemployment in the US, the implementation of Brexit, US trade wars, and a flattening US Treasury yield curve. 

Many are still wondering why should we invest overseas given returns in the US have been so strong?  Investors should remember that non-US stocks help provide valuable diversification benefits, and that recent performance is not a reliable indicator of future returns.  It is worth noting that if we look at the past 20 years going back to 1999, US equity markets have only outperformed in 10 of those years—the same expected by chance. We can examine the potential opportunity cost associated with failing to diversify globally by reflecting on the period in global markets from 2000­-2009, commonly known as the “lost decade” among US investors. While the S&P 500 recorded its worst ever 10-year cumulative total return of –9.1%, the MSCI World ex USA Index returned 17.5%, and the MSCI Emerging Markets Index returned 154.3%. In periods such as this, investors were rewarded for holding a globally diversified portfolio.

Stocks

Are there risks today to invest in the stock market?  Yes.  Have their been risks in the past?  Yes.  Through all these risks the global stock market has gone from $1 to $59 from 1970 to 2017

History has found certain periods have resulted in higher returns than others.  Part of this can be explained by starting valuation.  Valuation is one of the best indicators of long-term returns (i.e. 10 years), but it is a horrible short-term timing strategy.  One popular valuation metric we’ve discussed in the past is the cyclically-adjusted price-to-earnings (CAPE) ratio.  Instead of dividing price by the past 12 months of earnings, the CAPE ratio divides price by the average inflation-adjusted earnings of the past ten years.  The idea is to smooth out the good and bad years created by the business cycle.

Is the CAPE Ratio a good predictor of future returns?  According to a study by Research Affiliates titled CAPE Fear:  Why CAPE Naysayers are Wrong, starting CAPE Ratio has between a 48% to 91% correlation to future 10-year returns across 12 countries.  So yes, starting valuations do matter over the subsequent 10-year period.

In addition, below Exhibit 4 is the average future 10-year real return based on starting US CAPE Ratio. As of December 31, 2018, below are the current CAPE ratios of the major equity markets:

  • US Stock Market = 29
  • MSCI EAFE (int’l developed) = 15.5
  • MSCI Emerging = 12.5

Source:  https://interactive.researchaffiliates.com/asset-allocation#!/?currency=USD&expanded=tertiary&group=core&model=ER&models=ER&scale=LINEAR&terms=REAL&tertiary=shiller-pe-cape-ratio-box&type=Equities

As noted in our recent blog, Crystal Balls and CAPE, when one market (US or foreign) was trading at a material premium (such as today), the other market stock market outperformed over the subsequent 10-year period.

What is the purpose of bonds in your portfolio?

Our belief is that high quality bonds in your portfolio provide the following benefits:

  • Balance – diversification from equities
  • Safety – capital preservation
  • Income – interest payments

Bond returns are largely driven by the term and credit quality of a bond.  Long-term bonds experience bigger price movements for a given change in interest rates.  Investor are expected to be compensated for taking that extra risk as a result.  The same can be said for lower credit quality bonds such as high yield bonds.  As the current time the spreads – the gap between the yield on credit and Treasuries – have remained narrow by historical standards.  For bond investors, that means the compensation for taking on credit risk is relatively low, and the upside from here could be quite limited.

Future returns of bonds are highly correlated to the starting yield. Therefore, as of 12/31/2018 the yield on the Barclays U.S. Aggregate Index was approximately 3.28% which is depicted in the exhibit below.  Therefore, over the next 7-10 years investors can expect returns similar to starting yield levels. Overall, bond yields have increased over the last couple years, but remain low compared to historical levels.

How about Cash?

The Federal Reserve raised rates four times in 2018 and nine total adjustments over the past four years.  The benchmark interest rate is in a range of 2.25% to 2.5%.  The benefit of this is many investors have seen higher returns from their bank accounts but borrowing costs have also increased.  What will the Federal Reserve do next?  I have no idea, but below are the current market/Fed expectations as of December 31, 2018.  You’ll notice the Federal Reserve and market is not expecting material rate increases from this point forward.

Summary 

To summarize, with low returns expected for US stocks and bonds many investors allocated primarily to US stocks will be disappointed with returns over the next ten years.  As a result, individuals may need to either work longer or spend less than expected to reach their financial goals.

