Will the 2020 Election Sink Your Stocks?

It’s common knowledge that it’s best to leave politics out of dinner conversations, especially when sharp knives are involved. You’d also be wise to leave your political biases out of your investment decisions.

Many Republicans believe that the stock market is better off when a Republican is in office. Vice versa, most Democrats will tell you that they feel better about the economy and their investments with a Democrat in charge. Political biases are just one more thing that can cloud your judgment when it comes to investing.

Neither Party Is Better for the Stock Market

Looking at the table below of total returns for the S&P 500 during presidencies since 1929, it’s clear that U.S. stock returns have been much better when a Democrat was the president; however, it would be a mistake to conclude that stock returns were higher because a Democrat held the presidency.1




After you remove outliers such as the Great Depression and the Great Recession, there isn’t great evidence that a president from either party is particularly better for stocks.

Intuitively this makes sense because stock returns are influenced by many factors, such as stock prices, corporate profits, business cycles, monetary policy, consumer confidence, inflation, employment and so on. In addition, the increasingly global economy (the S&P 500 generates more than 50% of revenues outside the U.S.) makes the actions of a single government less important. Lastly, the relationship between cause and effect as it relates to the stock market is often difficult to equate. This is why even the greatest investors of all time say it’s impossible to predict the stock market.

Stay in the Market, Even When Your Party Isn’t in Charge

Since 1896, if you were to invest $10,000 into the S&P 500, you would have now accumulated over $6,000,000. If you were to only invest when your chosen party (whether Democrat or Republican) had the reins, the result would be less than $1,000,000.2 This data reminds us that it’s time in the markets, not market timing, that matters most. Over the years, dividends pour in at about 2% a year. That money is reinvested automatically. Likewise, earnings growth is pretty steady over the long run, about 5%. This translates into steady appreciation across the whole market. Time in the market works because it forces you to ignore your fluctuating emotions.

Our Government Has Been Dysfunctional Before

Actually, our country’s political system has been challenged throughout history. As Winston Churchill once said, “Americans always do the right thing, but only after exhausting all other options.”

Our nation’s history has been littered with political turmoil. On July 11, 1804, a sitting vice president, Aaron Burr, shot and killed a former Secretary of the Treasury, Alexander Hamilton. Today political attack ads get pretty intense, but none end with duels on the White House lawn.

Four years earlier, President John Adams and Vice President Thomas Jefferson—the two highest elected officials in the land and founding fathers of our country—squared off in a race for the White House with posters that included words like: “If you elect Thomas Jefferson, murder, robbery and rape will be practiced throughout the land” and “John Adams is busy importing mistresses from Europe.”

We must also not forget the assassinations of John F. Kennedy and Abraham Lincoln, or the impeachment of Richard Nixon as dramatic tests to our government during calamitous times.

Election Years and Those Following Lead to Primarily Positive Returns

Since 1928, the average stock market return in the year prior to an election has been 9.9%. In fact, out of 23 elections, there were nine negative years during the elections of Ronald Reagan, Jimmy Carter, George W. Bush, Nixon, Barack Obama, Dwight D. Eisenhower, and Franklin D. Roosevelt.3 Despite the uncertainty and concerns about election outcomes, the stock market has proven pretty resilient.

The average return during an election year is 11.3%.2 Only four out of 23 election cycles had the first presidential year of the term run negative. There does seem to be some level of optimism that corresponds with a new president at the helm. Based on the data, when new leaders take over, the rate is 83% positive compared to the typical stock market pattern of 75% positive.

The Stock Market Likes Divided Government

Are the markets happier when the politicians are cooperating and getting more done? Not necessarily. Gridlock seems to be surprisingly good for Wall Street (and the hosts of our favorite news shows). The average Dow Jones return during periods of divided government has been 7%, while returns during a unified government have been closer to 5%. In short, the markets prefer stability with fewer changes in laws and policies; and this sort of stability usually occurs when Congress members and the President are at odds with each other.

No matter your political preference, making investment decisions just because you favor one party or hate another can be destructive to your wealth—especially with no significant data to back it up. As with smart dinner conversation, do yourself a favor and avoid mixing politics with your investing and you will likely see better outcomes over time.

1.       Lazaroff, Peter. (July 26, 2016.) “Democrats Vs. Republicans: Who Is Better For The Stock Market?” Forbes. Retrieved from https://www.forbes.com/sites/peterlazaroff/2016/07/26/democrats-vs-republicans-who-is-better-for-the-stock-market/#1efa6161239d.

2.       Oppenheimer. (November 2018). “Compelling Wealth Management Conversations.” Pages 74 and 75 and Retrieved from https://cdn2.hubspot.net/hubfs/3994374/Oranj_November2018/PDF/Compelling_Wealth_Management_Conversations.pdf

Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Investing involves risks. 

Wealthrise Financial Planning is an investment advisor registered with FINRA. This material is provided for informational and educational purposes only. It should not be considered investment advice or an offer to buy or sell securities.

Should You Give Money to Your Adult Children?

All parents want their children to grow up to be successful, happy adults who experience prosperity—a safe home, nice vacations and new things from time to time. It’s simply how we’re wired as humans.

As a parent, you may even feel it’s in your job description to help your progeny achieve this. From the moment your baby cries out for the first time, you’re driven to offer assistance for every possible challenge that springs up. Yet sometimes this parental “assistance” backfires and achieves the opposite effect.  

After a decade of reading about money and partaking in hundreds of conversations with parents, I’ve come to the conclusion that giving adult children money is generally a bad idea.

Gift Receivers Accumulate Less Money

At first glance, this may seem like it goes against your innate need to take care of your children. But here’s what I’ve discovered after observing and studying parents of successful children in my practice: parents who support their kids financially often create a cycle of dependence that is difficult to break. In some cases, it only gets worse.  

And I’m not the only one who has seen how damaging it can be to provide financial support to adult children. Research conducted over the years has proven it.

Thomas Stanley, an influential researcher and author of “The Millionaire Next Door,” devoted two chapters and 69 pages to this subject in his book. Calling it “economic outpatient care,” he concluded that “the more money adult children receive, the fewer dollars they accumulate. While those given fewer dollars accumulate more.”

Stanley went on to explain the rationale behind this finding:

·         Giving encourages more consumption than saving and investing. In particular, Stanley warns about gifts of house down payments.

·         Gift receivers in general never fully distinguish between their wealth and the wealth of their gift-giving parents. They believe they are entitled to the things their parents have, and feel resentment if the wealth is given to somebody else.

·         Gift receivers are significantly more dependent on credit than are non-receivers. They use credit in order to sustain their lifestyle of consumption between gifts.

·         Gift receivers invest much less money than do non-receivers. Stanley claims that gift receivers are “hyperconsumers” who only think of now. They have come to expect that their financial needs will be met by their parents, so they don't plan for the future.

Is Giving Money to Your Adult Kids Ever Okay?

While Stanley affirms that money for adult kids is bad news, there are two forms of “economic outpatient care” that can pay dividends: subsidizing education and funding a business venture within certain limits.

Paying for education continues to give kids a strong career foundation. Studies show a strong correlation between a college degree and future earnings, unless the degree pursued has limited career prospects.

According to a Bureau of Labor Statistics study, the “median weekly earnings in 2017 for those with the highest levels of educational attainment—doctoral and professional degrees—were more than triple those with the lowest level, less than a high school diploma. And workers with at least a bachelor’s degree earned more than the $907 median weekly earnings for all workers.”1

Raising Kids Who Support Themselves

So how do you ensure that their children grow up to be self-sufficient? The answer I get from parents who have done well in this area is simple: they communicate a reasonable expectation for their kids, usually by the time their children reach high school age, and stick to it.  

 A couple I spoke to recently with several self-sufficient and successful children and grandchildren offered this insight: “We told our kids we would help them through four years of college and then they were on their own.”

When I encounter parents struggling with being the Bank of Mom, and I ask them what their son’s or daughter’s expectations are, they often don’t have an answer. This begs the question: If you as the parent haven’t set an expectation, then how do you expect your kids to set a goal?

Getting Your Adult Kids to Move Out

If you’ve already set the precedent of giving money, whether it be through checks or paying for cell phone and car insurance bills, it’s not too late to change your approach.

A dear client of mine shared in a meeting recently that her adult son was finally moving out at the age of 24. I asked her how she did it. She explained that her strategy involved setting “deadlines” and putting it in writing.

She sat down and worked out a plan, giving her son about three months’ notice. After three months, she began charging him $300 rent per month. After six months, she raised it to $600. She also gave him a list of chores and household responsibilities.

During this process, she reminded her son that she loved him very much and shared her belief that it wasn’t good for him to be under the “tether of his mother’s apron strings.” (I had never heard that phrase before. She’s from the East Coast). She further expressed that she was doing what was best for him since a young man needs his independence.

As she shared her story with me, she emphasized that she treated it like a business agreement. Interestingly, within a few months her son had gone on to gain a better job, which he now loves, and he started dating a girl that my client really likes. Also, after one year of paying mom rent, he is now moving out.

Let’s face it. Being a parent in this day and age is hard. We have so many pressures put upon us, and it is easy to try to fix our shortcomings by giving our kids too much.

The good news is that the best way to deal with adult kids financially is pretty straightforward: avoid giving them money beyond education by setting an expectation and sticking to it. Not only will you set your kids up for true long-term financial security, but you might even take a step in the direction of improving your own.


1.       Torpey, Elka. (April 2018). “Measuring the Value of Education.” U.S. Department of Labor: Bureau of Labor Statistics. Retrieved from https://www.bls.gov/careeroutlook/2018/data-on-display/education-pays.htm.



Life Insurance You Need- It's Not From a Policy

What Are You Waiting For – The Life Insurance that Doesn’t Come From a Policy

In terms of birthdays, 50 is a big one. Often it’s celebrated with black balloons, over-the-hill jokes and stories shared about years past. My good friend, Charles*, however, is choosing a more adventurous way to celebrate his 50th.

A financial consultant who lives with his wife in a one-stoplight Wyoming town, Charles is planning to spend his milestone birthday snowboarding with friends in Niseko, Japan—one of the prime skiing destinations in the world.

Charles views bucket list trips like this as his own brand of personal life insurance. In financial terms, it’s a small sum he pledges each year to ensure he’s maximizing his life. After all, it’s possible he could get in a fatal car crash tomorrow, so he believes paying a small premium that allows him to live his life fully now is a good investment.

Now, I know what you’re thinking: That’s not life insurance! And, in traditional terms, you’re right.

The literal definition of life insurance is “insurance that pays out a sum of money either on the death of the insured person or after a set period.” The quick and dirty calculation on traditional term life insurance is 7-10 times your salary if you have young dependents.

If you are the stay-at-home spouse, it would be annual costs of care needed multiplied by the number of child-rearing years remaining.

For a more precise estimate, a detailed life insurance needs estimate should be done as part of a broader financial plan.

Certainly, if you have dependents relying on your income or your unpaid spouse at home, you would need the more classical type of life insurance to cover your loved ones should you expire unexpectedly.

With an eye toward traditional life insurance, Charles has that covered. As a person who specializes in personal finance, he and his wife have worked diligently on retirement and estate plans. They also have set aside ample assets to cover each other and their dogs in the event of either one’s sudden passing.

Investing in Life Enhancements

Needless to say, I feel there’s something profound in Charles’s idea of setting aside a small sum of money each year toward a life enhancement. Charles shared with me that his three pillars of life are snowboarding, surfing and music. With nudging from his wife, he also added, “Oh yeah, and of course, love!”

Thus, it would seem quite purposeful, after other life necessities are covered, to invest a small sum toward a snow-fest with several good friends in the mountains of Japan. As Charles mentioned, “What’s not to love about Japan?! There’s so much to love there, including sushi and sake!”

Charles has clearly taken the time to determine what matters most and is putting time toward those goals. In addition to trips like the one to Japan, Charles and his wife recently took on a major life change: they moved from San Diego to the mountains of Wyoming to live more in line with their values.

In addition, they evidently have quite a community of friends and family who like to visit. Their biggest challenge now is having too many visitors every year! In fact, they’ve decided to take the month of August off from entertaining guests and instead plan to take camping and hiking trips to their favorite spots. What a great problem to have!

During a recent trip to visit Charles and his wife, my family and I spent an evening enjoying home-cooked enchiladas in their modest home overlooking Grand Teton National Park. Afterward, Charles pulled out his guitar to share his passion of music with us.

The following morning, despite having a full workday ahead of him, Charles took two hours to snowboard in the Wyoming powder with my husband. He then returned to his home office for a solid day’s work. Clearly, Charles brings his priorities to life each and every moment.

What Matters Most to You?

If you were to follow Charles’s approach, what are the three or four pillars of life you’d choose? What premium of time or money would you pay to ensure you’re reaping maximal life joy from your priorities each and every week, month or year? Where might you go today if your life were to end tomorrow? What might you do?

Most of us do not take enough time to ponder what truly, deeply brings meaning to our lives. And, even if we do, what investment of time or energy do we make to move toward those values?

It’s so much easier to follow the inertia of daily life. Waking up early, scurrying to work, working on full speed for ten hours, then heading home to collapse on the couch to order off Amazon, eat a frozen pizza, gaze at email, and finally hit the sack.

In our consumer culture and time-constrained lives, it’s easy to fill our homes with stuff and our days with busy-ness without pausing to dig deeper into what really matters. Let’s face it: Doing something different is hard. Taking on a career change, seeking a self-development program, or planning a lifelong trip can take effort that is sometimes hard to summon.

With that said, you owe it to yourself to do what most needs to be done in your life. Identify it and dedicate some of your human capital—time, energy, money, effort—to get those things done. As Anna Quindlen once wrote, “You are the only person alive who has sole custody of your life. Your particular life. Your entire life. Not just your life at the desk, or life on the bus, or in the car, or at the computer. Not just the life of your mind, but the life of your heart. Not just your bank account, but your soul.”

What type of life insurance do you need to plan today?


*Name changed for privacy purposes.


Berkshire Hathaway 2019 Annual Meeting Highlights – “Woodstock for Capitalists”

For six hours on May 4, all eyes in the investment world were focused on Omaha, Nebraska. Warren Buffet, the 88-year-old investment guru known as the “Oracle of Omaha” for his legendary investment picking expertise, took to the stage with right-hand man Charlie Munger, Vice Chairman of Berkshire Hathaway, for the annual Berkshire Hathaway Shareholder Meeting.

Speaking to a rapt crowd of 40,000 shareholders and dignitaries like Bill Gates and Tim Cook, the unflappable twosome tackled over 50 questions on subjects ranging from their recent Amazon investment to how Berkshire will survive after they are long gone.

Berkshire Buying Its Own Stock

The most popular question centered on the topic of stock repurchases. Up until the summer of 2018, Berkshire rarely used their own cash to buy up their own stock. Buffett had maintained a steadfast policy of doing so only if the “Price to Book” ratio of Berkshire slipped below 1.2. In other words, when the price of a dollar of Berkshire assets was under $1.20 per share, Buffet was willing to deploy cash for stock re-purchases. 

Last summer, the company changed this policy to allow for greater flexibility. In this recent quarter, Berkshire repurchased $1.7 billion of their own shares. Since stock buybacks could significantly impact the company’s stock price, shareholders were interested in understanding this new approach. 

Buffett explained, “We have no intention of spending a dime unless we think Berkshire shareholders will be better off.”

In other words, despite Berkshire sitting on $114 billion, they will only use it to buy their own stock if they think the reinvestment is better than other near-term opportunities. For emphasis, Buffet added, “If the stock is cheap relative to the company’s intrinsic value within a band of 10%, I wouldn’t hesitate in buying more.”

At one point, Munger mentioned that they will be more “liberal” in the amount of buybacks that are made and would be willing to spend up to $100 billion of their cash if it made sense to do so. 

Berkshire shareholders should take some solace in knowing that the company has this option at their disposal. It’s hard to calculate a floor (a bottom price) on the stock, but this artillery of cash would potentially lessen a Berkshire stock sell-off. 

