financial planning

Choose Your Ingredients 

by Mark Leibman, Advisor

More content from Mark

I learned how to make soup back in the last chapter. Now a variety of soups are a staple of my diet. 

Crafting a new soup recipe recently, I started with a chicken, six herbs and spices, and seven kinds of vegetables. I used some olive oil and a splash of red wine vinegar. It may be served with a mix of seven kinds of beans, and rice, of course (you know how I feel about rice and beans!). 

It came out really good!—according to a biased observer that I recently married.  

Contemplating the choices made in the creation of the soup, I thought about how we build portfolios here at 228 Main.  

From many alternatives, we select what we want to own and determine the proportions of each. Another school of thought holds that portfolios should consist of some of everything—500 stocks go into the S&P 500 index, for example, so portfolios get to hold a little of each. 

That led me to wonder, What would Index Soup look like? 

  • 150 herbs and spices? 
  • 50 kinds of vegetables? 
  • Beef, pork, chicken, fish, and eight more kinds of animal protein? 

And it might even be served with 25 kinds of beans, and 10 varieties of rice! 

That would have to taste like a little bit of everything, and not much of anything, wouldn’t it? 

Just as different recipes can reflect a wide variety of tastes and textures and smells, and we humans have an appetite for different things at different times, our portfolios evolve and change as conditions unfold. 

By looking for the best bargains, by avoiding stampedes in the market, by planning to own the orchard for the fruit crop (thinking long-term), our collection of opportunities has diverged from the most popular kind of Index Soup, the S&P 500.  

Creating our own recipe helps avoid another possible pitfall of Index Soup—not that it can get too bland in its attempt to average everything, but that it can get too heavy-handed in spicy times. 

Recently, slightly more than half of our long-term portfolios are invested in small- and mid-size companies. We’re diversified around the world, although about two-thirds of value is still invested in the U.S. While AI-related stocks have captured the public imagination, we’re focused a little more on value-style stocks than the mega-size growth companies, which we believe may be over-valued at present. No guarantees, but we’re trying to be intentional with our flavors. 

Meanwhile, Index Soup focuses on large U.S. companies, with an emphasis on growth. Technology is nearly 37% of the mix in that soup, and the top seven holdings are mega-size tech companies.  

We know that the flavor can get “too strong” at times: back in the year 2000, the S&P 500 index, and technology stocks generally, left a bad taste in the mouths of many investors the last time valuations approached extreme levels.  

We can’t know the future, but we are hopeful our recipe is going to “taste” a lot better in the months and years ahead. No guarantees—past performance is not an indicator of future results. 

But we don’t have to be the best chefs in the world. We’re just trying to find a blend that works for us. 

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Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. 

The S&P 500 is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.  

Play the audio version of this post below:

Choose Your Ingredients – 228Main.com Presents: The Best of Leibman Financial Services

The text of this episode is available at ⁠⁠www.228Main.com⁠⁠.

It’s Your Story

Even heroes get knocked down a time or two when fighting their monsters. There may be a couple of bumps in the road, but what good plot doesn’t have some conflict? With our passions in mind, a little bit of perseverance, and a good plan, we all get to be the hero of our own story. Want to talk through what’s important in your story? Call or email to chat.

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The Choices You Make on Payday 

For our youngest clients, payday is a big deal.

If you’ve just graduated high school or college, or are early in your career, we’d point you to the importance of the choices you’re making each and every payday. Retirement may be one financial “destination” you’re working toward, but there’s something exciting about enjoying the little steps along the way.

What can you do for yourself each and every payday?

Pay Yourself First.

This is one of the fundamental tenets of financial planning: save a portion of everything you earn for later. That portion is your “savings rate,” and maybe you start it at 1% or 4% of every paycheck.

Then you increase it by 1% a year until you start to build up some nice sums across the years, and this becomes the raw material of your future retirement! Say you get a raise your second year on the job: put half that raise away for retirement. So if you get a 4% raise, add 2% to your savings rate.

You may hear figures like saving 10 or 15%, but that doesn’t always make sense to begin so high. Young adults need to start buying groceries and paying for electricity—and have decades ahead to build up their wealth.

