Following Your Financial Plan in 2022

/ Fiduciary Financial Advisors/

Video Transcript:

0:06 Hi, everybody wanted to get a video out, to give an overview of the market and to help give some reassurance about current investment strategies and plans.

0:16 I'm sending this out to all of my clients, as well as people I've interacted with during my financial advising career and people that I have meetings coming up with.

0:26 So I hope you find it helpful and feel free to share it with anybody else that you think might also find this helpful.

0:32 So wanting to jump right in the current stock market this year for 2022 is down over 20%. And so if you've watch any of the news read any financial articles, lots of people are talking about bear market recession and the media thrives on negativity and fear gives 'em a lot more views.

0:54 And so I wanted to give, uh, a few different data points to help give a longer-term picture and a different point of view.

1:01 I, so this first one it shows the history of the bear and bull markets in us since 1942. Visually I like it.

1:12 You can see, but I'll just explain it. The bull market on average has lasted around 4.4 years since 1942, when we've had a bull market, it compared to only 11.3 months of a bear market.

1:26 And the returns of those bull markets have averaged around 154% compared to the loss of only 32% during a bear market.

1:37 And so looking at a bigger, longer-term picture like this helps reassure me that even when we do go into years like we have had in 2022, I'm not investing year to year.

1:49 I'm looking at the long term, 10, 15, 30 years out, from when I'm gonna need that money. And whenever I talk to people, I always tell them that if you need money in the next three, four years, you should’t be investing it in the stock market, or at least not super aggressively.

2:05 If you do you wanna make sure you don't need that money for at least five years or more because that'll give markets time to recover when we come across situations like we are today, this one shows data a little bit differently.

2:19 I like this one because the gold shows how much the stock market has been down at some point throughout this, that year where the blue shows the overall returns of the stock market, S&P 500 for that year.

2:34 And so you'll see that there's lots of times where the gold is down quite a bit at some point during that year, but at the end of the year, the blue ends up still being in the positive.

2:45 And so I don't know if that's gonna be one of those years that we're in for 2022, but I do know that looking at this, it helps reassure me that I'm investing for the long term.

2:58 And then this last one, if you focus on the blue line, the stocks, you can see that they dipped quite a bit in 2008 with the great financial crisis, the housing market crash, and then following all the way through, you can see how stocks have performed.

3:12 They did dip for the COVID crisis when that started. But again, looking long term, looking back since 2007, I would much rather be invested in stocks than invested in some of these other, you know, gold, cash, oil, because in the long term stocks have outperformed quite a bit more than these other categories.

3:36 Again, I can't predict the future, but this data helps reassure me that I'm gonna stick to my own financial plan.

3:44 And I'd advise you guys to stick to your yours as well and not let emotions or fear control what your investing decisions are.

3:53 So I will leave you with a quote by Warren Buffet, which I know lots of people use it, but they use it because it's really good.

4:02 And so he says that people should try to be greedy when others are fearful and fearful when others are greedy.

4:10 And right now there seems to be like, there's quite a few people that are fearful, and that might lead to a really great buying opportunity, uh, with stocks being, uh, quite a bit cheaper now than the, what they were at the beginning of the year.

4:24 And so if you don't have a financial plan, I'm happy to, uh, help build one out for you. And if you're a current client and you wanna review yours or get more in-depth with it, I'm happy to meet and I'll leave you with my contact information.

4:39 Feel free to call email. If you wanna schedule a meeting directly on my calendar, there's a Calendly link there where you can sign up for that.

4:47 So hopefully this helped and feel free to reach out if you have any other questions. Thanks.

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Is it too late to start living like a Millionaire?

/ Fiduciary Financial Advisors/

Do you want to become a millionaire? Do you want to live like a millionaire? It might not be what you envision. One author spent over a decade researching, investigating, and interviewing millionaires to explore how the average millionaire lives. Here are his insights from Thomas Stanley’s book, The Millionaire Next Door.

They live well below their means

The average millionaire doesn’t spend more than they earn. They don't buy fancy clothes; they shop for clothes at places like Target, Meijer, and Wal-Mart. They don't drive fancy car brands like Porsche, Ferrari, and Lamborghini. They drive cars made by Toyota, Honda, and General Motors. They don't live in mansions overlooking the ocean. They live in a well-taken-care-of home next door to you which explains the title of the book.