Has Berkshire Lost Its Edge?

Up until 2014, Berkshire stock had a long-standing record of outperforming the S&P 500 over any 5-year average period dating all the way back to 1965. Over the past decade, the stock did not prevail over the largest U.S. stocks. In fact, since 2009, the S&P 500 attained 314% while Berkshire managed only 259%.  Similar to 1999, many are starting to think that perhaps Berkshire has lost its edge.

What happened in 1999 may be the path we are on for 2019. Buffet reminded us that the stock is more likely to beat the S&P 500 in bear markets. There are certainly some similarities between now and then, including a bull market that has passed the 10-year mark, and a strong run for large cap growth stocks.

Between 2000-2009, Berkshire surpassed the U.S. stock market by a wide margin, returning 100% while the S&P 500 returned negative 23%. Notably, this period included some of Berkshire’s best deals: the purchase of Benjamin Moore, Ben Bridge Jewelers, Brooks Sports, Burlington Northern (BNSF) Railroad, Pampered Chef, and Fruit of the Loom, not to mention bailing out Goldman Sachs, GE Capital, and Bank of America.

Buffett also reminded us that he is betting most of his net worth on Berkshire doing well after he is gone. In fact, approximately $85 billion currently sits in his own company stock that would gradually be disbursed to the Gates Foundation over a period of years upon his passing.

Berkshire After Buffett

As the company’s heralded leaders get older, many are anxious about Berkshire’s succession plans and what the management is doing to set the stage for the future.

“By any yardstick you use, I’m going downhill,” Buffett said about aging. He said if he took the SAT test now and compared it with a score from his younger self, it would be “embarrassing.” Still, he added, “I do think I know a lot more about human behavior than I did when I was 25 or 30.”

In 2014, Buffet and Munger appointed Greg Abel and Ajit Jain as their replacements. Since the official hand-off of all Berkshire-owned businesses to these two individuals occurred in 2018, Abel and Jain were invited to take part in this year’s meeting by answering two questions each. Buffet explained that they would participate even more in future years.

Buffett also mentioned Todd Combs and Ted Weschler, reminding attendees that they were currently responsible for $26 billion in stock investment decisions.

In the near term, investors should not fear a Berkshire Hathaway without its top two lieutenants at the helm. As long as there are Buffett and Munger and their formal successors with over five years in play, they will continue to build a cash-generating powerhouse that succeeds for many decades.

Thoughts on Other Investments

When questioned about other possible investment categories and options, Buffett and Munger identified a handful of clear winners and losers.


·       Amazon. Buffet and Munger consider Amazon’s Jeff Bezos “a miracle worker.” In fact, Berkshire recently demonstrated its confidence in the e-commerce giant by investing $10 Billion in Amazon during the first quarter of 2019. Despite an assertion that this might not be in line with the company’s traditional “value” investing approach, Buffet assured all that, despite any of the popular ratios often inaccurately used as “value” indicators, his team is still holding true to value investing and considers Amazon a strong value play based on what they invested now and what they anticipate will be returned in the future.

·       Google. Bluntly stating his thoughts about the technology behemoth, Munger said, “I feel like a horse’s ass for not finding Google sooner. We saw the results they produced firsthand through Geico ads. We could see how well Google ads were working, and we just sat around sucking our thumbs.”

·       Progressive Insurance. Declaring a tremendous respect for this company, Buffet and Munger admitted that Berkshire copies Progressive a little and vice versa. Both companies seem to hold the other in high regard, resulting in a cordial and honorable competition.

·       Costco.  The company’s success has much to do with its private-label Kirkland brand, which is dominating the packaged-goods space, according to Buffet. In 2018, it had sales of $39 billion, doing 50% more business than Kraft Heinz. (Note that Munger serves on Costco’s board.)


·       Elon Musk in the car insurance business. Ideas about branching into car insurance were met with little confidence.

·       Bitcoin. Munger stated, “Bitcoin investors celebrate 'Judas Iscariot' at their happy hours.” After bitcoin’s (BTC-USD) price crashed to about one-third of its heyday high, Buffett and Munger joked around about the once red-hot investment and now deem it a no-go opportunity.

·       Private Equity. Stories of accounting manipulations have earned a vote of no confidence from Warren and Charlie.

·       Alternative Investments. Pension managers beware!

In addition, Buffet and Munger noted that they would love to buy something in the UK or Europe and were convinced that China and the U.S. would eventually get along. There’s too much at stake for them not to.

The Political Climate of Today

At this year’s meeting, Buffet dispelled any doubts about his commitment to the free market democracy. In fact, he made it clear he rejects any U.S. embrace of socialism, stating that “I'm a card-carrying capitalist.”

A longtime Democrat, Buffett said, “You don’t have to worry about me changing in that matter. I also think capitalism does involve regulation. It involves taking care of people who are left behind. I don’t think the country will go into socialism in 2020 or 2040 or 2060.”

As for Brexit, Buffett and Munger share the opinion that the United Kingdom’s chaotic effort to divorce itself from the European Union was a mistake. Even so, it hasn’t lessened Buffett’s desire to buy British-based assets, the billionaire investor said.

On Life

As men who’ve experienced many trials, triumphs, challenges and changes over eight decades, Buffet and Munger shared some general life advice with eager attendees.

The Cost of Opportunity

Munger: “You have to make decisions in life with consideration to opportunity cost. Like when you are deciding on who to marry, you must consider the best person who will have you.”

Money and Happiness

Buffett: “If you’re not happy making $50-$100 thousand, you won’t be happy making $50-$100 million.”

Most Valued Things in Life

Buffett: “Time and love. There are only two things you can’t buy, time and love. That’s why we both wanted to be rich. We wanted control of our time.”

Munger: “Anyone is lucky who spends his time doing what he likes doing. It is very important who you collect as your friends and your heroes.”

Judging by the maximum capacity attendance at the annual meeting, Buffet and Munger have clearly stood out as investing heroes to thousands, if not millions. And I, for one, am grateful for their contribution to the investing world because they’ve

When Are You Financially Free?

Many people approach the doorstep of financial freedom with a pile of assets that looks something like what you see below ... a complicated mess of numbers and dollar signs that represent their retirement savings. What’s more, these investors don’t have any idea if the assets they’ve gathered will cover their future expenses.



What you really want is something like this ...



... a steady flow of income streams pouring into your checking account to cover every expense upon arrival.

But how do you go from a random pile of accounts to a steady stream of paid bills?

Understanding the 4% Rule

The most likely “rule of thumb,” one that serves as the ever-flowing financial faucet, is a clear understanding of the 4% Rule1. Also known as the Trinity Study, this influential paper was penned by three finance professors at Trinity University in 1998. Their goal was to determine safe withdrawal rates from stock and bond portfolios.

The study originated from work done by Bergen in 1994, and it has been back-tested over the past two decades by Pfau (2010) and Pye (2010). While it has been criticized many times, it still stands as the best study ever done on the issue.

The Trinity Study used historical data on stock and bond returns over a 50-year period from 1926 to 1976. Thus, it included the worst economic period in American stock market history.

Key elements of the study included:

·       Portfolios used a mix of stocks and bonds (cash in CDs--money markets weren’t counted)

·       Stocks were represented by the S&P 500 Index, bonds by an index of five-year U.S. Treasury bonds

·       Portfolio structure was approximately 50% stocks and 50% bonds

·       Four percent (4%) referred to what was withdrawn in the first year

·       Subsequent withdrawals were inflated, based on current inflation rates

·       Some years of withdrawals were done while total portfolio values had sunk

·       Portfolios had to last 30 years.

Before the study was conducted, experts generally considered 5% to be a safe amount for retirees to withdraw each year. The main outcome of the Trinity Study, however, stated that “a person has sufficient savings in assets if 4% of his / her assets are sufficient to cover a year's expenses.”

The study explicitly affirmed:

“For level payouts, if history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds during any of the payout periods. In those cases, portfolio success seems close to being assured.”

"For payouts increasing to keep pace with inflation, they stated that withdrawal rates of 3% to 4% continue to produce high portfolio success rates for stock-dominated portfolios."

To clarify, 4% of assets must cover all spending that is not accounted for by other reliable income streams. These streams include pensions, annuities, and / or social security.

Additionally, “all spending” must include taxes and every instance of discretionary spending. To apply the 4% Rule effectively, you must have a strong understanding of your annual spending, including emergencies and an expected average tax rate.

Applying the 4% Rule

The study emphasized that the 4% Rule should not be used as a matter of contract, but rather as a form of continuous planning. In other words, you should monitor the rule over time with respect to your financial picture, and adjust it to be more conservative if necessary.

Also, the study suggested that it was a good idea to have other contingencies in place in case your retirement extends beyond 30 years. Contingencies should include at least one of the following:

·       Complete home ownership with the home asset not counted into the withdrawal rate

·       Mortgage pay-off in the early years of retirement

·       Three percent (3 %) as the rule if you are very conservative

·       Exclusion of counting into the formula: incidental income from side gigs, inheritance, sale of assets with uncertain outcomes.

For example, let’s say that you want to be able to spend a total of $80,000 per year in the first year of retirement and increasing for inflation over another 30 years. Also, assume you and your spouse have social security income of $50,000 per year. At a tax rate of 20% that increases total spending to $100,000, a nest egg of $1,250,000 would have you covered. [Calculation: ($100,000-50,000)/.04 = $1,250,000)] 

What to Do Next

If you’re sitting there thinking, I’ve got the funds, now what?, there are a few questions you might still need to answer:

·       What investments do I use to ensure a strategy like the one in the study?

·       How do I set this up from my investment accounts?

·       What do I do if we hit a 3-year skid like in 2008?

Not meaning to overly simplify this, but the authors in the study used a combination of low-cost (fund fee under 0.2%) S&P 500 index funds like the ones available at Schwab, Fidelity, Vanguard, and a myriad of other fund companies. In addition, they used actual U.S. Treasury bonds found at these institutions and others. In today’s environment, the bond portion could be addressed with a short- and intermediate-term, investment grade, low-cost bond fund for the portion of money you would draw in the first 10 years.

What matters is that you are investing in thousands of pieces of the U.S. economy through stocks and high-quality bonds. Therefore, you’ll benefit from dividends, interest, and appreciation from several companies, industries, and government entities.

In practice, once you’ve activated your investment portfolio, you should set your dividends and interest payouts to add to cash over time. This will cover approximately 2% of the 4% draw. Then plan on selling investments a couple times of year to make up for the other 2%. 

In order to pace yourself, draws should be made monthly. If you draw fully in January at 4%, you may run out of funds by August.

Maintaining a cash account with at least one year of your spending outside of your investments for emergency expenses also makes good sense.

If another three-year slump occurs, like the one encountered in 2008, don’t panic. As a sensible investor, you know it’s unwise to attempt to time the market or move funds out of your stock investment portfolio in a downturn. Instead, rely mostly on your cash account and bonds while waiting for stocks to recover.

From 2008-2011, U.S. Treasury bonds in total averaged a 6% return2. This amount would have sufficiently covered your draws during that period. During other treacherous stock market periods, like the early 1970s and the early 2000s, the same index averaged 7% and 9%, respectively.

In conclusion, a fixed chunk of money sensibly invested across low cost, diversified stocks and bonds is one of the soundest retirement strategies you can employ.

It’s safer than relying on a job, which requires a decent economy, refined job skills over time, and a solvent company able to pay numerous employees.

While the 4% Rule may be challenged and improved over time, it still stands as the most robust calculation today of what a retiree can draw. If you have set aside the funds and invested wisely over the years to build your ever-flowing, cashflow faucet, it may be time to start enjoying your financially-free years.



1.     Wikipedia, The Free Encyclopedia. Trinity Study. Retrieved on March 11, 2019, https://en.wikipedia.org/wiki/Trinity_study.


·       Cooley, Philip L., Carl M. Hubbard, and Daniel T. Walz. "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable." AAII Journal 10, no. 3 (1998): 16–21.

·       Scott, Jason, William Sharpe, and John Watson. "The 4% Rule—At What Price?" (PDF). Stanford University (April 11, 2008). Retrieved May 29, 2018, https://web.stanford.edu/~wfsharpe/retecon/4percent.pdf.

·       Collins, J L. "J L Collins - Talks at Google – The Simple Path to Wealth". Reddit. Retrieved May 29, 2018, https://www.reddit.com/r/financialindependence/comments/8e1tly/jl_collins_talks_at_google_the_simple_path_to/.

·       Collins, J L. "My Talk at Google, Playing with FIRE and other Chautauqua connections". J L Collins. Retrieved May 29, 2018, https://jlcollinsnh.com/2018/05/11/my-talk-at-google-playing-with-fire-and-other-chautauqua-connections/.

·       Scott, Jason S., William F. Sharpe, and John G. Watson. "The 4% Rule: At What Price?" https://web.stanford.edu/~wfsharpe/retecon/4percent.pdf.

·       Fonda, Daren. "The Savings Sweet Spot." SmartMoney (April 2008), pp. 62-63. (Interview with Ben Stein and Laurence Kotlikoff.)

·       Prospercuity LLC. "The 4% 'Safe Withdrawal Rate' Rule Of Thumb." Tipster®. http://www.prospercuity.com/swr.htm.

·       Pfau, Wade. "Trinity Study, Retirement Withdrawal Rates and the Chance for Success, Updated Through 2009." Retirement Researcher (October 29, 2010). https://retirementresearcher.com/trinity-study-retirement-withdrawal-rates-and-the-chance-for-success-updated-through-2009/.

·       Cooley, Philip L., Carl M. Hubbard, and Daniel T. Walz. "Portfolio Success Rates: Where to Draw the Line." Financial Planning Association (2011). https://www.onefpa.org/journal/Pages/Portfolio%20Success%20Rates%20Where%20to%20Draw%20the%20Line.aspx.

·       Pye, Gordon B. "The Effect of Emergencies on Retirement Savings and Withdrawals." Journal of Financial Planning 23, no. 11 (November 2010): 57-62.

·       Pye, Gordon B. "Retrenchment Rule." Retrenchment Rule (2012). http://gordonbpye.com.

2.     FTSE U.S. Government Bond Index, 3-7 years, as reported by FTSE fixed income indices, 2018, FTSE Fixed Income LLC.


Your Financial Plan: On the Brink of Disaster or a Walk in the Park?

Hovering 3,000 ft above Yosemite Valley in 2015, celebrated rock climber Alex Honnold was moments away from dying. He’d began his day hoping to become the first to free-solo climb the heralded peak known as Half Dome—without ropes, safety gear or climbing companions. Instead, he was about to become famous for perishing while making the attempt.

“I got so scared as I got up to a certain sequence. I was like, Oh, this feels like my foot’s going to slip and I don’t want to fall. And then I tried to use some other footing, but I was like, Oh, this doesn’t seem right, this seems worse. So, I was standing there hesitating, being like, What should I do? What should I do? And then I start to get all gripped up, like, Oh God, what if I can’t figure it out. And I’m obviously getting more and more tired as I stand there, calves and arms burning.”2.

While hanging from a ledge on the brink of disaster, Alex didn’t know exactly what to do. Emotion and doubt took hold, and he found himself second-guessing his own experience and ability.

The truth was he knew he had not properly prepared. In fact, he intentionally chose not to rehearse Half Dome too much as it might take the “adventure” out of the experience.

Like others caught in the throes of uncertainty and fear, Alex momentarily lost his way and almost made the ultimate mistake of choosing an unproven route where death was a real possibility. Fortunately, he pulled himself together, found his way back to his planned course, and accomplished his mission. 

Approaching El Capitan Differently

Fast forward two years to June 3, 2017. On this day, Alex embarked on a free-solo climb of another perilous peak—El Capitan, a 3,000 ft vertical, granite wall in Yosemite, Calif. The stakes were high as Alex ascended what some have coined the “most challenging vertical face in the world,” with death being the ultimate price should anything go wrong.