Settle Up the Past. Another choice on payday is to take care of past debt. Watch out for carrying expensive (high-interest!) debt for too long. If you’re paying 8, 10, or even 12%, you should put some serious thought into paying off that debt before you consider saving or investing that money.

If you pay off $5,000 of credit card debt that you are paying 12% interest on, your $5,000 “investment” will save you $50 a month, $600 a year, like clockwork. You’d be hard-pressed to find any other investment that will pay you that kind of return—and if you did, it would likely have many risks associated with it.

But once you pay off your debt, those interest payments are gone forever. Consider if it would make sense to settle up anything from your past.

Invest for Future You. If you happen to be starting a job with an employer-sponsored 401(k) retirement plan, consider enrolling so that an automatic contribution is made out of your paycheck every pay cycle. Ask if your employer matches contributions, and consider maxing out that match. We don’t want to leave “free money” on the table.

When you are a long way from retirement, you can afford to take a long view with the investments you choose for the plan: various investments ask you to commit to either the chance for short-term stability or the chance for long-term returns, but you can’t really have a shot at both at once.

Investments that promise a stable value tomorrow or next year do nothing for you in your real life when you are decades away from retiring. You might aim for higher returns instead.

In Conclusion: The Joy of the Journey

This is basic financial literacy you can use any payday, especially for those just starting out.

As always, everyone’s situation is a little bit different, and we’re more than happy to discuss the particulars of your situation with you: even if you never open an account in our shop, we believe that anyone might build a stronger future when they’re able to pay themselves first, settle up the past, and invest in their future selves in whatever way they can!

It may seem hard to imagine a destination that may be decades away, a big goal like retirement. Instead, it’s much easier to get in the habit of enjoying small steps along the way—the things you can do each and every payday.

That’s the joy of the journey.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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Play the audio version of this post below:

The Choices You Make on Payday – 228Main.com Presents: The Best of Leibman Financial Services

The text of this episode is available at www.228Main.com.

Wellness Wishes from Your Past Self

What would I have to learn if I could talk to my past self? Or my future self?

There are some mental exercises that might help us reflect on our goals, but here’s what I’m wondering: What do truck stop chili dogs have to teach me?

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RMD at 73: What’s Up with That? 

We have noticed that the rules about IRA account withdrawals can cause some confusion, particularly among those who are getting close to the “Required Minimum Distribution” age.  

Here, we’d like to cover what the basics might mean for most people, though it is not intended to be advice or a recommendation for your specific situation. 

For traditional or rollover IRA account owners, withdrawals after age 59½ are free of penalty, but income taxes must be paid on the amounts withdrawn. One may withdraw money or not, in accordance with their needs and plans. 

But beginning at age 73, the rules change. 

For each year beginning with the year you turn 73, a “Required Minimum Distribution” (RMD) must be withdrawn: 

  • “Required” means there is no option about it—it must be done. There’s a pretty hefty penalty tax for missing it. 
  • “Minimum” means that you must withdraw at least the calculated amount, though you may withdraw more if you choose. 
  • “Distribution” is simply the word the IRS uses for withdrawals. 

The way the numbers work, the first RMD for age 73 is around 4% of the prior year-end account balance. Then, the RMD rises gradually each year. The RMD is around 5% at age 80 and around 10% by age 92.  

The withdrawals will be taxable—that is the whole object of the exercise, from the IRS’s perspective.  

Even with those requirements, IRA accounts may still have significant balances until advanced ages. 

Here are just a few fine points:  

  • The factor used to calculate the amount comes from an IRS table, and we can help check the arithmetic for you. 
  • The withdrawal may be taken any time in the calendar year. 
  • If you have multiple IRA accounts, it can get confusing. Some people consolidate and simplify their finances at this point. 

For more information, the IRS explains more details about RMDs online, available here. Please also keep in mind that different rules apply to inherited IRAs, Roth IRAs, and certain other situations, so do seek specific advice for your situation as necessary. 

And our role? We aim to help each client figure out how your money might do what you need it to do.  

So the question of how you should manage your accounts and your withdrawal strategy is best answered in a one-on-one discussion. If you would like our help talking through your situation, please call or email us. Happy to help.

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. 

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Play the audio version of this post below:

RMD at Age 73! – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://222Main.com/.