True millionaires allocate their time, energy, and money efficiently, in ways conducive to building wealth.

The average millionaire is productive with their time. They spend much more time reading and much less time watching TV than non-millionaires. They don’t waste their money on lottery tickets or get-rich-quick schemes hoping to become rich. They invest their time and money improving themselves, learning new skills, starting businesses, and networking with other successful people. They exercise more and eat healthier. They start investing in their tax advantage accounts early!

They believe that financial independence is more important than displaying high social status. 

The average millionaire understands that being wealthy isn’t about showing off or one-upping their neighbor. Instead of buying a bigger house or fancier car, they would rather build wealth. They understand that building wealth allows them to gain back control of their time. Being financially independent allows them to spend more time with their family, volunteer more, work at a job they enjoy, and participate in hobbies they love. They understand the difference between appearing rich and being wealthy.

Their parents did not provide economic outpatient care.

The average millionaire did not inherit their wealth as many people assume. While some families do pass down wealth from generation to generation, research shows that the vast majority of millionaires are self-made. They did not receive large inheritances but built their wealth slowly over time.

Their adult children are economically self-sufficient.

The average millionaire is not supporting their adult children. They taught their children the principles of finance, which include delayed gratification and the power of compounding interest. They discussed their family finances early and often. They provided for their children's needs but did not fulfill every want. They taught them to work hard and to work smart. They taught them how to make their money work for them instead of the other way around.

They are proficient in targeting market opportunities.

The average millionaire learns that money is a medium for transferring value. If they provide a product or service to somebody they receive money, which can then be spent to receive a product or service back. They use this information to stay on the lookout for opportunities where there is a lack of products or services. Then they use their knowledge and resources to provide that need which is in high demand. Improving efficiency is another value add opportunity the millionaires use to generate wealth. Money flows to wherever value is created.

They chose the right occupation.

The average millionaire has found an occupation that matches their skill set and personality well. They enjoy going to work most days and look forward to being productive. Enjoying their job allows them to excel, which leads to being compensated well.

I encourage you to start implementing these insights in your life. If you enjoyed this overview, I would highly recommend reading the book!

“You will be the same person in five years as you are today except for the people you meet and the books you read”
— Charlie Tremendous Jones
Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

If the stock market is crashing! What should I do?

/ Fiduciary Financial Advisors/

One of the most important rules when it comes to investing is to buy low and sell high. And yet, some people end up getting nervous when the stock market is “crashing” and end up selling low. Then, after the market recovers, they regain confidence and end up buying high. Letting one’s emotions control investing decisions is a recipe for poor returns.

You may see on the news or social media people claim that they know what the market is going to do in the future. Often people say these things to try and get more viewership and clicks instead of trying to give sound financial advice. But recall the adage that “even a broken clock is right twice a day”. Don’t be surprised when someone’s lucky guess happens to be accurate from time to time. Instead, focus on taking financial advice from a fiduciary, someone who is legally required to act in your best interest and not their own.

So what should you do during a volatile market? Without knowing the details of your financial situation, I can’t provide specific advice. However, I would like to review some data from the past to help you gain a better understanding of the markets and consider a “market crash” as a potential opportunity to buy. This is looking back at previous returns so make sure to note that past performance is no guarantee of future results.

In the world of finance, there are two different types of markets: a bull market and a bear market. A bull market is a time frame when the economy is expanding and stock prices are increasing, while a bear market is when the economy is experiencing a recession and stock prices are decreasing. As you can see from the chart below, bull markets typically last longer than bear markets and produce greater returns compared to the losses of a bear market. The U.S. has been in a bull market for a while so when it transitions to a bear market or recession that will not be out of the norm when looking back in history.

Since bull markets typically last longer than bear markets, the odds that someone makes money investing in the stock market could increase significantly the longer they leave their money invested. The chart below shows the probability of someone having positive returns investing in the S&P 500 index since 1937. If someone only invested for 1 day they had a 53.4% probability of having positive returns but if they stayed invested for 10 years they had a 97.3% probability of having positive returns! I prefer the much higher probability of higher returns by not trying to time the market.