This time his preparation looked quite different. He had climbed the El Cap wall in his mind over 1,000 times, studying the rocks microscopically. For months he had repeatedly rehearsed the path he would climb without ropes, memorizing every granular detail and maneuver.

Knowing in excruciating detail every foothold, fingerhold and step he would take prevented the chance of mental error. In fact, he knew the precise steps to take even in the most challenging moments. He had a clear plan, and he had total faith in that plan.

Alex had sought the deepest understanding possible of his practice as well as the failures of others who had died during similar feats in the past. He knew fanatically that every move mattered, and there was no room to speculate or rely on luck. Ultimately, he worked to prepare and manage every aspect of this death-defying climb that he could ahead of time.

Regardless of El Capitan’s reputation as one of the most difficult climbs in the world, Alex’s intensive planning made the ascent easier than his near-fatal climb of Half Dome. As a result, on the day Alex scaled El Capitan, he described it as a “walk in the park.”

Applying Alex’s Climbing Strategies Toward Investing

While no one is going to die from investing improperly, failing to build wealth can have dire consequences. It can impact your ability to send your kids to college, pay big bills, and eventually retire with peace of mind.

And yet, so many individuals take the Half Dome approach with their financial lives. Often they don’t even have a financial plan or an investing strategy in place. Even if they do have a plan, knowing what to do is one thing, actually doing it is another.

When a challenging moment comes along, such as the U.S. stock market plummeting by nearly 15% this past December, the ultimate price of selling out of investments at a market low might occur. 

As a client of Wealthspring, you can rest assured that you have a clear financial plan and investing strategy in place. The investment approach is grounded in Nobel-prize winning research that follows proven principles. Some of these include avoiding market timing, maintaining appropriate cash reserves, and diversifying across multiple investment categories with careful attention to your cash flow needs.

When a disastrous period occurs in the stock market, prudent rebalancing occurs and you’re reminded to stay the course. Quarterly meetings have prepared you for this moment of concern by repeated review of asset allocation, cash reserves, spending needs and, at times, by role playing bear market scenarios. 

While stock market volatility often causes concern, with the appropriate plan and preparation, a market sell-off might inspire buying more stocks while they are on sale and looking for appropriate opportunities like tax loss harvesting or Roth IRA conversions. Obviously stocks going down never feels very good, yet for those who expect it and have thought out the best way to maneuver during these volatile times, it might even seem like a “walk in the park.”

Looking Back at 2018

Here’s a quick run-down of how various investment categories performed in 20181. :

#1 performer for the first time in 15 years: cash at 1.8%

#2        - Bonds                                     -           0%

#3        - REITS                                    -           -4%

#4        - Large Cap Stocks                    -           -4.4%

#5        - Small Cap Stocks                    -           -11%

#6        - International Dev. Stocks         -           -13.4%

#7        - Emerging Market Stocks          -           -14.2%

Asset Allocation Mix 60% stocks / 40% bonds     -5.8%

1.       JP Morgan Guide to the Markets, U.S., 1st Quarter 2019, as of December 31st, 2018, https://am.jpmorgan.com/blobcontent/1383598874518/83456/MI-GTM_1Q19_.pdf

2.       https://www.msn.com/en-gb/news/indepth/‘it’s-no-fun-if-you’re-scared’-alex-honnold-reflects-on-his-historic-free-solo-climb-of-el-capitan/ar-BBQTrZA?li=AAaeUIW&%25252525253Bocid=UP21DHP

Boost Your Happiness—and Your Finances—in 2019

by Shelley Murasko

“Money can’t buy happiness.”

It’s easy to agree with this popular cliché if you have first-hand experience with someone who has money ... but lacks joy. Perhaps you have a rich friend living with soured relationships or know a wealthy colleague with failing health. In these cases, it certainly seems that money can’t solve all of a person’s problems.

But what about someone who is unhappy because he or she is struggling financially and, thus, unable to achieve his or her life goals? Surely, some extra cash could help improve the situation.

So how do we resolve the ever-present tension between wanting to be happy and our need for money?

Let’s start by uncovering which behaviors lead to happiness, then touch on money strategies that can relate to these behaviors.

In the 1990s, the idea of “positive psychology” was introduced to find the keys to understanding what makes us flourish. This science of happiness grew in popularity, spawning numerous books, seminars and programs that promised to reveal the secrets to living a life of contentment.

Today, this trend has exploded into a full-blown movement. The demand for best-selling books like Gretchen Rubin’s The Happiness Project and the prevalence of Positive Psychology conferences across the country prove that achieving happiness is an important goal for many of us.

Even nationally renowned Yale University has gotten on the bandwagon. The school’s “Psychology and the Good Life” course teaches students how to be happier through personal accountability and behavioral changes. The class attracted nearly one-fourth of the undergraduate population to become Yale’s most popular class ever.1

To dig even deeper, I wanted to uncover the drivers of a happy life and money’s role in this equation. So I did what any logical person in the internet age would do: I asked Google.

A search of “secrets to happiness” led me to an article in the Observer called “The Secret to Happiness is 10 Specific Behaviors” by Benjamin Hardy.2  In this piece, the author outlines key actions that lend to a happy life.

Since I believe money is a factor that contributes to living a happy life, I’ve included my own thoughts on finance-related behaviors that tie in with Hardy’s points.

1.     Let Go of The Need For Specific Outcomes. While setting goals and having a financial plan is one of the healthiest steps you can take to ensure alignment between your money and life intentions, you can’t lose site of the fact that life will happen. The stock market may go down right after you retire. Your 50 lb. dog might cost you a fortune in medical bills. The IRS could throw you a surprising tax bill. Despite these negative events, you should still have a plan. Set some goals. Then quickly forgive yourself when things go off course and recalibrate so you can move back in the right direction.   


2.     Define Your Own Success and Happiness. As John Rushton, psychologist and author, once said, “Be everything to everybody and you’ll be nothing for yourself.” The point here is, only you can really know what you’re aiming for with your money. Is it freedom? Is it security? Define what matters most to you and only you, and then put a plan in place to get there. If you’re married, the marriage will have the best chance of thriving if you work on these goals together.


3.     Commit 100% to The Things That Make You Happy. People are really good at self-sabotage. We humans often behave in ways that are inconsistent with our hopes and dreams. The biggest hurdle to our good intentions is thinking we can let something slide just this one time. Have you found yourself saying this before: I really shouldn’t eat a donut, but how bad can one donut be for my waistline? The best way to move toward better health is to refuse to ever eat a donut—commit 100%. In the same vein, the best way to shore up your retirement goals is to automate your savings monthly, increase your contributions toward savings annually, and don’t waver from that commitment.


4.     Be Grateful For What You Already Have. Both abundance and lack of it exist simultaneously in our lives as parallel realities. When we choose to focus on what’s missing instead of what we have, it’s a slippery slope to never feeling satisfied. Instead, make note of your own personal prosperity by journaling about what you appreciate. Another useful exercise could be making it a goal to send three thank you notes each week. Regarding your wealth, take a moment to be grateful with how far you’ve come so far. Reference a past financial plan or income tax return to acknowledge the progress in savings and/or income. Build into your life a habit of showing gratitude.


5.     Say “I Love You” More. As Hardy reports, it may seem strange to tell friends and family that you love them, but they’ll be blown away. He tells a story about a missionary who began saying “I love you” to everyone, which made him feel more love for the people in his life. The missionary explained, “When I tell people that I love them, it not only changes them, it changes me. Simply saying the words, I feel more love for that person. I’ve been telling people all around me I love them. They feel treasured by me. Those who know me have come to expect it. When I forget to say it, they miss it.”

You can apply this same idea to your finances. Along with “I love you,” you can say, “I have enough.” This will help you feel less inclined to spend time, energy and money pursuing things that don’t bring you joy.


6.     Have Hobbies Directed Toward Your Dreams. Most people have hobbies that are just hobbies. Sometimes the hobbies even conflict with our dreams. If your hobby is watching football in a sports bar on Saturday mornings, you might not be building those amazing abs you’ve been dreaming about. Instead, take time to have a hobby or two that contribute toward your dreams. If your dream is to pay down a mortgage, perhaps changing your hobby from golfing each Saturday to hiking in nature can lead you closer to that goal.


7.     Don’t Wait ‘Til Tomorrow For What You Can Do Today. Procrastination often leads to regret, so take the time to manage your most important tasks today. If you put them off, you may miss a golden opportunity to make a memory or plan for your future.  

“When I was thirteen and my brother ten, Father promised to take us to the circus. But at lunchtime there was a phone call; some urgent business required his attention downtown. We braced ourselves for disappointment. Then we heard him say into the phone, ‘No I won’t be down. It’ll have to wait.’ When Father came back to the table, Mother smiled and said, ‘The circus keeps coming back, you know.’ ‘I know, said Father. But childhood doesn’t.’”

As this story by author Arthur Gordon illustrates, happiness comes from embracing the now. Be cognizant of the moments you can’t miss and the essential experiences of life in front of you today. Don’t let money get in the way of being there. From a financial planning perspective, it’s important to design a life that allows you to have flexibility. For some, that might mean spending frugally to achieve financial freedom by age 40. For others, it’s simply having an emergency fund to cover unexpected life events.

8.     Do Something Every Day That Terrifies You. Happy people tend to take calculated risks to move toward the life they most want. Elevated risk makes you feel more alive and puts you in state of flow. In fact, often times our most creative juices flow when we are the most challenged to solve a problem or work toward an urgent goal. Sadly, most people play life small, safe, and easy without discovering their greatest talents and ideas. Only by occasionally pushing what’s possible can you make real progress.


With money, the act of investing can be terrifying for many. When it’s handled sensibly, despite some fear of the unknown, the risk rewards investors over time. Also, by setting big, hairy financial goals, your creativity might open up to achieve great things. If you don’t try, however, you’re surely destined for the status quo.


9.     Put “The Important” Before “The Urgent.” Regardless of which time management guru you adore, they all encourage  tackling the day’s important items before the urgent tasks. And yet, most of us wake up and do our emails first thing each morning. Happy people primarily put the important stuff first, including exercising, reading good books, writing in a journal, and spending time with people they love. 

When it comes to money, the important items include creating a financial plan and having an idea where you are today and where you want to go with your life. Then ensure that you are taking the most critical steps with your money to get you there. A financial plan can be accomplished under the guidance of an experienced certified financial planner (CFP). A good CFP will help you understand the most important things for you to do now, given your situation. 

10.  Forgo the Good to Pursue the Best. Each day you wake up and find a thousand ways to spend your time, money, and energy. The key is to be intentional. Take the time to identify what matters most to you and what you feel is most lacking in your life. Then direct your resources in the best way possible toward those interests. 

For example, you might get an invitation to a seminar on how to reduce taxes. That might sound like a great idea as April tax season rapidly approaches. But if you know a bigger priority for you is reducing your spending so you can save more, you might be better served reading a book or article on ways to save. If your financial house is in order, you may want to put your resources toward spending time developing your closest relationships….a day at the zoo with your kids or a special outing with your best friend.

You must know yourself and your needs first to know what to pursue. Remember that happy people say no to amazing opportunities. They do not get derailed by distractions. They leave room in their lives to do what is most important and review their priorities every day. And, of course, they learn to say no for the greater good of their own values.

In conclusion, the key to a happy life is not simply one thing. But there are consistent themes that lead you toward happiness, such as living in the present, not missing the moments that matter, and being grateful. Happy people focus on what’s important and essential, and they’re not afraid to decline events or tasks that aren’t in line with their goals.

Of course, there is more to life than money. But working to ensure your finances are in alignment with your highest values is as important as committing your time to what is essential. Your happiness in life might largely come down to ensuring that you are dedicating your life resources—time, money, energy, and effort—to the things that matter most to you.    


1.       Ben -Shahar, Tal. (2018, January 26). Happier: Learn the Secrets of Daily Joy and Lasting Fulfillment. “Yale’s Most Popular Class Ever: Happiness.” The New York Times. Retrieved from https://www.nytimes.com/2018/01/26/nyregion/at-yale-class-on-happiness-draws-huge-crowd-laurie-santos.html.

2.       Hardy, Benjamin. (2015, July 6). “The Secret to Happiness is 10 Specific Behaviors.” The Observer. Retrieved from: https://observer.com/2015/07/the-secret-to-happiness-is-ten-specific-behaviors/.


In this Stock Market, Make Courage Your Copilot

On April 11, 1970, the Apollo 13 rocket launched into space on a mission to the moon. Two days later, the landing was aborted when an oxygen tank exploded, crippling the spaceship’s functionality and nearly killing the crew.

Upon coming across this story recently, I began to wonder if investing in the stock market had parallels to riding in a rocket ship? Is it truly possible to accelerate with rocket boosters to the highest level of the Dow? Do clients feel like they’re going to die? Does investing require the courage of Neil Armstrong? 

Over the past nine years, we’ve been cruising higher and higher ... and many of us have enjoyed the ride. In fact, a client described his portfolio’s upward climb in this way:

“This morning I handled email and read the news. (Another 38 murdered in a suicide bombing, homeless need more bathrooms, North Korea is a problem, and Trump is making some people angry--nothing new.) I then looked at my investments, which is becoming a habit that I had hoped to avoid. So - the question is, will I be as interested when the market is falling? In any case, the account is a rocket ship and you got us a great window seat.”

I was thrilled to get this email and to hear how pleased he was about his current investment status. And yet, I lost sleep that subsequent night imagining how he would feel when this “rocket ship” hit some serious turbulence. 

Where the Journey Will Lead

We are now over nine years into a bull market. Stock increases are the second highest in any consecutive bull market with a 302% return since 2009. The highest rate of return occurred during a bull cycle that started in 1990 and delivered 417% return.

Historical data tells us to expect two things:

1 - The stock market will have many down days.

2 - The stock market will eventually go back up, and up, and up.

Knowing this, we must patience-proof our thinking with clear facts. In the long term, the stock market will reflect the profits and growth of companies where millions of people around the world go to work every day.   

In the short term, the stock market can be as erratic as a 2-year-old throwing a fit—best not to manage or overreact to a toddler if you can avoid it—and same goes for the market.

How Current World Issues Affect the Market

Each generation faces challenges that appear unique and daunting. Today we’re dealing with issues that are significant—trade wars, the rise of China, a divided Washington, D.C. In reality, these are likely no more formidable than past events like the Great Depression, two world wars, the Cold War, assassinations of a President and resignation of another, and 9/11. Yet the market, until recent weeks, has continued its unbelievable ascent. 

Why is this? Perhaps it’s a result of our human race being quite resilient, innovative, and devoted to making the world a better place.

As financial writer Nick Murray once said about the market, “All the downs are temporary, all the ups are permanent.”

What’s important is that you have the courage to stick to your investment plan. If you do, you’ll be able to achieve your financial goals over time.

Winston Churchill believed strongly in the power of this valued trait, saying, “Courage is rightly esteemed the first of human qualities because it is the quality which guarantees all others.”

Getting Ready for What’s Next

With this in mind, how can you prepare for an inevitable market “crash”?

·       Be less interested in your statements. Checking them once a quarter is more than enough for long-term investors.

·       Resort to stock market history. Refresh your memory of other near-death moments that turned out okay. Two interesting reads in this category are Stress Test (Geithner, 2015) and Boom and Bust: Financial Cycles and Human Prosperity (Pollock, 2010).

·       Diversify your holdings. This includes holding thousands of companies and at least three or four investment categories with low correlation, meaning they tend not to move together at the same time.  

·       Role play with your advisor to determine how you will handle the next big market drop, Include a thorough review of your defensive and cash equivalent investments.

·       Be ready to invest a bit more. Once you have high interest debts like credit cards paid off and an emergency fund in order, add money to your investments consistently over time, perhaps even taking advantage of market dips.