The Meaning of “Client-Centered

What does it mean for our business to be “client-centered”? (Wait, shouldn’t all business be “client-centered”?…) In this week’s video, Mark and Caitie talk about the role the firm plays in our relationships with you, what the client’s job is, and more.

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It Starts with Listening

Listening to one another is a gift that costs nothing but means everything. We know that our time and attention are precious resources, which is why our team here at 228 Main always has our “listening ears” on. 🙏

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When Buying “The Stock Market” May Not Be Optimal 

When people talk about “the stock market,” they might actually be thinking of the Dow Jones Industrial Average, or the S&P 500 Index. These lists are what they sound like: averages and indexes of exchange-traded securities.

And one popular school of investing calls for buying index “funds,” collections that offer a slice of what’s happening on one of those lists. The goal is to capture the list’s average return. It’s simple, easy, and relatively inexpensive to seek to replicate those market averages.

But there’s a tradeoff. There have been extended periods when those averages basically went nowhere for many years at a time. The “average” approach means you are by definition going with the crowd. But crowds can become herds, which can turn into stampedes.

This is what happened with the raging Nifty Fifty and again in the Tech Wreck.

Back in 1973, the “Nifty Fifty” stocks were all the rage. Many scrambled to buy and hold these dominating stocks, names like IBM, Xerox, or Coca Cola. One might say there was a stampede into the favored names. Valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%.

It took until 1982 to regain that 1973 peak, before moving any higher: a decade with essentially no progress.

It happened again from March 2000 to 2013, a time that got the nickname the “Lost Decade.” This time, the mania was internet stocks. Technology and communications companies dominated the S&P 500, and investors got excited. Again, more people stampeded in, valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%. Not until 2013 did the index begin to make and hold new, higher ground.

So what was problematic about those peaks? The largest companies became a much larger fraction of the total value of the S&P 500. The top companies in 1973 and 2000 had become worth many times the bottom companies combined.

Staying with the crowd—buying indexes and aiming to capture averages—is not the only way to invest. In those episodes from history, some other sectors fared better than the fallen favorites and broad U.S. market averages. There were those smaller companies, value-style investments, and overseas markets that generally went up during the Lost Decade.

At 228 Main, our core investing principles include “avoid the stampede” and “seek the best bargains.” As such, while the largest companies in the S&P 500 are becoming increasingly concentrated at the top—reminiscent of 1973 and 2000—valuations may be getting stretched once again. We are seeking to have more and more of our portfolios invested other places. (Research is a core activity here, a daily discipline, and we invest a lot of time and energy into it.)

That is to say, we’re seeking opportunities outside the averages. We’ve got our eye on value-style companies—those that seem to provide a lot of current profits, or cash flow, or dividends relative to each dollar invested. We’re seeking companies operating in faster-growing economies, the ones that provide food, shelter, transportation, communications, or energy (and are trading at more attractive prices). We want to know what’s happening with smaller companies, the opportunities that don’t fit the profile of those mega-sized names that dominate the market averages today.

There are tradeoffs involved with either approach.

  • When we follow the averages, we risk following the crowd straight into a stampede.
  • When we buy the bargains, our particular favorites may get cheaper while the darlings of the market are still climbing higher. Our portfolio performance could generally lag a red-hot market.

To be clear, we are still invested in those large U.S. growth companies we’ve mentioned. But, clients, we’re more diversified now than we’ve been at any time since the early 2000s. Even though we may be on the right track for long-term investors, it can be lonely to be contrarian. So it’s times like these that it helps to check in, take the long view, and make sure the methods suit the goals.

And for us, it’s the pursuit of capturing the potential growth, for the long run. No guarantees, but that’s what we’re working toward.

Clients, please call or email us if you would like to talk about this or anything else.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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Play the audio version of this post below:

When Buying “The Stock Market” May Not Be Optimal – 228Main.com Presents: The Best of Leibman Financial Services

This text can be found at https://www.228Main.com/.

Money Grows (But Not on Trees) 
photo shows a green tree along a country lane, surrounded by green fields

Over the past few years, more of us have found the joy of raising backyard chickens or container gardens or fruit trees. It’s an opportunity to see the fruits of our labor—literally!—grow.

