Month: February 2021

Let Yourself Do the Thing
photo shows the feet of a hiker in the woods

Sometimes it’s not life’s big puzzles that floor us.

Sometimes, it’s those thorny little tasks that hang around and finally exhaust us with frustration, maybe filing some paperwork that you’ve never had to do before or canceling an account you haven’t used in two years (but get billed for monthly!).

Too many of us assume that procrastination is driven by laziness or poor priorities. But pros who study this phenomenon suggest that putting tasks off is often a form of avoidance.

Have you ever let a piece of mail sit, not wanting to even find out whether it’s a bill? Or bad news? Or more work than you’ll be able to get done this week anyway? That anxious spiral there is exactly what experts mean by “avoidance.”

A lot of advice encourages structural solutions, liking breaking a job into smaller tasks or blocking time off your schedule to devote to it. If the problem is emotional, however, these rational approaches won’t help us cope. A different perspective might help.

Let past you off the hook. “This has been sitting here for months! What’s wrong with me?” you may hear yourself saying. You know the task could be short and simple, but you may feel dread with all the emotional baggage you’re dragging to it.

The past has already happened: you can’t go back, so embrace this moment as a fresh one. Whatever your next step is, that’s the important one.

Sit with uncertainty. Sometimes we avoid tasks because we feel uncertain. We may be afraid of something new and unfamiliar, or an ambiguous task may have morphed into a giant monster in our minds. Facing and accepting our feelings can be a great way to soften them before moving on.

You ain’t busted: you don’t have to “fix” your feelings.

Gather support. It’s nice to go for help when you need it, though. It could be that asking a few questions from a professional you trust would be enough. If the challenge is primarily emotional, calling a friend to vent may be enough to face the issue, which reminds us…

Remember that you’re not alone. Not only do you have a network of support around you, in all different forms, there’s probably also someone out there who has experienced something similar before.

What’s the lesson? Take (or find!) comfort, and do the thing.

Clients, if we can help you in any way as you’re doing the things, please write or call.

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An Offer You Can’t Refuse
photo shows a cup of coffee next to a calendar

When you save money in an IRA, you get a benefit in the form of a tax deduction that reduces your liability come tax time. Unfortunately, all good things must come to an end, and these taxes are merely deferred: when you take distributions from your IRA, it gets taxed as income.

To make sure that the IRS gets its share, IRA owners are required to take out a percentage of their account value each year starting at age 72. This “required minimum distribution” (RMD) starts out around 4% and slowly grows with age according to life expectancy tables.

Beneficiary IRAs are also subject to RMDs, regardless of age. (The IRS has a vested interest in seeing that they are drained. They designed IRAs to help taxpayers fund retirement, not to sock away generational wealth with impunity.)

There has been some confusion about RMD rules in recent years because of multiple rule changes, including the requirement being waived altogether for 2020. There are no signs that Congress intends to waive RMDs for a second year, so anyone who is 72 or older by the end of 2021 will need to take out an RMD by December 31.*

No matter when your birthday is, you get complete discretion on when to take out your RMD. Some prefer to put it off as long as possible to keep the money at work in the market; some would just as soon have it in their pockets at the start of the year. It is up to you.

One notable exception for IRA holders: Roth IRAs do not have any mandatory RMDs. A Roth is funded with after-tax money, so the IRS has no interest in how you take money out or leave it in. If you are still saving up and counting down days until retirement, this is one advantage of a Roth that you should take into consideration.

Clients, if you want to talk about your RMD, please call or email us.

*Those turning 72 this year get a one-time extension and can put off their very first RMD until Tax Day next year, though we generally do not recommend this: these folks will still need to take 2022’s RMD out by the end of next year, so doubling up on distributions will create a lumpy tax bill.

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A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

In It Together

We subscribe to the theory that the better off you are, the better off we will be. More broadly, we believe the greater the wellbeing of our community and society, the greater our own wellbeing.  

Our experience suggests we are on the right track. 