Despite not being able to time market drops, one is inevitably going to come. In the meantime, there will be tremendous turbulence along the way. Though you won’t crash or burn up during re-entry, which astronauts faced as risks during the Apollo 13 mission, there will be times when it feels like you will. Just as there will be times when you feel like you can only accelerate and go higher.

Have courage and patience during the most difficult investing moments, and trust that in the long term capital markets will reward investors.

Take a peek at the 2018 year-to-date investment performance through September 30, according to JP Morgan’s quarterly “Guide to the Markets.”

Investment Category

2018 Year To Date Return Through 9/30/2018

US Small Cap Stocks, 11.5%

US Large Cap Stocks, 10.6%

Publicly traded REITS, 1.8%

International Developed Stocks, -1.0%

Fixed Income – Bonds, -1.6%

Emerging Markets Stocks , -7.4%

Past performance is not indicative of future returns.

J.P. Morgan Chase - Guide to the Markets – U.S. Data are as of September 30, 2018.

10 Ways To Save Major Tax Dollars by Year End

Want to feel on top of things and in control of your money? Then take the time to get your finances in order BEFORE the year comes to a close. Taking these steps by year-end gives you enough time to save on 2018 taxes and set up your investments for success in 2019 – without putting a damper on your holiday cheer.

There are many ways to improve your financial life throughout the year, such as:

·       Automating bill pay

·       Rebidding car insurance

·       Checking credit reports

·       Updating beneficiaries

But Dec. 31 only comes once a year, and the IRS in many situations, gives us only until that date to get our taxes in order.

Granted, the new tax law will have a positive impact on many households this year. Wall Street Journal writer Laura Saunders reported on Nov. 2 that an estimated 65% of Americans will see their taxes reduced and 6% will see an increase.

In addition, tax filing will get simpler for many. Only 18 million people will need to itemize compared to 47 million in 2017 (per the Joint Committee on Taxation). Also, the number owing the alternative minimum tax (AMT) will go down by over 95%.

Whether you are working, approaching retirement, or already retired, here are 10 core financial housekeeping areas to address to make sure you’re set up for financial success.*

1.       Reduce Taxes on Investment Gains. Tax-loss harvesting can help offset capital gains with losses from stocks, bonds, mutual funds, and exchange-traded funds (ETFs) if you invest in a taxable brokerage account. The idea is simple: Offset realized capital gains with realized capital losses. That means selling stocks, bonds, and funds that have lost value to help reduce taxes on sales of winning investments. Be aware of trading costs, and use caution to avoid the “wash sale rule,” which disallows losses if a similar investment is purchased within 30 days.

2.       Review Estimated Payments. Households must still ensure they are making payments on a regular basis to the Feds and States. The Safe Harbor Rules require one to pay either 90% of current year tax liability or 110% of prior year tax liability. You still have time to increase your payments in order to avoid penalties. If you are coming up short, you can increase your federal tax deduction through payroll or your IRA required minimum distributions (RMDs) if over 70, which assumes taxes were spread throughout the year.

3.       Revisit Any Highly Appreciated Concentrated Stock Positions Held. In other words, if you hold more than 10% of any one stock in your investment portfolio including significant gains, you might consider selling a portion before year-end.  Then queue up an additional portion for January 2019. This not only reduces the risk in your portfolio but also spreads capital gains over time.

4.       Give Gifts. At risk of paying federal or state estate taxes, take advantage of your annual gifting opportunity. The annual exclusion—the amount you can give to others without triggering a gift tax form that might lead to estate taxes—is $15,000 per spouse per recipient. In other words, a couple has an opportunity to give $30,000 to each adult child annually without triggering any estate tax concerns. If you are worried about facing state inheritance taxes or federal estate taxes, then gifting during life might serve you better. Consider giving appreciated stock which also may reduce your tax impact.

5.       Boost Contributions. Still working? Maximize your contributions to tax-advantaged retirement savings accounts. Click to learn more about these valuable tax shelters here.

·       401(k)s - Contribute $18,500 if under 50, $24,500 if over

·       Retirement savings accounts for entrepreneurs - Self-employed individuals must ensure an appropriate retirement account is open to fund in the spring. For example, Solo 401(k)s, one incredible tax shelter option allowing up to $55,000 in total sheltered income, needs to be opened by Dec. 31.

·       Health Savings Accounts (HSAs) - $3,450 individual, $6,900 family, extra $1,000 if 55 or older

6.       Take Your Distributions. Once you reach 70 ½, make sure to take your required minimum distributions (RMDs) on all traditional IRAs and 401(k)s. Your first RMD must be taken by April 1 of the year after you turn 70 ½. Subsequent RMDs must be taken by Dec. 31 of each year. If you don't take your RMD, you'll have to pay a penalty of 50% of the RMD amount, the steepest IRS tax penalty. You need to calculate your RMD for each IRA separately, but you have the flexibility to take your total RMD amount from either a single IRA or a combination of IRAs. However, RMDs from Qualified Retirement Plans (like 401(k)s) or Inherited IRAs must be calculated separately, and can only be taken from their respective accounts. You do not need to take RMDs for Roth IRAs.

7.       Manage Your Withdrawals. Already retired with IRAs, 401(k)s and taxable accounts? Manage withdrawals from taxable IRAs, 401(k)s and Roth IRAs to achieve your tax planning goals. How and when you withdraw money from retirement accounts can affect how long your money lasts. Typically, it makes sense to withdraw from taxable accounts in your early retirement years, and let the IRAs/401(k)s and Roths grow tax-deferred as long as possible. But there is a very strong case for taking some IRA withdrawals (including Roth conversions) in your 60s to level out your top tax bracket if you retired early and have a significant sum of money in your IRA/401(k) accounts. This is an especially prudent step to take with the new tax law that allows for lower tax brackets until 2025.

8.       Maximize the Power of Charitable Giving. Rather than giving money every year, bunch up charitable contributions every other year to maximize deductions if itemizing. Consider Qualified Charitable Distributions (QCDs) as a giving strategy to fulfill Required Minimum Distribution (RMD) requirements if you are 70 ½ or older. If you are unsure of what charity to give to but would like to make the contribution now, consider donor-advised funds. These give you the tax break in 2018 and the flexibility to choose the charity at a later date.  

9.       Consider a Roth Conversion. Explore if it makes sense to convert all or a portion of your IRA to a Roth IRA. Doing so is a taxable event, meaning you may owe taxes on the amount covered. However, Roth IRAs are not subject to RMDs in retirement and have the ability to grow tax-free, which is a beneficial factor when considering tax planning.

10.   Get a Second Opinion. To be sure you’re making the right decisions for your financial future, consult with a tax professional. Not only is it important to understand from your tax expert how the items above might affect you, it’s also wise to collaborate on how to optimize taxes on an annual basis.

By carefully applying these strategies to your tax situation, you can save hundreds, perhaps even thousands, of dollars come April. Being on top of your money will give you even more cause to celebrate this season! 

*All tax suggestions should be reviewed with your tax professional as all tax situations are unique!

Wealthspring Financial Planners is an investment advisor registered with FINRA. This material is provided for informational and educational purposes only. It should not be considered investment or tax advice or an offer to buy or sell securities.



If Our Generation Has So Much, Why Do We Feel Deprived?

The world has never been a better place to live. Despite the daily downpour of negative news, families in the United States and around the world have much to be grateful for. Especially when you compare American life in the 1950s to today. 

Consider these comparative U.S. facts1.

good ol day.jpg

Around the world, the improvements are even more profound:

· Global Poverty is Disappearing. The number of people living around the world in extreme poverty, defined as a daily income of less than $1.90 day, has declined from more than 50% in 1980 to less than 10%. 2

· Global Violence is Decreasing Dramatically. The percentage of people dying in world events fell from 3.7% in World War II to less than .01% 3

· The Global Middle Class is Rising. By 2025, more than 50% of the world population will likely be considered middle class or higher for the first time in history. There were about 3.2 billion people in the middle class at the end of 2016--500 million more than previously estimated. 4

· Greater Levels of Education Abound. The literate population has increased from 56% in 1950 to over 85% in 2018. 4


Gaining Perspective from the  Past

These statistics describe in simple black and white the improvements made over the decades. Yet it’s the stories from generations past that paint the full color picture of how good we really have it.

This became clear to me recently when my mother-in-law Agnes Murasko, who was born in 1929, sent our family a book of her childhood memories. Her personal stories gave me a punch in the gut to my spoiled 21st century self. 

Agnes was one of nine children raised during the Great Depression. Born to immigrant parents, her father was a coal miner who saved every penny to eventually buy a farm. Her mother, whose “hands were never idle,” raised the children and ran the home. 

According to Agnes, they had it all: a garden, chickens, an oven her father built, and a spring house that kept food cold. Her father frowned upon waste; he even straightened bent nails so they could be reused. Her mother, who was quite scrappy, used chicken feathers to make down covers for the kids’ beds. Considering that  three kids slept in each bed, it took a lot of chicken feathers to finish the task.

When the family got hungry, they couldn’t just dash over to the local grocery store. It didn’t exist. The food they ate came from their own land, and included homemade bread, canned fruit, and vegetables from their garden.

During times of celebration, the family enjoyed small indulgences. They marked special days by going to church, having friends over for cake, and making homemade wine. They reserved rare delicacies like ice cream for holidays such as the Fourth of July.

 Although they didn’t really have hobbies, Agnes and her family enjoyed riding on the porch swing her father had built, listening to the accordion and other musical instruments played by family, gathering by the radio to listen to “I love a Mystery,” and perusing the Sears Roebuck catalog with siblings. 

When the family wanted to “get away,” they didn’t take vacations, which were uncommon in those times. Instead they took day trips to Ohio or West Virginia. According to her parents, if you have “a roof over your head, food on the table, and shoes to wear, you are rich.” Following this life philosophy, her family was mostly unaware of the Great Depression despite the conditions of the 1930s. 

Running on the Hedonic Treadmill

After hearing about Agnes’s experiences, I felt extremely blessed—and a bit guilty—to live in a time where we have so much available to us. It got me thinking:  If we have so much more than previous generations, why do many of us feel deprived and de-energized as we crave for more in our lives?

Scientific studies and psychologists tell us that it largely boils down to “Hedonic Adaptation.” Also known as the Hedonic Treadmill, this is the tendency for humans to quickly return to a certain relative level of contentment, despite major positive or negative events happening in their lives. In other words, no matter what happens to you in your life, you very quickly get used to it and expect something more.  

Hedonic adaptation is helpful in harsh circumstances. On the other hand, it can lead you to misery pretty quickly if you fail to recognize it. This can cause you to spend most of your life chasing entitlements rather than appreciating what you have and pursuing the true aspects of a happy life.  

It turns out that when you jump to a new level of material convenience, you lose the ability to enjoy the previous amenities that used to impress you.

I liken it to my journey from my starter home to the one I live in now. While in my late 20s, I was thrilled to get my first condo. At 700 sq. ft., it was small, but I had my own kitchen, beautiful common spaces, and a balcony surrounded by trees. It was everything I needed at the time.

I now find myself swept up in the craze of wanting to renovate my 2,700 sq. ft. home which, by most standards, would be considered quite lovely. Both homes served the same purpose, and the pleasure was just about the same. I certainly enjoy aspects of my bigger home—like easy access to great schools--now that it houses a family of four. Yet there was also something thrilling about coming home to my condo with its simple space that required less maintenance and upkeep. 

How to Beat Hedonic Adaptation

So how do you combat that feeling of always needing more?

1 – Deprivation. Studies show that the most effective way to learn to appreciate what you have is to move down the hedonic scale, either voluntarily or involuntarily. For instance, you could deprive yourself of an entitlement. For example, by dining out less, you will gain more appreciation of the rare meal out on the town. By sticking to the reliable, no-frills, used Honda, you will garner much more pleasure from the feel of a new luxury car.

2 – Acknowledgement. It does no good to deny the fact that you, as a consumer, have cravings for more. Though it’s wise to recognize them for what they are, avoid impulse buys to fill your inner voids and focus on directing money and time to those things that really bring you long-term contentment.

3 – Happiness. Scientists have discovered that a happy life comes from sources like meaningful work, a private life, community, health, freedom and a life philosophy. When you focus more on these elements than on what you feel entitled to, odds are that your happiness levels will increase.

4 – Perspective. Consider history and family stories as a guide to reminding you just how much you really have. Anecdotes from the past offer insight into what defined a happy life in decades past and those things you have in common that still provide long-term happiness. 

5 – Knowledge. Lastly, an information diet could serve as a happiness boost. Instead of listening to the daily drama on TV, radio or the internet, read a good book or a study about how far we as a global society have come.

In the end, the good ol’ days are really just a matter of perspective. While we live in in a world that offers great convenience and material wealth, it’s important to keep in mind what is truly important to live a happy life. If you can learn to appreciate what you have, rather than constantly seek out the next best thing, you may discover that you already have more than enough.



1.        Moore, Stephen and Simon, Julian L. (2013, December 13). It’s Getting Better All the Time: 100 Greatest Trends of the Last 100 Years. Federal Reserve Bank of Boston, Statistical Abstract of the United States, International Labor Organization, United Nations, Bureau of Labor Statistics.

2.        World Bank. (2017). Retrieved from Ourworldindata.org. Dollars adjusted for currency and inflation.

3.        Oppenheimer’s Compelling Wealth Conversations 2018, pg. 63, where they cite 2013 Statistics on Violent Conduct.

4.        Brookings Institute. (2012). Middle Class data. Retrieved from https://www.brookings.edu/wp-content/uploads/2017/02/global_20170228_global-middle-class.pdf. The middle class has been defined by myself and many others, before and since, as comprising those households with per capita incomes between $10 and $100 per person per day (pppd) in 2005 PPP terms (Kharas, 2010; World Bank, 2007; Ernst & Young, 2013; Bank of America Merrill Lynch, 2016). This implies an annual income for a four-person middle-class household of $14,600 to $146,000.



Lessons From My Investing Past

Lessons from my Investing Past

By Shelley Murasko

Whether we are willing to admit it or not, we have all made investing mistakes. How we define “investing mistake” is certainly in the eye of the beholder. I consider an investing mistake to be one where for a prolonged period of time, say more than 3 years, I dedicated a sizeable sum of money (more than $5000) towards an idea that trailed the performance of other available options within my reasonable, age-appropriate purview. Fortunately, I have generally not been an individual stock picker or market timer; nonetheless, I have erred in my investing ways and share these lessons in hopes that they can make a difference in your financial life.

If I were to go back and do it all over again, I would have avoided the following mistakes:

1.     Investing in a mutual fund where I paid a 5.75% load (upfront) fee for many years while I could have been investing in a low cost, better performing index fund.  In general, I should have had my eye on investment fees at a much earlier age! Fees within mutual funds can be like termites nipping away at your retirement dreams, and eventually the house caves in!

2.     At a young age, investing a large part of my 401K in a bond fund.  In my first post-college job, Human Resources presented a list of 401k investment choices, and with little to no research, I invested in a bit of everything. Fast forward a few years, I learned that this “buffet” approach to investing is NOT DIVERSIFICATION. Although bonds can be helpful, they play a specific role in protecting cashflow needs that my risk tolerance and timing did not dictate at my young age.

3.     Lastly, largely ignoring small cap, value stocks.  I did not realize the potential for enhanced returns as well as broader diversification by over-weighting small cap, value stocks in my portfolio.

In this piece, let’s explore the small cap, value over-weighting idea a bit further.

Over the past 20 years, U.S. small cap, value companies as a collection have outperformed the large cap S&P 500 index by 4.6%.1.  Where the S&P 500 during that time delivered an annualized average return of 7.2%, the Dimensional Small Cap, Value index, tracked to an 11.8% average annual return. 

Granted this outperformance does not come without a catch.

For starters, investing in the small cap, value index fund requires a greater tolerance for volatility. The small cap, value index has had two additional negative performance years during the 20-year timeframe and about a third more volatility.