For current savers a market decline should be viewed positively as it allows them to buy stocks at cheaper prices.  For existing or soon-to-be-retirees it is important to understand your risk capacity and risk tolerance and adjust your asset allocation accordingly.  You’ll need equity for long-term growth, but it is important to have high-quality bonds for current spending.

What can you do about potential lower returns?  First, focus on what you can control (spending, taxes, estate planning, etc.) and your long-term financial plan.  If you don’t have a financial plan in place, it’s the perfect time to contact a fee-only financial planner such as Financial Symmetry.  Second, implement a long-term, disciplined investment strategy.  And no, buying the mutual fund/ETF/stock that has done the best over the last three years is not a strategy.  If you don’t have a disciplined strategy or want to learn more about our process click here to download our white paper.

Outline of This Episode

  • [1:37] Is now a good time to invest in the stock market?
  • [4:41] How do you evaluate when the best time to invest is?
  • [12:22] What is the purpose of bonds in your portfolio?
  • [16:53] What is the role of cash in a portfolio?
  • [18:20] What do the experts say?
  • [20:35] How do you prepare for lower returns?

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast


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Feb 1, 2019

What are the habits of successful investors? You may think that there are big differences between successful and unsuccessful investors. In the book Atomic Habits, by James Clear, he identifies the small habits that lead to success in life, these habits apply to investors just like anyone else. We all have intentions of doing the right thing, but there is a big gap between intention and action. Only about half of our intentions turn into actions. Join us on this episode to find out what sets successful investors apart from the rest of us.

See the Full Show Notes Here: 

https://www.financialsymmetry.com/6-habits-of-successful-investors-ep-77/

Small Habits Make a Lifetime of Difference

  1. Successful investors bridge the knowledge and action gap. They understand delayed gratification. Successful investors realize that small changes compound over time. The difference between success and failure is that the cost of good habits is in the present and the cost of bad ones is in the future. If you can delay your gratification to the future it will benefit you greatly down the road. This is true for exercise, eating well, saving, and investing.Successful investors don’t let emotions derail their strategy. In fact, successful investors find a way to deal with the boredom when most people don’t because the greatest threat to success is not failure, but boredom.
  2. Successful investors minimize the valleys of disappointment. These are the times when you don’t feel like you’re going anywhere. It’s a hallmark of any compounding process: the most powerful outcomes are delayed. Most people know that delaying gratification is the wise approach and all of us want the benefits of good habits, but those benefits are seldom top-of-mind at the decisive moment. For successful investors, that’s not the case.
  3. Successful investors possess the ability to implement their intentions. When one says they are going to do something, it’s not a general idea. The successful investor creates a specific plan with an actionable timeframe.
  4. Successful investors know how to track their habits. We all know that life is a balancing act. It is hard enough to balance work and family life. If you throw in exercise and fun then investing can quickly take a backseat. Tracking your habits can allow you to recover quicker after a time of difficulty. A good investor can compare their investing with planting a tree. You don’t go out and check on your tree daily to look for growth. Simply set up a system for care and watch it grow over time.
  5. Successful investors practice self-control. Self-control can be challenging in times of uncertainty. Luckily there are plenty of ways to automate investing. Hiring a professional is another way to help you practice self-control. You don’t have to try and be an expert at everything, put your investments on autopilot or ask for help.
  6. Successful investors refine and reflect on their strategy. Small changes can greatly improve your success at investing. When you make small changes it makes you more aware of your mistakes and opens paths to improvement. Small improvements now can lead to major improvements in the future.

Are you ready to implement these habits for success?

Making small changes can really make the difference in your life. When you bridge the gap between your intentions and actions you begin to change your habits and start on a path to success. Implementing these strategies can help to make you a better investor and they can be applied to many other areas of your life as well. Listen to this episode of Financial Symmetry to hear how you can create successful habits as an investor and these can bleed over to other areas of your life.

Outline of This Episode

  • [1:27] Half of all intentions actually turn into action
  • [5:45] Understand delayed gratification
  • [7:18] Minimize the valleys of disappointment
  • [11:00] Implement intentions
  • [13:14] Habit tracking
  • [15:20] Controlling your self-control
  • [19:11] Refine and reflect
  • [21:57] A recap of the 6 habits

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

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