And it stands to reason. Every retiree needs healthy, productive workers to pay Social Security taxes on good earnings. Every business endeavor needs customers with money. Every level of government from the village to the nation requires taxes from productive workers and businesses to offer its basic functions.

America has perhaps been the place where the highest fraction of the people could unlock the greatest part of their own potential. We think this explains our prosperity relative to nearly all other countries. 

Here’s a thought experiment. How would things be different if left-handed people were no longer permitted to engage in any occupation which required tools, even a computer? 

If you are left-handed, this would clearly be a bad thing. A household with two different adults—a left-hander and right-hander—would have a tougher time financially than they would otherwise. (Right-handed people would have “less competition” for better jobs, but would they be any better off overall?) 

When you think about it, a system that discouraged or limited a tenth of the population would hurt us all. To carry on with our example, consider how our world has been enriched in many ways by unique talents of left-handers: Leonardo, Einstein, Helen Keller, Marie Curie, Jimi Hendrix… even Oprah and Lady Gaga!  

And all those less-famous lefties going about their lives, doing ordinary things to make their own lives more extraordinary, have been responsible for untold wealth and progress. 

Certainly, our nation and our world would be poorer, with lower total income distributed more unevenly.

This is why our surest path to the brightest future includes working to expand opportunity to the whole of our people—letting everyone on the ladder, with a fair shot at the next rung.  

Discrimination in access or pay or opportunity makes us all poorer. Inclusion makes us richer, and yes, even when left-handers have a fair shake. And women. And people of color. And anyone else you can think of. 

America’s historic source of strength and prosperity—being the place where people can unlock their own potential—can be made more true for more of us. And it will be to the benefit of all of us. 

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When the Thrill Is Gone

We’ve talked before about how the ups and downs of the market are like being on a rollercoaster. The anticipation, the buildup—those things don’t have to be scary when we understand they’re part of the ride. For some, they’re even thrilling. 

This comparison is a little simplistic, sure. But there are valuable lessons in this image. 

For instance, one difference between the markets and actual rollercoasters is that the peaks and valleys of the stock charts aren’t being designed by skilled engineers. Charts are historical: their goal is to map the ride that happened, not the best possible ride. 

Take this example: as shown in the chart below, this company’s stock price climbed quickly during the tech boom. You can almost hear the coaster gaining steam—nearly vertical.  

graph shows a big climb

The company’s pre-2000 ascent. 

And then, as with all thrill rides, the drop (pictured below). Some investors aren’t sure which fell faster: the price or their stomachs. A rollercoaster engineer would be able to design that part in a way that riders would forgive them the jarring rise and fall.  

But what came next would probably get a rollercoaster engineer fired. 

graph shows a sharp drop

The company’s post-2000 fall. 

After the pop in 2000, the stock price balanced out. No more steep climbs: the thrill ride became a lazy river through the lowlands. Investors who held for the climb, and the subsequent drop, expected another climb. But the thrill was gone; the ride wasn’t the same.  

graph shows a sharp peak and then a mostly stable path

The map of the company’s whole ride. 

Okay, we’ll drop the coaster-cum-lazy-river comparison. You may have realized by this point that what we’ve just described is a historical example of a bubble: an excess of hype that ends with a pop! 

We mentioned that charts are maps of where things have been, so the lesson isn’t necessarily that they tell us where that specific thing is headed next… but they may be instructive in spotting similar rides in the future.  

Is it a thrill we’re game for? Or is it shaping up to be a thrill we’re not interested in, like the pop of a bubble? 

Clients, let us know when you have questions or want to hear more about what this all means for you. 

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My “Money” Valentine: Practicing Healthy Relationships with Money
photo shows dollars bent into heart shapes

With another Valentine’s Day approaching, plenty of folks are reflecting on their romantic entanglements or interests, but it’s making us think more deeply about all sorts of relationships. 

What does a healthy relationship with money feel like? 

We are not here to give personal advice, per se, but there seem to be some fundamental principles that could serve us well in any partnership. 

Make way for reality. 

The most important of life’s conversations require some vulnerability—and bravery. Whether we’re talking about romantic commitments, financial health, or other big relationship, everyone involved would do well to be on the same page from the get-go.  