The chart below shows the 15 largest single-day percentage losses for the S&P 500 since 1960. If you look at the right side you will see in the one year later column that only one time was the market negative one year post the corresponding single-day percentage loss. That was back in 2008 during the global financial crisis. Instead of becoming nervous about large single-day losses reassure yourself that more than likely the market will recover within one year.

Think about it this way, I LOVE Heath candy bars for obvious reasons. If I bought them as a snack and then Meijer sent me a coupon for 50% off, I wouldn’t get upset that I had just paid full price. I’d go and buy more. Selling stock when the market plummets would be a lot like me selling my Heath candy bars for 50% less than what I paid for them vs. buying more at such a great price!

Hopefully, this has helped you gain a better perspective on making investing decisions. I believe that having a longer-term outlook can help you keep emotions in check and not get as nervous/scared when you see people on the news and social media talking about a stock market crash.

Just like gym workouts are more productive with a trainer, folks often are better able to keep their emotions in check by having a talented financial advisor on their team. If you don’t have a financial plan established now might be as good of a time as any to get that put in place. I would be happy to meet with you to discuss your financial plan.

“We simply attempt to be fearful when others are greedy and to be greedy when others are fearful”
— Warren Buffett
Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Traditional vs Roth Retirement Account, Which Is Better?

/ Fiduciary Financial Advisors/

What is the difference between a traditional account and a Roth account? Which one is better for you? Which one should you invest in? Several factors can affect your decision. I will help you explore concepts to think about to assist when making that decision.

The main difference between a traditional account and a Roth account is the timing of when you pay taxes on the money. When you make a contribution to a traditional account you normally would be able to deduct that amount from your taxable income, which would reduce your taxable income the year you make the contribution. Then at retirement when you withdraw the money, you would pay taxes on the contributions and growth of the account. This is called tax-deferred money since you are deferring the taxes until later 

A Roth account works the opposite way. You do not reduce your taxable income the year you contribute the money, but then when you withdraw the money you do not have to pay taxes since you already paid them on the money contributed. This is called tax-free money since it is tax-free upon withdrawal.

Income Tax Brackets

One of the first things you will want to figure out is what federal income tax bracket you will be in for the current tax year. This is an important part of your decision when deciding if you should contribute to a traditional or a Roth account. Here are the federal income tax brackets for 2023. (Source: Voya 2023; link below)

 

If you are in one of the higher income tax brackets (32%, 35%, or 37%) it may make sense to contribute to a traditional instead of a Roth account since you would save more now on taxes than you would if you were in one of the lower income tax brackets (12%, 22%, 24%). If you think you are in a higher tax bracket now and will be in a lower tax bracket at retirement then it may make sense to contribute to a traditional instead of a Roth account. Keep in mind that politicians have adjusted the tax brackets many times in the past and will probably adjust them again before you reach retirement.

Time Horizon

Time until retirement is another factor to consider when making your decision. Generally, someone who is younger will have a lot more time for their money to earn compound interest and could be better off contributing to a Roth account. This way all of the principal & compound interest they withdraw at retirement would be tax-free, whereas if it was in a traditional account you would owe taxes on that money instead. My brother explains it as “would you rather pay taxes on the seeds or pay taxes on the entire tree once it is fully grown.” 

You might be someone who would rather lock in their tax rate now and not have to worry about if it will be higher or lower at retirement. If you are that type of person then you will want to consider contributing to a Roth account. If you are someone who believes your tax rate at retirement will be lower than what it is currently, then you will want to consider contributing to a traditional account.

Required Minimum Distributions

Required Minimum Distributions (RMDs) are another reason why you might decide to contribute to a Roth instead of a traditional account. After a certain age (as of 2022 it is 72) the government requires that you withdraw a specified amount of money every year from your accounts as they want to get their tax money back on that tax-deferred money. If you have that money in a Roth IRA then there are no RMDs, unless it is an inherited Roth IRA. (Source; Fidelity; link below)

Employer Plans

If you participate in a retirement plan at work, most companies offer some type of matching program. If you contribute a certain amount they will contribute a match. Dollar on the dollar or fifty cents on the dollar up to a certain amount appears to be the most common matching contributions. More employers are now offering a Roth option. If you elect to have your contributions go toward the Roth bucket be aware that your employer will more than likely contribute their match into the traditional bucket, so they are able to receive the tax deduction. This may be a good thing as it could help you diversify your risk by having some money tax-deferred and some money tax-free at retirement.