Second, the US small cap, value company collection did not track evenly with the S&P 500. In some years like 1998, the large cap S&P 500 soared at a 29% return while the small cap, value companies plunged a negative 6%. Therefore, an investor would have had to stomach not only volatility but also vast deviation from the more commonly followed large cap stocks.  
Four additional percentage points on average return may not sound too sexy. As calculated on an original investment of $100,000 over 40 years, we are talking about a difference between $6.5 Million vs. $1.5 Million over that time frame. Though one probably wouldn't invest exclusively in a small cap, value fund, it is clear that its inclusion could make a significant different at retirement age.

What’s the best way to incorporate small cap, value stocks? While Benjamin Graham in The Intelligent Investor wrote the book on value investing, and Warren Buffett showed us how valuable “value” investing can be, Dimensional Fund Advisors under the guidance of Eugene Fama and Ken French, Nobel prize winners for their work on small cap, value research, have created what may be considered the top mutual funds, which allow everyday people to take part in this style of investing. 

Haven’t heard of Dimensional Funds (DFA)? It’s probably because you generally can’t access them unless they are part of a 401k, 529 plan or through an investment advisor.  In addition, you won’t see DFA wasting their dollars advertising during the Super Bowl. Like Vanguard, they promote low cost investing. Even Vanguard has increasingly offered small cap, value index funds and recently launched new broad US stock funds with a small cap value tilt much like DFA.  

Small cap, value investing is not for everyone. For those with a short time horizon or an undisciplined investing past, BUYER BEWARE! For those sophisticated investors who have demonstrated a disciplined investing past, learning more about investing in small cap, value style might prove advantageous.

Before you jump in wholeheartedly to a small cap, value stock index fund, it behooves you to understand how finicky the small cap and value “premiums” can be.

Small cap, value stocks over the past 5 years have trailed the large cap stocks by 1%.  There have been several long time periods, at times 10 years or more, where the premiums are not expressed.  

Highlighted in the article reprinted below by Weston Wellington, Vice President at DFA, you can learn more about one of the most treacherous time periods for the value premium.   

Enjoy this reprinted article from DFA’s website (https://us.dimensional.com/) :

A Vanishing Value Premium? By Weston Wellington, January 2016

Value stocks underperformed growth stocks by a material margin in the US last year. However, the magnitude and duration of the recent negative value premium are not unprecedented. This column reviews a previous period when challenging performance caused many to question the benefits of value investing. The subsequent results serve as a reminder about the importance of discipline.

Measured by the difference between the Russell 1000 Growth and Russell 1000 Value indices, value stocks delivered the weakest relative performance in seven years. Moreover, as of year-end 2015, value stocks returned less than growth stocks over the past one, three, five, 10, and 13 years.

Unsurprisingly, some investors with a value tilt to their portfolios are finding their patience sorely tested. We suspect at least a few will find these results sufficiently discouraging and may contemplate abandoning value stocks entirely.

Total Return for 12 Months Ending December 31, 2015

Russell 1000 Growth Index


Russell 1000 Value Index


Value minus Growth


Before taking such a big step, let’s review a previous period when value strategies underperformed to gain some perspective.

As many growth stocks and technology-related firms soared in value in the mid- to late 1990s, value strategies delivered positive returns but fell far behind in the relative performance race. At year-end 1998, value stocks had underperformed growth stocks over the previous one, three, five, 10, 15, and 20 years. The inception of the Russell indices was January 1979, so all the available data (20 years) from the most widely followed benchmarks indicated superior performance for growth stocks.

To some investors, it seemed foolish for money managers to hold “old economy” stocks like Caterpillar (−3.1% total return for 1998) while “new economy” stocks like Yahoo! Inc. appeared to be the wave of the future (743% total return for 1998).

Many value-oriented managers counseled patience, but for them the worst was yet to come. In 1999, growth stocks shone even brighter as value trailed by the largest calendar year margin in the history of the Russell indices—over 25%.

Total Return for 1999

Russell 1000 Growth Index


Russell 1000 Value Index


Value minus Growth


In the first quarter of 2000, growth stocks bolted out of the gate and streaked to a 7% return while value stocks returned only 0.48%. As of March 31, 2000, value stocks had underperformed growth stocks by 5.61% per year for the previous 10 years and by 1.49% per year since the inception of the Russell indices in 1979.

A Wall Street Journal article appearing in January profiled a prominent value-oriented fund manager who regularly received angry letters and email messages; his fund shareholders ridiculed him for avoiding technology-related investments. Two months later he was replaced as portfolio manager amidst persistent shareholder redemptions.

With value stocks falling so far behind in the relative performance race, it seemed plausible that value stocks would need a lifetime to catch up, if they ever could. It took less than a year.

By November 2000, value stocks had delivered modestly higher returns than growth stocks since index inception (21 years, 11 months). By month-end February 2001, value stocks had outperformed growth over the previous one, three, five, 10, and 20 years and since-inception periods.

The reversal was dramatic. Over the period April 2000 to November, value stocks outperformed growth stocks by 26.7% and by 39.7% from April 2000 to February 2001.

This type of result is not confined to the technology boom-and-bust experience of the late 1990s. Although less pronounced, a similar reversal took place following a lengthy period of value stock underperformance ending in December 1991.

We can find similar evidence with other premiums:

• From January 1995 to December 1999, the annualized size premium was negative by approximately 963 basis points (bps), amounting to a cumulative total return difference of approximately 113%. Within the next 18 months, the entire cumulative difference had been made up.

• From January 1995 to December 2001, the annualized size premium was positive by approximately 157 bps.

The moral of the story?

Prices are difficult to predict at either the individual security level or the asset class level, and dramatic changes in relative performance can take place in a short period of time.

While there is a sound economic rationale and empirical evidence to support our expectation that value stocks will outperform growth stocks and small caps will outperform large caps over longer periods, we know that value and small caps can underperform over any given period. Results from previous periods reinforce the importance of discipline in pursuing these premiums.

This article by Wellington highlights the importance of staying disciplined. The premiums associated with size and value may show up quickly and with large magnitude. There is no guarantee that the size or value premium will be positive over any period, but investors put the odds of achieving augmented returns in their favor by maintaining constant exposure to these dimensions of higher expected returns.

There are many ways to pursue the small cap, value premium.  Whether it is DFA, Vanguard, or the hundreds of other firms offering small cap, value funds, an investing advantage may be the result if done with great patience and discipline. As with most investing decisions, one must know thyself. For those looking for some guidance in this area, Wealthspring Financial Planners is here to help.

1.      S&P 500 index 20 year performance, Dimensional Fund Advisor Matrix Book 2018, “Historical Returns Data-US Dollars”, p.15. Dimensional US Small Cap, Value Index 20 year performance, Dimensional Fund Advisor Matrix Book 2018, “Historical Returns Data-US Dollars”, p. 39. Dates: 1998-2017.

2.      Wei Dai, “Premium Timing with Valuation Ratios” (white paper, Dimensional Fund Advisors, September 2016).

3.      Size premium: the return difference between small capitalization stocks and large capitalization stocks. Value premium: the return difference between stocks with low relative prices (value) and stocks with high relative prices (growth). Profitability premium: The return difference between stocks of companies with high profitability over those with low profitability.


Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Investing involves risks. 

Wealthspring Financial Planners is an investment advisor registered with FINRA. This material is provided for informational and educational purposes only. It should not be considered investment advice or an offer to buy or sell securities.


Retire by 30 While Living Your Best Life

While two-thirds of Americans struggle to retire by 65 with less than 1 times their annual spending saved 1., groups are forming of early retirees who are calling it quits after saving 25 times their annual spending.

The FIRE (Financial Independence, Retire Early) groups are those opting out of the traditional workforce after only 10-20 years of employment, having saved enough money to cover living expenses through passive income and / or a less than 4% drawdown on their investments. They typically define financial independence as the freedom to pursue varied interests without the need to make a full-time salary.  Most emphasize that not only do their frugal habits lead to financial freedom, but that their lifestyle choice also packs in more pleasure and coolness than the standard way of high-consumption living.

Ironically, many of these early retirees still earn money through their blogs or podcasts, but they do these projects strictly for pleasure. The average age of many in the FIRE communities is 35, and the majority of these folks are former engineers, computer scientists, and other professionals who once earned close to six-figure salaries.

Rather than living like typical Americans spending 95% of their take home pay, they jumped off the work-spend-work treadmill by saving 50%+ for approximately 10 years or more. With annual budgets typically between $30,000-50,000/year, they spend less than approximately two-thirds of U.S. households despite their household incomes in excess of $100,000.

So, how do they do it? Below I highlight three of the top FIRE thought leaders and their habits and beliefs around top spend categories: housing, cars, health insurance, travel, and food. At first glance, some of these concepts may seem over the top. While you may not agree with these masters of frugality, one good idea might spur you on to improving your spending and, ultimately, your life.

First, let’s meet the experts:

Mr. Money Moustache

Pete Adeney and his family of three retired by the age of 30 from tech jobs in the Boulder, Colorado, area. He is now a blogger with over 1 million followers, owns a co-working space where his cult following gathers, and leads the way in insisting that living inexpensively means living your best life while lessening your negative impact on the planet. His motto: Early Retirement through Badassity. Through his most popular post, “The Shockingly Simple Math Behind Early Retirement,” Pete preaches that you only really need to save 25-30 times your annual spending to be financially free and that this can be done in about 10 years with a 65% savings rate. 


Brad Barrett and Jonathan Mendonsa are frequent podcasters with their show ChooseFI. On the path to retire early from accounting and pharmacy, respectively, both are married with families. Jonathan clawed himself out of $168,000 in student loans in four years and is now on the path to retire early.  Self-described geeks, both men preach smart financial strategies without having to live in deprivation or unhappiness.

The Frugalwoods

Mrs. Frugalwoods, Elizabeth Thames, is part of a young Boston couple with two kids. She and her husband saved more than two-thirds of their income, so they could retire to a homestead in the Vermont woods before their 35th birthdays. Elizabeth is the author of the well-regarded book, Meet the Frugalwoods: Financial Independence through Simple Living.

Here’s what they teach:


Mr. Money Mustache:

·        Choose your home as if cars don’t exist. Live near public transit or within biking / walking distance, so you can cut the high costs of transportation, which typically is in the top 3 expenses for most Americans.

·        Right-size your home. Purchase what you need without wasted space. Pete recommends 2,000 sq. feet or less with access to affordable homes near nature and good schools as priorities.  

·        Consider a fixer-upper. Properties that need a little work are great if you have the skills to do renovations yourself. Plus, you can add desired amenities like the music studio / home office Pete built behind his home overlooking a beautiful park.

·        Pay off your mortgage early. The majority of FI-ers have eliminated debt because they make an effort to pay them off early. You can too.


·        Realize that location matters. Choose a low-cost home in an affordable place like Virginia (where podcasters Brad and Jonathan live).

·        Buy a multi-unit residence. When possible, house hack by purchasing a duplex or triplex. Then live in one unit while renting out the others.

·        Pursue minimalism. From a home purchase standpoint, less is more. Recognize that more rooms can actually reduce happiness when you have to furnish, heat, repair and clean them.

Mrs. Frugalwoods:

·        Educate yourself before you buy. Shop open houses to find the house you really want at the best deal. (The Frugalwoods went to over 270 open houses before buying their first home in Boston).

·        Favor “fixable” flaws. Search for homes with “fixable” flaws that cause sellers to price their properties low.

·        Prioritize the quality of schools and community. Make sure your new home is close to nice grocery stores, farmers’ markets, and other simple pleasures.


Mr. Money Mustache:

·        Stay close to home. Make sure your residence is within 10 miles of your work, and then preferably bike or walk there where you can also boost your physical fitness along the way.

·        Opt for practical over pricey. Buy a 10-year-old, fuel-efficient, reliable, utilitarian car for $10,000 or less with cash. Specific models suggested include: Toyota Prius, Mazda 3, Mazda 6 (as a family car), Honda Fit and Toyota Yaris.


·        Go for “used.” In order to achieve the lowest cost of car ownership, choose a 10-year-old econo-hatchback, which has an annual cost of ownership of $5,000/year compared to $30,000/year with a new car.

·        Avoid car payments. Continue to drive the car you own for as long as you can to prevent a new car payment until absolutely necessary.

Mrs. Frugalwoods:

·        Say “no” to new cars. Buying a brand new car is one of the worst financial decisions a family can make (unless you are a billionaire).

·        Target the sweet spot. The best option is to buy a used car that is 5-6 years old. Be sure to take a test drive before you purchase and conduct research on sites like CarGurus.com.


Mr. Money Mustache:

·        Prioritize your health daily. Be selective about what you eat and follow a daily fitness regime. The healthier you are, the lower your medical bills will be.

·        Use your health insurance sparingly. If you maintain optimal health and do not have any chronic health issues, then choose the lowest cost insurance with the highest deductible and use your insurance only when necessary.  

·        Take advantage of deductions. Check to see if you can deduct insurance premiums or other health costs from your taxes.


·        Seek out subsidy options. If your only option is to enroll in the federal healthcare, work to reduce your taxable income through shelters, deductions, and credits to make you eligible for subsidies--up to $45,000 /year for singles and up to $95,000/year for families.

·        Exercise part-time insurance benefits: Consider a side-gig with a company where working part-time gives you health insurance until eligible for Medicare at age 65.

·        Use cost comparison tools. Be sure to price-compare procedures that you will need by using your health insurance company’s cost comparison tool. Just input the care you will need (i.e., MRI, X-ray, specific surgery, etc.) along with your zip code. The program will then spit out a listing of facilities and /or providers and their average costs. The tool may even list patient satisfaction ratings of the providers.

·        Shop for prescriptions. To find the best prices, use this tool: GoodRx.com. Input your prescription, dosage and zip code and voila! You’ll get a listing of pharmacies within a certain radius of you and their cost for your specific prescription.

·        Ask about coupons. Many people don’t know that the drug manufacturers often issue coupons for high-cost prescriptions. Find and use them to save even more.

Mrs. Frugalwoods:

·        Be an underdog. Aim to keep income lower than thresholds necessary to qualify for government subsidies. Simply withdraw from Roth IRAs after 5 years or brokerage accounts, which are tax favorable.

·        Work for the benefits. Have one spouse continue working part-time and / or remotely in order to get insurance through his or her company.


Mr. Money Mustache:

·        Take nutrition seriously. Cook at home more often, eat more veggies and reduce intake of meat and bread. Avoid convenience foods and anything with sugar.

·        Eat in more often. Save eating out for celebrations as restaurant food is more expensive, time-consuming, and unhealthier.

·        Buy in bulk. Target items with long shelf lives, developing your own personal top ten items to buy at Costco. This ensures you get the lowest cost per unit on your key items. Pete’s personal list includes: coffee, olive oil, pasta, pasta sauce, oatmeal and various fruits / veggies.


·        Entertain at home. Choose eating at home with friends over eating out. You get to treat your friends to a tasty home-cooked meal while avoiding the high restaurant bill.

·        Buy in season. Foods are less plentiful out of season and, thus, more expensive to buy. You can get good bargains on in-season foods because they are more readily available.

·        Keep emergency meals in the freezer. This tip can be a lifesaver for times when you are rushed. Quick but healthy meals like Trader Joe’s orange chicken are a good option.

·        Double recipes when you cook. Stretch them even further by eating the leftovers so that three to four meals cover seven days.

·        Buy your 10 key staples in bulk. When you do, you’ll get a price break and always have your favorite foods on hand. Jonathan’s key staples include: potatoes, cereal, onions, frozen chicken breasts, frozen berries, and flour to make homemade bread.

Mrs. Frugalwoods:

·        Plan your meals weekly. This saves you time, money and energy ... and simplifies your life.

·        Rarely eat out. For the Frugalwoods, living in the woods of Vermont makes that easier. But no matter where you live, you can save money and eat well with a little meal planning.

·        Limit pricey foods. Meat, dairy, and processed foods tend to be two to three times the cost of healthier options. Eat them sparingly and opt for lower cost, nutrition-packed items instead.