It may take a few years for a new apple tree to produce. But with care and attention, that same tree may over time provide bushels of fruit for you, your family, or your community.

Growing your wealth isn’t that much different.

For example, if you put $10,000 into a savings vehicle that paid 2% annual interest, how long would it take you to double your money? The intuitive answer would be 50 years: 50 x 2% equals 100% return.

But due to the effects of compound interest, you’d actually get there in 36 years—not 50.

You don’t just get interest on the money you originally put in: you’d be getting interest on the interest you’ve already earned, too.

Doubling your money in 36 years is not terribly impressive. But then, 2% is not a terribly impressive rate of return. At 4%, as you might expect, you can double in half the time: a mere 18 years. So in 36 years, you’ll have doubled twice, quadrupling your original money. In 54 years, it would be eight times what it originally was!

That may sound like a long time, but if a person started saving in their 20s, they could reasonably expect to have 50+ years for their earliest savings to compound.

And that’s at a relatively conservative 4% annual return. As your rate of return increases, your compounded returns increase exponentially. At 5%, your money would increase tenfold in 50 years. At 6.5%, your money would increase twentyfold in the same time: a mere 1.5% increase in returns doubles the money over 50 years!

All of this to say, it doesn’t take very many doublings to turn modest savings into a sizeable pile of money.

Of course, sometimes this is easier said than done. Just as some growing seasons are rougher than others, returns are never guaranteed, and pursuing higher returns generally means accepting more volatility and risk.

Potential growth takes preparation, patience, and a little guidance along the way. Even modest investments can multiply. We’re here to keep an eye on the math together. Don’t worry: no quizzes.

If you’d like help planning, planting, or tending your financial orchard, we’re here to work alongside you as it tries to grow.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

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Play the audio version of this post below:

Money Grows (But Not on Trees) – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.

Your Money Never Retires 

For many people we know, money represents work. It’s the sweat and the time and everything else that goes into one’s livelihood.

It may have started decades ago, perhaps with a job for a local farmer, walking beans or baling hay. (Does that reference date us?) It’s all the jobs that followed, too. No matter where those paychecks came from, the work behind them can become a source of pride—one that can also fund our retirement years.

We’re fortunate to know many people who end their careers with resources beyond their needs. It’s a nice problem to have: what happens when the excess outlives us? What’s the next “life” for what you’ve earned and accumulated?

We’ve been hearing from some of you about these big financial legacy questions, and there are many possible answers. In no particular order, here are a few ideas that you have been sharing with us.

Spend it on shared memories. For many, the pace of retirement includes more travel and experiences that weren’t possible during the working years. And while you’re at it, you might think about including those closest to you. Some might take their children or grandchildren with them on the big adventures. If you don’t want to leave behind wealth well beyond your beneficiaries’ needs, spend well now, with them: create the memories while you have the opportunity to do so. Bonus? They have another shared memory to enjoy, long after the experience is over.

Consider making gifts where they would make a difference now. There’s no rule saying you have to wait until you’re gone to get the excess to your beneficiaries. An inheritance can be life-changing, but who’s to say that a well-timed gift couldn’t make a big impact? It could be that splashing around a little cash now might make more difference in the long run. Maybe a loved is working toward a down payment on their first house, or some seed funding for their business expansion, or some other worthwhile project that you’d like to support. Why not now?

Direct it to the causes you care about. You can turn some of your charitable intentions into plans now, too. Your legacy planning may already involve leaving behind some assets to charity, and there are other strategies that might fit your goals. For example, a Donor Advised Fund (DAF) can be set up to benefit organizations of your choice after you’re gone, but it can also be left to a successor: a person you trust to direct charitable distributions of your gifts. They could carry on the work you start now.

Making these kinds of choices truly is a great problem to have. Generational wealth is a powerful tool and privilege. It also highlights the tensions we feel around money: what is the utility of money in our lives—and beyond? We don’t have to know all the answers, but there might be a chance to unlock some exciting opportunities for the generations ahead, if only we get a little more intentional or organized now.

Clients, may your wealth bring you only the best of dilemmas. We’ll be here to try to help you along your way.

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Play the audio version of this post below:

Your Money Never Retires – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/.