If you are a participant in an employer-sponsored retirement plan at work then there is a deductibility phase-out for IRA’s if your modified adjusted gross income (MAGI) is above a certain amount. In other words, you wouldn’t get the tax deduction by contributing to a traditional IRA plan if your income is over a certain amount and you have a retirement plan at work. For Roth IRA’s there is a phase-out limit. As your MAGI increases, the amount the IRS allows you to contribute decreases until you are no longer allowed to contribute. Refer to the Voya 2022 Quick Tax Reference Guide if you are curious as to the specific ranges. (Source: Voya 2023; link below)

If you have more questions about if you should contribute to a Roth or a traditional account feel free to set up a meeting with me as I am happy to discuss strategies personalized to your situation. If you are looking for the best of both traditional and Roth accounts then click here to learn more about how Health Savings Accounts can be used as a stealth retirement account.

Sources: https://www.kiplinger.com/retirement/retirement-plans/roth-iras

https://individuals.voya.com/document/tax-center/2023-quick-tax-reference.pdf

https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/overview

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

What Should I Do With A Large Lump Sum Of Money

/ Fiduciary Financial Advisors/

Did you just win the lottery, receive a large inheritance, or win a lawsuit settlement? If you just won the lottery I would recommend being wise with that money since 70% of lotto winners lose or spend all their money in five years or less (Source: Reader’s Digest; link below). Being smart with an inheritance or lawsuit settlement is just as important. Here are some steps you may want to consider when deciding what to do with your newfound wealth.

  1. Don’t Do Anything

    You might want to buy a fancy new car, go on an expensive vacation, or be generous by sharing the money with friends and family. There will be plenty of time for those things, but you should take a month to let everything settle first. Carefully consider who you are going to tell about the money. Don’t quit your job. Don’t go around bragging or posting about it on social media. Don’t put all of it into the hot stock of the month based on a Reddit forum. Continue living your life as if you never received the money. You will make better decisions once your endorphin levels have settled back to baseline.

  2. Contact a Certified Public Accountant (CPA)

    The IRS loves when people receive large sums of money, and you can bet that they want a piece of the pie. Often, that piece ends up being much larger than you’d prefer, so finding a CPA that specializes in taxes should be a top priority. They could help you strategize a plan to reduce the tax burden and leave more money available for other things.

  3. Contact an Attorney

    An attorney is able to explain the benefits of having a will, a trust, and a DPOA for finances & healthcare. They should be able to help you complete these if needed for your particular situation. If you already have these in place, this might be a great time to review and update any if needed. Having these in place will save your family many headaches when you eventually pass away.

  4. Contact a Financial Advisor

    A financial advisor is able to help create a written plan for your money. This could include paying off high-interest debt, opening and/or maxing out retirement accounts, funding a brokerage account, evaluating the need for term life insurance, building out a net worth statement, starting a donor-advised fund, and determining your risk tolerance to create your ideal asset allocation. When searching for a financial advisor you want to make sure they:

    • Are a Fiduciary: Which means they have to put your best interests first!

    • Are a Fee-Only Advisor: This means they do not have a conflict of interest with potentially selling you certain investments to get a large commission.

    • Have a Clear Investment Strategy: Do they have an investment strategy that can be clearly explained to you and matches your investment philosophy?

      I am proud to say that I check all 3 of these boxes in my financial advising practice.

  5. Implement Your Plan

    While creating your financial plan might sound like the hardest part, implementing your plan may be more difficult. A written financial plan of how you want to direct your money is great but if you don’t take steps to implement that plan then it was all for nothing. When implementing your plan keep in mind:

    • Not to let emotions control your financial decisions.

    • Don’t let the news media tempt you into making quick, spur-of-the-moment decisions during periods of market volatility (Remember the main goal of news media is to attract viewers, not to give solid financial advice).

    • Stay consistent and reach out for help if needed. Investing is a marathon, not a sprint.

    A patient going for physical therapy could perform all their therapy on their own if they knew the correct exercises. Having a physical therapist guide which exercises will be the most effective and support/encourage the patient in completing them, could help the outcome tremendously. Partnering with an excellent financial advisor is similar.