Travel / Other

Mr. Money Mustache:

·        Invest in yourself. Maintain your own car, body, garden, and home instead of paying others to do the work for you.

·        Find fun at the library. Today’s public libraries don’t just loan books. They are bona fide entertainment sources, offering activities like art fairs and science exhibits to free movie showings and reasonably priced concerts.

·        Look to nature.  Make the outdoors  your primary source of recreation and peace. Camping, hiking, and boating and touring national parks all offer their own unique brand of fun.

·        Invest in people. Cut out TV watching and car commuting. Use this time instead for group activities, entertaining, and volunteering.

·        Choose vacations rich in experience. Try camping in the mountains, exploring a nature preserve, or backpacking through the wilderness. Internationally, live like the locals, travel from country to country via public transit, or explore ancient architecture and museums.


·        Tap into credit card benefits. Use rewards / sign-up bonuses on credit cards to cover most of your travel costs.

·        Try ChooseFI’s top pick. Chase travel rewards includes two Southwest Airlines cards to enable free Southwest flights for one person all year round.

Mrs. Frugalwoods:

·        Borrow or buy used items. Ask friends, family or neighbors if you can borrow items you use sparingly, like power tools, camping supplies or wheelbarrows. You can also buy gently used items online or at garage sales, which is a smart option for items your kids will grow out of quickly like clothes and toys.

·        Start a “Buy Nothing” chapter. You can save money and the environment by “gifting” items you’d like to give away, lend, or share with others in your area. The worldwide “Buy Nothing” social movement encourages sharing and community while helping to reduce the overproduction of unnecessary goods.

·        Exploit the purchasing power of Amazon. You can buy practically anything on Amazon these days. Use it to get the best deals on items like books, tools, clothing, music, electronics, food and more.

While quitting the workforce at a young age may not be for everyone, most people can benefit from the idea of spending their money in a more optimal way … less on wasteful stuff, more on learning, giving and fun. The Financial Independence sub-culture has a great deal to offer on the subject of improving costs while designing a more adventurous, fun-filled life. Whether you are trying to break free of the 9 to 5, firm up a secure retirement, or just looking to save a few bucks, the FIRE message might be just the wake-up call needed for improving your finances and more.  

1. National Institute of Retirement Security. March 2015. “The Continuing Retirement Savings Crisis.” https://www.nirsonline.org/reports/the-continuing-retirement-savings-crisis/

Key Takeaways From 2018 Berkshire Hathaway Annual Meeting

Nicknamed the “Woodstock for Capitalists,” this year’s annual Berkshire Hathaway Annual Meeting drew 42,000 attendees from all 50 states and several countries.

The two stars of the show were Warren Buffett—the 87-year-old investment “Wizard of Omaha” —and 94-year-old master investor Charlie Munger, who has been Buffet’s co-pilot since about 1975. The pair’s zest for American business combined with their one-line zingers and jewels of investment wisdom made for a meeting that was both informative, inspirational and, at times, hilarious.

Throughout the five hours of Q&A, where journalists and audience members peppered Buffet and Munger with tough questions, four main themes surfaced.

Theme #1: Investing Principles

Patience – Buffet started off the day with a story about the first stock he bought at age 11 in 1942: Cities Service, an oil service company. At the time, the world was in the throes of an unprecedented world war and America had joined forces.

Buffet carefully researched and then purchased six stock shares at $38 a share for himself and his sister. Immediately, he saw it decline 30%. While his sister urged him to get out, he patiently waited to sell it once it recovered a few months later at $40 a share. He then had the unpleasant experience of watching the stock rise to $200 a share without him.

From this experience, he learned a valuable lesson that has become a tenet of his investing philosophy: buy good companies with competitive advantages and strong intrinsic value, hold them forever, and don’t watch the markets too closely.

Wide Moats – Emphasized repeatedly throughout the meeting was the importance of buying good businesses, at a great price, with wide moats. A wide moat means competitors have a long distance to swim across alligator-infested waters in order to overcome a company’s competitive advantage, such as its robust brand strength, product stickiness or low-cost production methods.

At one point, Buffett was asked about Elon Musk’s recent comments criticizing his “moat” economic principle. In response to the Tesla Motors CEO’s opinion that “moats are lame” because they can be squashed by innovation, Buffett asserted that competitive advantage moats should be defended. He added that he doesn’t believe Musk will take them on in candy (since Berkshire’s See’s Candy enjoys an especially wide moat with its brand power).

Munger said, “Elon says a conventional moat is quaint, and that's true of a puddle of water. And he says that the best moat would be to have a big competitive position, and that is also right. Warren does not intend to build an actual moat. Even though they're quaint.”

Intrinsic Value – Buffet recommended investors buy businesses where return comes from the cashflow promise each year rather than the hope that someone will buy it for more in the future.

He used the example of gold where, in 1942, one could have invested $10,000 that would now be worth $400,000. In contrast, that same $10,000 in the broad U.S. stock market would be worth $51,000,000 today. In fact, Buffet emphasized, you wouldn’t have even had to pick the top stocks; you could simply buy a low-cost U.S. stock index fund. 

On Bitcoin investing, Buffet again pointed out the inherent risk of investing in something that is only worth what someone else will pay for it in the future. He doesn’t like it.

Munger doubled down with this line, “I like cryptocurrencies a lot less than you [Buffet] do. And so, to me, it's just dementia. And I think that people who are professional traders that go into trading cryptocurrencies, it's just disgusting. It's like somebody else is trading turds and you decide I can't be left out.”

What Counts Most – When it comes to investing, Buffet contended that what matters most is a philosophy you can stick with. In his early days of investing, Buffet found Ben Graham’s system. Taught to him at Columbia Business School and explained in Graham’s book The Intelligent Investor, it was an approach he could believe in and follow consistently. Then he met Munger, who broadened his thinking to a system that doesn’t put primary importance on buying companies only when they are ridiculously cheap.

At the core of what these men do, however, is a fairly objective recipe. They know the ingredients that are going to work in an investment: a wide moat, intrinsic value and a fair price. They also make sure to strike in their circle of competence—industries and businesses they know.

Quipped Buffett, “We want products where people feel like kissing you, not slapping you.”

Lastly, the pair also emphasized how they typically won’t acquire another company unless the management approaches them and has a commitment to continue serving, unlike most venture capital or hostile takeovers so common today.

Theme #2: Business Challenges of Today

Trade War with China - Buffet is optimistic that the U.S. and China will avoid a serious conflict on trade and that there will be a win / win among the two business super powers.

"I don't think either country will dig themselves into something that precipitates and continues any kind of real trade war," Buffet said at the shareholder meeting. "There will be some back and forth, but in the end, I don't think we'll come out with a terrible answer on it."

Specifically, Munger stated, “The conditions in steel were almost unbelievably adverse to the American Steel industry. Even Donald Trump can be right about some of this stuff.”

Munger also pointed out that we used to be more balanced between our imports and exports as a percent of Gross Domestic Product. Now there is a gap of 3.5% which implies that foreign entities have more money to invest in the United States than we have to invest in them. What effect does all this have on American workers? Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing jobs diminish. In addition, a trade deficit can have a role in producing financial-market bubbles and the devastation that’s caused when those bubbles burst. Thus, trade deficits do matter and should not be ignored.

On Healthcare - A number of questions came up about Berkshire’s collaboration with Amazon and Chase to improve their own health insurance costs. Buffett stated, “In 1960, the average healthcare spend per capita was $170, whereas now it is $10,000 a year.” He feels that it is a hugely non-competitive factor, a “tapeworm on American business.”

Munger pointed out that improving the current system is nearly impossible. “I suspect that eventually, when the Democrats control both houses of Congress and the White House, we will get a single-payer medicine, and I don’t think it’s going to be very friendly to many of the current PBMs (pharmacy benefit managers).”

Also, Munger mentioned that there is a past precedent for business jumping in to improve healthcare. He referenced John D. Rockefeller, who partnered with Carnegie Mellon, to push healthcare institutions to revamp, standardize, and centralize their institutions in the early 1900s.

The next step for Berkshire’s collaborative with Chase and Amazon is to hire a CEO to run the new healthcare company.

Theme #3: On the Future of Berkshire

The Q&A started off with a question from journalist Carol Loomis: “Is Buffett semi-retired?” After all, he shares his investment responsibilities with portfolio managers Ted Weschler and Todd Combs, and he just promoted Ajit Jain and Greg Abel to new jobs overseeing Berkshire's operating businesses.

"I've been semi-retired for decades," Buffett said. But he points out that Weschler and Combs oversee about $25 billion in stock investments, while Buffett himself is responsible for tens of billions more in stock and bond investments and about $100 billion in cash.

According to Buffett, nothing’s really changed that much since the recent promotions. "I think, actually, semi-retired probably catches me at my most active point."

At that, Munger joined in with a zinger: "Buffet is very good at doing nothing."

Next, an analyst asked whether Buffett's successors can continue Berkshire's record of throwing lifelines to struggling companies in exchange for very good returns. (Berkshire helped companies such as Goldman Sachs, General Electric and Bank of America in the years following the financial crisis.) Part of the appeal to those companies is Buffett's seal of approval, after all.

Buffet said that, even today, some of Berkshire's investments are arranged by portfolio managers Ted Weschler and Todd Combs, not by him. In fact, there's a deal under consideration right now that either Weschler or Combs brought to his attention.

"I do not think the party on the other side is going to care about the fact that they had him on the phone rather than me," Buffett said. "We will continue to have our standards of what we think money is worth at any given time. And Ted and Todd think just as well about that as I do."

Munger added, “Those of you who, after we are gone, sell your Berkshire stock and do something else with it, I think are going to do worse. So, I would advise you to keep the faith.”

Theme #4: General Life Advice

Continue Learning - Both investing titans mentioned quite a few times the importance of learning.

Munger quipped, “If you stop learning, you become a one-legged man in an ass kicking contest.”  

In nearly every meeting, Buffett refers to one book that changed his life — Benjamin Graham's The Intelligent Investor.

"All of the important ideas are in that book," he told shareholders. Specifically, he advised the audience to read chapter eight on short-term market fluctuations, which underpins one of Buffett's most successful investing philosophies: Sell when others are greedy and buy when others are fearful.

Buffet and Munger are the ultimate role models in the quest for lifelong learning. How else would these two inspirational and successful business figures talk off script for five hours at their late ages with such wit and intellect?

If you want to learn more, go to https://buffett.cnbc.com, an amazing site that has all of the past Berkshire meetings recorded.

8 Habits for Building Wealth and Health

From working out at the gym and eating right to spending less and budgeting more effectively, millions of people set New Year’s resolutions each year with the goal of improving their fitness and finances. In 2018, why not commit to a resolution that can improve both your health and your wealth? 


Here’s a list of eight habits that might just make a difference in both your wallet and your waistline.


#1 – Get out your bike


The bicycle is a health- and wealth-optimizing machine. Where else can you burn 500 calories while saving $10 an hour1? 


Imagine your hard-core self passing others up as you dash down the street to get to the post office or library as others parade around in their gas guzzling, racing cages.  


A British study of 263,450 subjects took a comprehensive look at the health benefits of bicycle commuting, and the results were staggering. Over the course of the study, the subjects who rode bikes had a 41 percent lower chance of early death on average than those who didn’t.2


“Cycle commuters had a 52 percent lower risk of dying from heart disease and a 40 percent lower risk of dying from cancer. They also had a 46 percent lower risk of developing heart disease and a 45 percent lower risk of developing cancer at all,” the study’s authors wrote.


If there were a pill out there that cut our risk of these horrible diseases by nearly half, we’d be all over it. And yet many of us have bikes in garages doing nothing but collecting dust.


Need more proof that cycling is good for you? Consider the case of Jean Louise Calment of Arles, France.3 She lived until age 122—despite her indulgences in smoking, port wine and chocolate consumption—and  

is on record as the longest living person ever. One of her longevity secrets was cycling, an activity she pursued until she was 100.



#2 – Cut the cable cord


Want instant savings on a big monthly fee? Cut off your cable. You could reduce your annual expenses by $2,000, not including energy costs. In addition, people who forego traditional TV see at least 10,000 fewer ads each year—ads which subtly nudge consumers back to the store to buy more stuff4—resulting in lower spending.


In the Men’s Fitness article, “Watching TV All Day Is Pretty Much Gonna Kill You (If It Doesn’t Rot Your Brain First),” the author cited that “alarming new research suggests that couch potatoes don’t just have to worry about obesity, heart disease, and cancer (which we knew about already). Tuning in for hours at a time also increases the danger that you’ll die from even more diseases, many of which are among the leading causes of death in the U.S.—things like diabetes, influenza/pneumonia, Parkinson's disease, and liver disease.”5


As an even bigger bonus, non-TV watchers naturally burn more calories with alternative activities. A New York Times article reported on a study that confirmed a group who “watched less television moved more, burning an average of 120 calories more a day than the control group.”6


#3 – Stay in for lunch


Not only is going out for lunch every day a huge time waster, it’s also a real crunch on your wallet and your waistline. 


From a monetary standpoint, a single lunch can set you back as much as $20 once you factor in the cost of restaurant food plus gas. Bringing your own lunch is significantly cheaper.


Plus, when making a lunch to take to work, you’re more likely to choose healthy food items like salads or meat and vegetable leftovers from the previous night’s dinner.


In a restaurant, it’s often hard to resist pizza or a hamburger, not to mention a side of fries. One way to ensure healthy-eating habits stick is to cook an extra serving at dinner that you can use for the next day’s lunch.


In the past, one of my colleagues used to cook a large batch of his favorite chili recipe once a month. This allowed him to eat lunches practically free for the next 30 days. Another option is to stock up on pre-made salads, soups, or veggie wraps from your local grocery store.


#4 – Cook at home

You can also improve your body and your bank account by cooking at home more often and eating out only on special occasions. When you cook for yourself, you tend to take nutrition more seriously. Consider working up a meal plan that allows you to choose more veggies, limit meat and bread, avoid convenience foods, and minimize sugar.


Challenge your creativity and internet research skills to come up with 10 new favorite recipes that pump up your nutrition and relieve your grocery budget. Websites like http://www.5dollardinners.com/ or http://www.frugallivingmom.com have hundreds of ideas to share.


#5 – Get in touch with nature

Make nature your primary source of recreation and peace. As author and naturalist John Muir once said, “In every walk with nature one receives far more than he seeks.”

Whether it’s walking the nearest canyon or hiking a trail, local communities offer dozens of free nature opportunities. When the kids are begging you to hit Legoland, plan a trek instead.  

Most city parks also have playgrounds that provide an excellent free resource to families and help develop childrens’ social skills.

Some national parks are free and others charge a fee depending on what your plan is. The fee isn’t much compared to what you gain from venturing around our beautiful landscapes and enjoying Mother Nature.


#6 – Tackle your own tasks


Our society has grown more service oriented since the 1950s. The casualties of our convenience culture are the calories once burned mowing the grass or cleaning the house. A great deal of money can be saved by clipping your own hedges and folding your own laundry. Unsure of how to get started on doing your own household tasks? Turn to YouTube for millions of “how to” videos from mopping the floor to cutting the hedges.   


#7 – Walk to work


Reinvent your commute by walking the final mile. Whether it’s finding the furthest parking spot in your company lot or parking a mile before you get to work, there are many ways to add walking to your daily routine.


If you really want to step it up, buy a fitness tracker to measure how this subtle change increases your steps, then work on stepping it up each week. For every couple of miles walked, you burn 200 calories and save about $2. If $2 doesn’t sound like much to you, consider the compounding effect of $2 a day over 20 years. At an 8% return, that small amount can add up to $36,000.


#8 – Add fitness to your day


Join a fitness class or craze that lights up your day. Even if your program costs $100 a month, the return in fewer sick days and medical bills over your lifetime could well be worth it.