Start by getting everything relevant out on the table. Getting more familiar with the current state of things will help you face and work with the reality of your financial life. The important conversations deserve this level of honesty, even when it’s “just” you and your money! 

Check your expectations. 

For any endeavor, idealizing a relationship can doom it in an instant. Instead we’d recommend checking in with your expectations about money. Is any past baggage adding weight to a current financial issue? Or does it feel like progress is coming way too slowly? 

Sometimes the problem isn’t the issue itself: the problem is how we are framing the problem. Goals can be wonderful (see below!), but even as we’re playing the long game, embrace what author Lynne Twist calls “experiences of sufficiency.”  

They are those moments when things feel whole and life is full of “enough.”  

A meal that satisfies. Sunbeams falling across the countertop. Clothes on your back.  

A plan that you allow to inspire some hope. Speaking of… 

Use goals to light the path you’d like to take. 

Not every day of a relationship will be great, but the point isn’t total control of the outcome. Security comes from having confidence that, generally, things are headed the right direction. 

So what are the milestones along the way that will remind you of that? That will spark joy, serve others, or continue to connect you to what’s important? 

In the end…  

Love is all you need! Thanks to the Beatles for this one, but it works. In short, compassion is a great foundation for a healthier relationship with money. 

If you’d like to talk about what this means for you, please write or call.

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Risky Business
photo shows a magnified excerpt of a dictionary entry for the word "definition"

We love working with you, the best clients in the world, because you’ve accomplished what some find impossible. You have recognized that long-term investors get paid to endure volatility. Some of you came to us this way. Others have learned across our many interactions. A few of you are still learning. 

Up to this point, we have mostly defined risk by what it isn’t, as in “volatility is not the same as risk.” It might be useful to be more explicit about what types of risk we do consider. 

Recall that our risk assessment takes place with a long time horizon in mind. We believe that you should have the money you’ll require for the next 3–5 years invested outside of the market. (Short-term volatility is a risk during the short term.) 

If you’re parking your money with us for a longer time horizon (3+ years), here are some risks we do factor into our strategy:  

  • Inflation risk. Over time, what’s the likelihood this investment will outpace inflation? Put another way, what’s the risk of losing purchasing power over time? 
  • Investment risk. Over time, what’s the likelihood this investment will substantially change for the worse or the players will go out of business? 
  • Concentration risk. Too many eggs in one basket could spell trouble if the basket upsets. 

How much risk a portfolio might endure depends a number of factors—your investing time horizon being just about the biggest one. And of course, there are other types of risk in the mix, but the topic is important enough to offer you more information from time to time. 

Clients, if you want to talk about your risk exposure, email or call. 

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‘Tis the Season
photo shows a paper saying "Tax Day"

People of every age and income have them—among the genders, about equally. The average one nationwide is worth $157,000, but you can start one with $100. About 30% of all taxpayers have one, according to the Tax Policy Center Briefing Book. 

And IRAs (Individual Retirement Accounts) are at the heart of a lot of financial plans and planning. 

We can vouch for their popularity. Just over half of your assets in our care at 228 Main are in IRA accounts of one type or another, totaling more than $60 million (per LPL Financial’s January records for Mark Leibman). 

This time of year is IRA season. Although you may contribute any day of the year, you can still make contributions for the previous year up until Tax Day.  

Here are some basics about IRAs. You’ve got… 

  • Two ways to contribute: put money in or transfer from 401(k) plans by rollover. 
  • Two basic flavors: Traditional and Roth. 
  • Two fundamental uses: save for retirement or draw income from them in retirement. 

People use them partly because they are one of the most widely available tax shelters. How you might best take advantage depends on your situation, but these plans offer thousands of investment options. The maximum contribution is $6,000 per year—or $7,000 if you are over 50. (Rollovers from employer retirement plan have no limit.) 

If you would like to review your IRA plan, see what you are eligible for, check out the conditions and limits, or just talk retirement planning, ‘tis the season! Email us or call. 

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