  6. Finally, Treat Yo Self!

    If you have made it to this point and are implementing a well-thought-out financial plan, you should congratulate yourself. You did the hard work and made the tough decisions to set yourself up for success. Now might be the time for you to use a small portion of that money to Treat Yo Self as a reward!

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

The Stealth Retirement Account That Most Americans Don't Use

/ Fiduciary Financial Advisors/

Are you trying to find more ways to save for retirement so you will be able to retire early? Let me explain how you can use a Health Savings Account (HSA) as a stealth retirement account by investing inside of it. Currently only 4% of Americans that have HSAs unlock this powerful potential. (Source: Devenir 2019 study; link below)

First, you have to be covered under a High-Deductible Health Plan (HDHP) before you are allowed to contribute to an HSA. If you are covered under an HDHP, the maximum you are allowed to contribute in 2024 is $4,150/single or $8,300/family (an additional $1,000 if you are over 55 years old). You do not pay taxes on money contributed to your HSA, and if the money is withdrawn for eligible healthcare expenses the funds are not subject to any penalty or taxes. Most people use their HSAs this way. The money goes in…then it comes right back out to pay for medical expenses. This is a great way to save money on taxes for eligible health care expenses, but it is not utilizing the full potential of your HSA.

With a few simple adjustments, you could turn your HSA into a stealth retirement account.

Pay Out-of-pocket for Medical Expenses

This allows you to accumulate more money inside of your HSA every year instead of depleting the account every time you have an eligible medical expense. The longer you are able to keep the money in your HSA the more time you are able to let it grow.

Save your Eligible Healthcare Receipts

If you chose to use your HSA as a stealth retirement account, make sure you save your eligible healthcare receipts. This would then allow you to withdraw money from your HSA, to reimburse yourself for the past eligible medical expenses that you paid out-of-pocket earlier. Currently, the IRS doesn't have a time frame for when you are allowed to reimburse yourself. This means you could spend $500 out-of-pocket today and submit it for reimbursement years later. The medical expenses have to have occurred while you were covered under an HDHP though!

Invest the Money

Investing your HSA money could allow it to grow into a significant amount depending on what the time frame is and what return percentage you are able to achieve. Below are examples if someone invested their HSA money for 30 years with an annual return of 7%. Your numbers will be different depending on the length of investment and returns. (Source: Calculator.net; link below)

“Because of the effects of inflation, a 50-year-old couple in 2019 planning to retire at age 65 can expect to spend about $405,000 on health care in retirement. A 40-year-old couple faces $455,000 in expenses...” (Source: Annuity.org; link below)

These three things would allow someone to take full advantage of using their HSA as a stealth retirement account. HSAs allow investing in a triple tax advantage account. The money contributed reduces your taxable income while the qualified withdrawals and investment growth are tax-free (If the withdrawals are not qualified this becomes tax-deferred growth).

Other Things to Consider

If you withdraw money from your HSA for non-medical expenses you have to pay taxes and a 20% penalty, but after you turn 65 the 20% penalty goes away. This allows you to optimize your tax efficiency; by choosing which accounts to withdraw money from instead of having to fully depend on Social Security and Medicare. Additionally, most investors are in a lower tax bracket in retirement since they are no longer working, so there may even be another benefit to delaying the tax until later in life.

Not all HSAs are equal. Some charge high fees, some limit the amount of money you can invest, some limit your investment options, and others don’t allow investing at all! Your employer usually chooses which institution they use for HSA contributions but once the money is in the account you have full control of what happens with the money. Check to make sure it is a good one. If not you may be able to move your HSA money to a better institution. If you would like assistance in moving over your HSA, deciding what investment options to invest in inside your HSA, or any other HSA-related questions contact me and I would be happy to help. Our firm uses Fidelity, which charges no account fees and offers a wide range of investment options (Source: Fidelity.com; link below)

Sources:

https://www.devenir.com/research/2019-midyear-devenir-hsa-research-report/

https://www.calculator.net/future-value-calculator.html

https://www.annuity.org/retirement/health-care-costs/

https://www.fidelity.com/go/hsa/why-hsa

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.