Avid exercise enthusiasts save quite a bit on healthcare. According to an article in Shape, 30 minutes of moderate-intensity aerobic activity (like walking or mowing your lawn) five days a week, or at least 25 minutes of vigorous aerobic activity (like running, swimming, or aerobics) three days a week—or a combination of the two—can save on doctors’ bills.


The surprising result? The study found that people who met these goals saved on average $2,500 in health costs each year.7 As medical costs continue to soar, this savings could make a big difference in your family budget.


Whatever you decide to attempt for 2018, remember that it takes 21 days to form a new habit. So, what’s the best way to get a new habit to stick? Write down your progress on a daily basis. If you can devote just five minutes each day to this activity, you’ll create a habit that delivers big benefits in the coming months.


 Here’s to more wealth and health in 2018!





1. Jonathan. (May 8, 2017.) The True Cost of Car Ownership. Retrieved from https://www.choosefi.com/022-true-cost-car-ownership/. (Stat based on $0.53/mile after considering depreciation, gas, maintenance and taxes on a 5-year-old car.)

2. BMJ 2017;357:j1456. (Apr. 19, 2017.) Association between active commuting and incident cardiovascular disease, cancer, and mortality: prospective cohort study. Retrieved from http://www.bmj.com/content/357/bmj.j1456.


3. Newsner. (Oct. 27, 2015.) Jeanne Reached 122 Years. Here Are Her Secrets to Living a Long Life. Retrieved from https://en.newsner.com/family/jeanne-reached-122-years-here-are-her-secrets-to-living-a-long-life/.

4. “Herr, Ph.D, Norman.” (2007.) Television & Health. Retrieved from https://www.csun.edu/science/health/docs/tv&health.html.

5. Rodio, Michael. (Dec. 3, 2015.) Watching TV All Day Is Pretty Much Gonna Kill You (If It Doesn’t Rot Your Brain First). Retrieved from https://www.mensfitness.com/life/entertainment/watching-tv-all-day-pretty-much-gonna-kill-you.


6. Parker-Pope, Tara. (Dec. 16, 2009.) How Less TV Changes Your Day. Retrieved from https://well.blogs.nytimes.com/2009/12/16/how-less-tv-changes-your-day/.


7. Malacoff, Julia. (Sep. 9, 2016.) Working Out Could Save You $2,500 Every Year. Retrieved from https://www.shape.com/fitness/tips/working-out-could-save-you-2500-every-year.



Key Takeaways from my Visit to See Vanguard Founder, John Bogle

Last month, I had the good fortune of attending the annual Vanguard Bogleheads® Summit in Malvern, Penn. The special guest was John Bogle, the man known as the “father of index fund investing” and the founder of The Vanguard Group.  Along with this, he is the author of 10 books and has been recognized for his contributions to the investment world by publications ranging from Time Magazine’s “Most Powerful and Influential” to Fortune’s “Giants of the 20th Century.” Despite these accolades, this down-to-earth investment guru insisted on being called “Jack.”
Jack created Vanguard in 1974, serving as Chairman and CEO until 1996. He then took on the role of Senior Chairman until 2000. The largest mutual fund organization in the world with over 300 funds, Vanguard manages assets of $3 trillion. Yet unlike most mutual fund companies, it is owned by its shareholders as a not-for-profit organization. Under this model, it returns excess cash flow to its investors in the form of lower mutual fund fees in future years.
The Vanguard 500 Index Fund, which was designed to track the S&P 500 Index, was founded by Jack in 1975. It was the first index mutual fund ever, and it continues to reign as Vanguard’s largest fund today.
With contributions like these, it’s not hard to guess why Jack is held in such high esteem. In 2017, in fact, Warren Buffett recognized Jack as the person who has done more for individual investors than anyone else.
"If a statue is ever erected to honor the person who has done the most for American investors,” said Buffet, “the hands-down choice should be Jack Bogle."1
Along with Jack, there were other investing VIPs among the crowd of 200 at the summit: Jonathon Clements, Bill Bernstein, Christine Benz and Gus Sauter. Yet for most of the attendees, it was Jack they came to see. And from the kickoff reception to the final closing remarks, Jack did not disappoint.
Below are a few of the golden nuggets of wisdom he shared with conference attendees.
On asset allocation
Investors in their post-retirement years typically think they should replace their stock holdings with safer bond options. Not Jack. At the ripe young age of 87, he admitted to a personal allocation of 50% in U.S. stock funds and 50% in bond funds, including some corporate bonds. Yet despite his proven success in building wealth, the genius investor revealed that he often questions his own financial decisions.
“I spend half my time worrying that I have too much in stocks and half the time feeling I’ve got too little in stocks.” Apparently, even Jack Bogle is human.
On investing internationally
Contrary to most investment thought leaders, Jack believes you can have an excellent investing experience without owning international stocks. During his presentation, he pointed out that half the U.S. company revenues come from overseas. This gives investors global diversification while investing in a U.S. stock fund. He did mention, however, that currency may have some effect on why certain countries do better than others in the short term.
Jack also emphasized that the majority of the international market cap centered in three key markets: the UK, which could be sluggish from Brexit; Japan, which is still struggling with an aging population; and France, where he feels there may be too many labor-friendly policies like the 36-hour work week … upon which he quipped that he still works 36 hours in the first few days of the week.
To further defend his point, he pointed out that US stock market returns have smoked international since 1997, where the US S&P 500 has averaged annually 7.7% while international developed stocks trailed with 4.2% through 2016.
With this in mind, he closed by saying (with a hint at self-deprecation), “It seems logical to me that the U.S. stock market will continue to outperform, but I could be wrong.”
On the future of U.S. stock market return
In the long term, Jack said that the math was simple on expected return over time. It’s basically dividend yield plus corporate earnings growth. Knowing the former is 2% and the latter should come in around 4%, that makes for a total expected return of 6% in the coming years.   

To those who questioned his estimations, he quipped, “The math is the math. If you don’t like my prediction, make up your own. Though it shouldn’t be a prediction, more like an expected return and make sure to tell us where your estimation comes from.”
On index fund variations
When it comes to index fund variations, Jack said that “there’s nothing quite like market cap weighting.” By this, he was referring to a situation where stocks are weighted according to a company’s stock valuation, though he believes factor weighting like value is a little “nutty.” He doesn’t deny there are long periods where value investing beats growth, and then where growth beats value, but he feels that “it should be called what it is: a reversion to the mean.” Among Vanguard’s funds, the “growth vs. value” winner is unclear. In the large cap space over the past 10 years, growth prevails while among their small cap index funds value has the upper hand, though performance history is limited due to lifespan of the various Vanguard category funds. In addition, dismissing that value stocks offer higher return runs contrary to the Nobel prize winning economist Eugene Fama (U. of Chicago) who along with Kenneth French (Dartmouth) indicated through their research that small cap stocks and value stocks would support higher stock returns over long periods of time.
On picking individual stocks
After decades of going against the grain of active fund investing, we now have a lot of data to support that diversified index fund investing really works. In any trade, there is a winner and a loser, and thus, before costs, investing is a zero-sum game. To take this a bit further, half of the stock pickers will win, and half of the stock pickers will lose. The reality is that, after costs, most active fund managers will lose. As an index fund investor, owning most of the market and keeping costs low, you put yourself in the upper half of investor performance in most any given year, and in the top 20% or better over longer periods of time.
“Don’t bet your financial future on bad odds,” Jack summed. “Lifetime investing is what we all should be thinking about. What will work in the long run?” 
On his legacy
When asked about how it feels to reflect on the impact he has had on the financial industry and so many individual investors, he simply shared a quote by Sophocles: “One must wait until the evening to see how splendid the day has been … my evening has not yet come.”
On character and humility
“My wife, Eve, of 60 years thinks that I am bereft of humility. Look, I just want to be the same kind of kid that I grew up as.”
On going against the grain
“I have never given a damn about what most anyone else thinks.”
What lies ahead
At one point, Jack was asked what the next Jack Bogle would change. This question set him back for a moment. Then he remarked that there are still too many opportunities for Wall Street to unnecessarily extract too much value from Main Street.
In fact, he considers some of the practices as borderline fraud. They get away with this, he said, because the markets keep going up. For his part, though, he has enjoyed “doing something right in an industry that often refuses to do the right thing.”
On Jack’s heroes
When asked who has inspired him, Jack listed Warren Buffett, Andrew Hamilton and Ben Franklin.
On success
Here, Jack kept it short and sweet. The keys to success are simple, he said. You just need to “work a little harder, work a little smarter, and be a self-starter.”
The big takeaway
It was a privilege and honor to meet Jack, and I learned much while listening to him present over the two days of the conference. As I sat among the many Bogleheads who make an annual pilgrimage to hear him speak, I now understand why.  As his disciples, they are among those who consider the index fund to be one of the best inventions of our time, and its inventor to be one of the smartest financial gurus of the last half century.
For many, the work of Jack Bogle and Vanguard has led his followers to afford first homes, put kids through college, manage career changes, experience grand life pursuits and ultimately master retirement.
In a world with so many challenges, it’s comforting to know that there’s a man like Jack, whose life’s mission has been “to help individual investors build wealth without paying excessive fees, guide them into investments which will yield the market return without additional risks, and promote suitable asset allocations that match individual risk tolerance.”2
As investors, we can all use a hero like that.
1 -
http://www.businessinsider.com/warren-buffett-praises-vanguards-jack-bogle-in-annual-letter-2017-2, Feb 25, 2017, Levy
2 - https://sites.google.com/site/bogleheadsmeeting/
3 -
http://money.cnn.com/2017/03/08/investing/vanguard-jack-bogle-stock-market-not-in-bubble/index.html, March 8, 2017, Long, Heather

All investing involves risks.
Past investing performance is no guarantee of future results.


Should You Worry About A Stock Market Correction?

The financial community defines a stock market decline of more than 10 percent in value as a “correction.” Such an event, both before and when it actually happens, can cause you to feel alarmed to downright terrified.
Despite this, I suggest that investors, particularly the buy-and-hold type, put their fears aside and not be overly concerned about a so-called market correction.
Corrections won’t crack a balanced nest egg
For starters, the “market” we are talking about is the one for stocks, not bonds. Assuming that your portfolio features a moderate asset-allocation as described below—somewhere in the range of a 60% - 40% stock-bond split—market corrections will only affect a portion of your overall nest egg.
Corrections are a certainty...just like death and taxes
Secondly, market corrections are an inherent part of the investing process and occur on a fairly regular basis. Simply stated, a stock market correction is an inevitable part of stock ownership. However, as an exception to the rule, the U.S. stock market has been pretty tame on the downside since 2011. As a result, investors have had little experience lately with a down market.  



              -5%               About 3 times a year                 47 days                                      August 2015
            -10%               About once a year                      115 days                                   August 2015
            -15%               About once every 2 years         216 days                                   October 2011
            -20%               About once every 3.5 years     338 days                                  March 2009

As I write this article, some stock valuations are hitting historical highs on a regular basis. So it comes as no surprise that the financial media is full of predictions about when, not if, a market correction will occur.
And, based on historical trends, one could reasonably assume that we are overdue. On the other hand, one could also argue that we have been here before. Recall the year of 1996 when we had 15 years of steady growth behind our backs, resembling our recent S&P 500 run. Who would have ever guessed we would see another 4 years of strong stock market return?  Bottom line, we simply cannot predict a correction. When it happens, you’ll know it. No need to spend time and energy worrying. Instead, invest with the long term in mind.
If you have high-quality investments, don’t be tempted to tinker with your portfolio. Experience shows that a correction’s “bark” is worse than its “bite.” Long-term investors can actually view a correction as an opportunity to add new money to proven investment positions at favorable prices.
Corrections can be erratic . . . like temperamental toddlers
Thirdly, just as market corrections cannot be predicted, no one has ever been able to predict how long they will last or how deep (percentage decline) they will go. The takeaway here is that you should not try to time the market. Getting out when the market falters and getting back in when it rebounds is a losing proposition.
Corrections offer a second chance to rethink your holdings
Fourthly, tracking how your stocks and stock mutual funds perform (loss and recovery of value) during and after a market correction provides investors with an opportunity to assess the defensive and offensive strengths of individual holdings. It’s also a good time to revisit why you bought and continue to hold the various holdings you have in your portfolio.
It’s not easy to decide what to do, or what not to do, when faced with a market correction that affects you directly. My advice is to first make sure the situation is being analyzed by using the reflective, left side of your brain. Restraining the brain’s reflexive, right side will take the emotions out of the decision-making process.
Limit worries with a balanced portfolio
If you have a reasonable asset-allocation for your time horizon, you’ll have less to worry about than investors with stock-heavy portfolios who need to begin withdrawal within a few years. To illustrate this point, let’s look at the historical performance record of a moderate allocation mutual fund in relation to some notable stock market declines.
The fund in question, Vanguard Balanced Index (VBINX), maintains a steady 60% - 40% stock-bond portfolio mix by following total stock and bond market indices. The Fund is highly rated by Morningstar and has a solid long-term track record: A 10-year annual average total return of 6.23% with a below-average risk and an above-average return category-comparison rating.
VBINX accomplished this respectable performance while enduring three market corrections in 2008, 2011 and 2015. If you invested in this Fund during those years, you would have had to live with annual total returns of – 22.21%, + 4.14%, and + 0.37%, respectively. Just remembering the negative 39% stock market drop in the 2008-2009 period should be sufficient evidence to substantiate the value of asset-allocation when it comes to protecting financial asset values.
In summary, I believe it’s a waste of time to worry about market corrections. Not because they won’t come – they will. However, following Vanguard founder John Bogle’s advice to “stay the course,” a reasonably balanced portfolio of high-quality stock and bond investments will lessen the damage, strengthen a recovery of value, and justify a long-term, buy-and-hold investing strategy.


Source of Market Fluctuation data:

American Funds website. “Market Declines, A History”, Source: The unmanaged Dow Jones Industrial Average, https ://americanfundsretirement.retire.americanfunds.com/basics/volatile-market/market-declines
All investing involves risks. Past performance is no guarantee of future results.

A Mortgage Forever? Think Again

Nervous about the stock market? Frustrated by low bond yields? Consider taking some of your investment dollars and using them to pay down your mortgage.

Now I know what you’re thinking: “My mortgage interest rate is only 4%. I can make a better return by investing.” 

And you’re correct…kind of.

It’s true that you can earn more by investing your money wisely over the long term. In fact, there are certainly things you should do before chipping away at the mortgage—like paying off credit cards, investing in your 401(k), and setting up an emergency fund. 

It’s also true that making extra mortgage payments won’t earn you dazzling returns. If your mortgage rate is 4%, your effective rate of return is going to be . . . 4%. 

But there are still some very compelling reasons to minimize your mortgage.

1 - Put your cash to work

Are you putting your hard-earned cash to work? Many people aren’t. In fact, it’s not uncommon to find upper middle-class Americans holding anywhere between $50,000 - $100,000 in cash. This occurs despite emergency fund requirements that are much lower. (The CFP Board encourages 3-6 months of spending needs in an emergency fund). 

Others let their money sit idle in CDs or money market funds. Yet cash sitting in these investments loses value to inflation every day. Instead, use that money to make 1 or 2 extra house payments per year and attain a guaranteed return.

2 - Earn a higher return rate

Not all investors invest wisely. According to Dalbar’s annual study1, the average investor from 1996-2015 achieved only a 2.1% return. During this same timeframe, S&P 500 investors saw gains of 8.2%. The reason for this large gap was investors’ inability to stay the course with a low cost well-defined strategy, combined with futile attempts to perform market timing. 

With this in mind, a guaranteed return of 4% by paying off the mortgage sure beats the 2% average by many investors. And, for conservative investors who would otherwise buy bonds or money market funds, the 4% guaranteed rate of return might sound rather appealing.

3 - Enter your golden years debt-free

Not that long ago, retiring with a mortgage was unthinkable. When that last payment was made, homeowners celebrated. Neighbors even held mortgage-burning parties.

For investors with 30 years of retirement ahead of them, the number one fear is running out of money2. If you work to pay off your mortgage early, you can retire knowing your biggest expense is soon to be eliminated or is already gone.

4 - Increase your tax savings

If you’re concerned about losing your mortgage interest tax deduction by paying off your home loan early, I’ve got good news. As it turns out, the interest tax deduction is highly over-rated when it comes to retirement. By not having a mortgage payment at all, you could save even more on taxes in your golden years.

How does this work? Consider this example.

Mary and Bob are in their late 40s and have a 30-year, $500,000 mortgage. It saves them $4,000 a year in taxes. If they pay off their mortgage gradually between now and retirement, they could still save $3,000 in annual taxes now. Once in retirement, assuming they are using IRAs to cover a large part of their expenses, they would save closer to $7,500 a year due to reduced IRA withdrawals. 

In the “keep paying for 30 years” scenario, the tax savings from mortgage interest over the life of the loan equates to about $60,000. In the “pay off the loan early” scenario, the tax savings would be closer to $110,000—nearly twice the savings of keeping the loan.   

5 - Retire early

Studies show that Americans are 20% more likely to retire before age 65 if their mortgage is paid off.3 No doubt this is due to the confidence in knowing your home—which amounts to 20%-30% of your pre-retirement spending—is paid off.

If you’re feeling conflicted about what to do, start by making one extra mortgage payment this year. With some lenders, you can do this by paying a little extra on each mortgage payment, or by paying more payments each month.

As an example, let’s say you borrowed $500,000 using a 30-year loan at 4% interest. If you added $300 to each mortgage payment, you could save yourself $77,518 in interest and pay off the loan 6 years early.

If that one extra payment a year feels pretty good, next year take part of your pay raise or annual bonus to make two extra payments. 

Paying off a mortgage early is not for everyone. First, you’ll want to ensure you have eliminated all higher interest debt, are maxing out tax shelters like 401(k)s (LINK TO TAX SHELTER ARTICLE), and have college savings completely on track. 

If all other savings opportunities are going well and are invested wisely, then take a look at reducing your mortgage. For those who are conservative and contemplating a CD at 2% interest, lopping off a chunk of your mortgage might be a much smarter move. In the hunt for guaranteed return, your answer might be literally at your front door.

1.  Dalbar.  Quantitative Analysis of Investor Behavior Study, 2015. utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/15 to match Dalbar’s most recent analysis. 

2. AICPA, American Institute of CPAs, “Running Out of Money is Top Retirement Concern, Says AICPA Survey of Financial Planners”, Oct. 6, 2016

3.  Urban Institute.  “Older Americans in Debt Are More Likely to Work.” May 2016 Powerpoint. 

All investing involves risks.

Historical investing performance does not guarantee future returns.

Santa's List for Wealth

Are you Being Naughty or Nice with Your Critical Money Decisions?

Why does Santa check his list not once, but twice? It’s to make sure he’s made the right decisions.  If you can get the big decisions right in your financial life, wealth will follow.

Here’s a list of the 10 most important money decisions you will ever make.   

#1 - How much ownership should I take with my finances?

In this busy world, it may be tempting to put off your financial planning until later or assign the task to someone else. But is this wise?

Consider your physical health for a moment. Would you let someone else choose what’s best for you if you got ill? Would you let someone else make key decisions for you like electing surgery or taking medication without your say? Probably not. Then why would you give up control of your financial health?

How engaged you are in growing your wealth truly matters, so take charge now. Start by reviewing or creating your financial plan. By taking responsibility for your own financial well-being, you increase your odds for success.   

#2 - How much should I save?

This is the biggest driver of your investment growth. After all, if you don’t save, you can’t invest. Aim to sock away at least 10% of your salary every year—more, if possible.

Not good at saving? Then you probably shouldn’t buy that new gas-guzzling SUV, pay for top-of-the-line cell phone or cable plans, or eat out daily. Make it your goal to spend less and save more in 2017, so you can set yourself up for financial security.

#3 - How much should I put into stocks?

The more you invest in a diversified mix of stocks over your lifetime, the higher your return will likely be in the long run.

So what’s considered long term? According to the September edition of JP Morgan’s “Guide to the Markets,” the 10-year rolling return since 1950 of the S&P 500 ranges from -1% to 19%, so 10 years might serve as a good guide. In addition, you should expect negative returns in the stock market at least 1 out of every 5 years; so, each time you hit a pothole in your investments, don’t jump ship. 

While there is a greater chance of short-term losses with stocks, the game of stock investing will be won by the patient and disciplined.  

#4 – Should I be an investor or a speculator

It’s not an easy choice. Research has shown that “market timing” most often does not work. But the daily headlines telling you to “buy this stock” and “sell that one” can challenge your investment discipline.

It’s also easy to fall prey to “hot stocks,” even when you know reliable investing results depend on diversification. The trick is to keep the speculative portion of your investments as small as possible. That way, if they do go cold, your temporary losses will be minimal.

#5 - Where should I live? 

Think carefully before picking the mansion over the modest home. If you buy the biggest house you can afford, you’ll have less money available to pay for college or retire early. And here’s something else to ponder: wealth is often found in neighborhoods with old cars and tall trees.

Just look at Warren Buffet. He lives in a 5-bedroom, 2.5-bath house in an old neighborhood in Omaha, Nebraska. Not in a beachside mansion or country manor surrounded by acres of land. The lesson here? Just because you’ve got money doesn’t mean you have to flaunt it. When you’re sitting on a sizable nest egg in retirement, you’ll be glad you didn’t.   

#6 - How can I manage my taxes more effectively?

You are surrounded by investment account options that offer many tax advantages—like IRAs, Roth IRAs, 401(k)s, 529s and health savings accounts (HSAs). Yet very few people maximize these tax shelters. This is a mistake.

When you use them, tax shelters can help you keep more money in your pocket so you can create a more stable financial future. For more on this, read my recent article on tax shelters.

Also, tax strategy should be reviewed carefully with a CPA or enrolled agent in order to ensure smart tax moves.

#7 - How many kids should I have? 

The Department of Agriculture now predicts it will cost $250,000 to raise a child. In California, this figure is closer to $350,000. Eighteen years of childcare, medical bills, groceries, clothes and shoes, summer camps, and piano lessons can really add up.

And don’t forget about college. Four years at a top university can run well over $150,000. As you’re thinking about how large a family you want, keep this in mind: Having kids can be exceptionally rewarding, but it’s also enormously expensive.

#8 – Should I pay off my credit cards every month

Carrying credit card debt is an act of financial foolishness. Yet so many of us do it. The average credit card debt in the U.S. is $15,675 at an average interest rate of 15.1%. Ouch! Debt of that size will derail all your other smart financial moves, so put a stop to it before it snowballs out of control. Buy only what you can afford each month, and pay your bills immediately.

#9 – How should I prepare for financial emergencies

A rule of thumb from the CFP Board is to have 3-6 months of your spending set aside in liquid, cash type investments like a Money Market Fund or CD. You should also regularly review your insurance coverage like medical, disability, umbrella, life, home and car to make sure it reflects your current needs. 

#10 - Where should I get financial advice? 

Newspapers and money programs are designed to entertain, so it’s easy to get caught up in the hoopla. Sensible investing, on the other hand, is often rather dull. Rather than following “hot stories,” read books and articles from the best investment gurus on the planet like Charlie Munger, David Swensen, and Warren Buffett.

Aside from the misleading financial media, people often turn to family or friends for investment ideas. Unless your cousin is investment legend Jack Bogle, you may want to look elsewhere.

And then there are local financial advisors, who very well might be a great place to start. Just make sure their motives are in line with yours, and be sure you understand how they are paid.

  • Do they make more money by generating trades?

  • Are they compensated to sell certain products over others? 

  • Are they limited to certain products through their firm that carry high fees, such as mutual fund fees over 1%? 

    If so, you may want to look for an independent, fee-only “fiduciary.” This is a professional who has specific credentials such as CFP (certified financial planner) or CFA (chartered financial analyst). Before investing, be sure you’re clear about the fees you’re paying for both the advisor and his or her recommendations.

    As the year comes to a close, take a few moments to consider the critical financial decisions that you have made. The decisions above should not be taken lightly: these are the most important money decisions you’ll ever make. If you are married or someone else is active in your financial life, sit down together and review where you stand. Santa might bring you plenty of nice things, but only you can give yourself the gift of a strong financial life. 

Painless Ways to Live Below Your Means

Spending less than you earn is quite simply how everyday Americans get rich.

Yet for a lot of people, there is nothing simple about it.  Many find it nearly impossible to live within their means.  So what should you do? Here are 9 ideas:

  1. Start by knowing where your money goes. Track your spending with one of the plethora of tools that are available today: mint.com, Personal Capital, online bank account summaries, or an old-fashioned spreadsheet.  It’s like dieting. If you write down everything you eat, you will eat less.

  2. Crack an axe at reducing re-occurring monthly services like cable, internet, phone, newspapers, and other online memberships by putting on your chief negotiator hat. After doing a little research, dial them up and have the following call, “Mrs. CS agent, I have been a loyal customer for XX years; and I am in a financial bind and need to drop (or replace) your service.  I thought before I did that I should call you and see if you can help me reduce my costs.”  Be willing to drop their service for 3-6 months and then see what discount they will offer to lure you back.  Want to maximize your negotiation, have this call with someone else on the phone with you like your spouse or financial advisor.

  3. Reduce the frequency of services like house-keeping and gardening.  Perhaps investing in lower maintenance plants or indulging in a good vacuum cleaner and hiring your kids to pitch in can lead you to drop these services altogether.

  4. Hunt for the lowest prices, especially with big ticket item purchases; and the biggest store in the world is right at your fingertips.  It’s called Amazon for a reason.  You will be amazed at what you can find on Amazon and Ebay these days, and you will also save gas money and time.

  5. Change your life for the better.  Do you need exercise? Consider riding your bike work. Do you need time? Reduce eating out at lunch.  Are you all about saving the planet? Find a carpool or rideshare near you at https://www.erideshare.com/carpool.

  6. Slash your insurance costs.  A good place to start is the internet.  Try quickquote.com. There has been a feeding frenzy for cheap term life insurance, which is making rates incredibly competitive.  Rebid auto, home, and umbrella policies, and search financial bloggers like “MMM Recommends” for best places to start.  Also look into saving money by boosting deductibles on your auto and home insurance.  Consider whether collision insurance makes sense on your vehicle with the help of a good agent.  

  7. Take full advantage of health savings accounts and retirement savings accounts.  With these employer-sponsored plans, you get to save and spend out of pre-tax dollars.  In many cases, an employer match is also offered, which is the easiest way to get free money. 

  8. Free entertainment abounds. Whether it is the beach or our beautiful libraries, keep a list of favorite “free things to do” and focus your time on those activities.  Free stuff can bring more joy, peace of mind, and less hassle.

  9. The best way to save on expenses is to move to a place where the cost of living is cheaper.  It may be difficult if you are working now, but it certainly should be a consideration as you move into retirement. Sometimes a lower cost of living is less than 15 minutes away.  And, if you really want to hit the jackpot of lower living costs– pay off your mortgage. One extra payment a year can reduce a 30 year mortgage by 5 years or more. 

More often than not, wealth is the result of smart spending, a lifestyle of hard work, discipline and good planning. In the words of Thomas Stanley, author of the Millionaire Next Door: “Many people who live in expensive homes and drive luxury cars do not actually have much wealth…Many people who have a great deal of wealth do not even live in upscale neighborhoods.”
Thomas J. Stanley, The Millionaire Next Door: The Surprising Secrets of America's Wealthy


Put More Money In Your Pocket, Not Uncle Sam's

Taxes are everywhere—federal, state, retail, investment, estate—and they can easily eat up over 50% of your income. That’s more than half your money going in Uncle Sam’s pockets.

Wouldn’t you like to keep more of your money in your own pockets?

Luckily, there’s a way to do just that: use tax shelters.

Now I’m not suggesting you fly to the Caymans to open a secret off-shore bank account. The tax shelters I’m talking about are completely legal. In fact, our own politicians created these special account types. The idea is to encourage investors like you and me to save money by offering us certain tax benefits.

To find out which shelters are the most common and what you need to consider when selecting one, read on. I’ll even tell you about the most widely misunderstood option, and why it’s also the best tax shelter of all.

Save Taxes Now - Tax-deferred 401(k)s and Traditional IRAs

The advantage of a 401(k) or traditional IRA is that you can save on taxes now and grow money tax-deferred. The downside is that you’ll pay taxes on this money upon withdrawal. In fact, once you turn 70½, the law requires you to start taking this money out. 

Today many companies offer a 401(k) plan and most match the first 3% - 6% of your contributions. Between the company match and the tax savings, contributing at least up to the match is a no-brainer. For those who don’t have a 401(k) at work, the traditional IRA or a self-employed IRA offers similar tax advantages. Just be sure your CPA gives you the green light before proceeding as income limits do apply.

Lastly, keep in mind that a 401(k) or IRA is a retirement savings tool. That means, with a few exceptions, you won’t be able to take this money out before age 59½. If you do, you’ll pay a 10% penalty.

Save Taxes Later - Roth IRAs

A Roth IRA lets you save after-tax money now, so you can let it grow tax-deferred and never pay taxes on that money again if you play by the rules on withdrawal. 

The real beauty is that it lets you take advantage of a lower tax rate now than you may have in retirement. Often this is the best option if you are younger, starting out in your career, or experiencing low income due to a layoff.   

What most people don’t know about the Roth IRA is that the after-tax money you contribute—what a tax professional calls your “basis”—can be accessed before age 59½ without paying a penalty. But this only applies if the Roth has been open for at least 5 years.

More Ways to Save Taxes Later - 529 Plans

529 plans—the education “gold standard”—offer tax savings for money that will be used in the future for qualified college education expenses. This includes tuition, room and board, and books. Like the Roth, you put after-tax money aside today that grows tax-deferred over many years. 

You can even move this money between family members or use it for yourself. Plus, the accounts never expire.

Save Taxes Now and Later - Health Savings Accounts

The health savings account (HSA) is a tax shelter that is both widely misunderstood and your most appealing option. That’s because it lets you save on taxes now AND later!

This type of account lets you save money for medical expenses over your lifetime. Here’s how it works:

·         You become eligible when you enroll in a high-deductible health medical plan (with a minimum annual deductible of $1,300 for individuals and $2,600 for a family).

  • There are annual contribution limits: $3,350 for individual plans and $6,650 for a family plan. 

  • Individuals over 55 can contribute another $1,000/year for catch-up. 

  • If you’re under 65 and withdraw money for a non-medical use, taxes and penalties will apply. If you’re under 65 and use HSA funds for medical expenses such as co-payments, deductibles, and other non-covered expenses, then taxes and penalties don’t apply. This makes these plans more age flexible than the retirement plans mentioned previously. 

  • HSA money can be used to pay for Medicare premiums in retirement or for insurance premiums while on COBRA.

    The money rolls over from one year to the next. 

Since many retirees will spend 30% or more of their income on medical expenses, having a sizeable HSA account as you enter retirement can be a very smart financial move. And it will save on taxes now, too, as a deduction from your current income.  

How to Get Started

Tax savings abound if you’re willing and able to shelter your money. But you need to act fast. Many of these options with annual limits in essence “expire” at the end of the year, meaning you can participate next year, but the annual amount of $18,000 in a 401K for this year of your life expires. As with many aspects of money management, procrastination is not your friend.   

Here’s what you need to do:

  • Consult an HR professional for help with logistics.

  • Discuss the options with your CPA, preferably before the 2016 tax season hits so there’s time to process the paperwork.   

Using tax shelters can help you keep more money in your pocket and set yourself up for a stable financial future. Happy saving!


All suggestions above are based on current tax law and are subject to change. Investing involves risks. This article is not intended as tax advice. Please consult with a CPA for your particular situation.