Category Archives: Investing

With the markets in turmoil, should I be doing anything different with my 401(k)?

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I took a spin class last week and the instructor kept reiterating two things as we climbed a hill, and it got me thinking about the two recommendations I referenced above. I know, I think about work WAY too much.

The two things she was selling to us tired riders were “discipline” and “add one more”.

I will explain.

The instructor was expressing (aka shouting over the music) how we must maintain discipline to make it up this hill. That it is long and strenuous and we must pace ourselves to reach the top.

Have you ever heard the term “disciplined investor”? I’m not making it up, it’s a real thing. Here’s one clip describing the disciplined investor in a Forbes article:

  1. Have a long term investment philosophy.
  2. Form a prudent asset allocation based on this philosophy.
  3. Select low cost funds to represent asset classes in the allocation.
  4. Maintain this portfolio through all market conditions.
  5. Don’t change the asset allocation due to recent market activity.

You have probably figured out by now how our discussion went.

This client has a well-diversified portfolio with an appropriate asset allocation for her time horizon and goals. She is also making regular contributions to her retirement savings. Outside of a possible need to rebalance, she is good to go and should maintain this disciplined approach and keep climbing that hill.

Most important to me was that she came away from our conversation feeling better about the current situation with an understanding that her plan was still in motion and she is on track.

Unless retirement is right around the corner for you, in which case you should have a plan in place well before that date, you will ride out this storm like you have all the others in your years of saving and investing. If you are a younger investor and haven’t yet experienced these market “thrills”, don’t fret, as time is really on your side.

History has shown time and again that the disciplined, long game will reward your portfolio, and investors have seen A LOT of reward over the past 10 years alone.

Now to my last point on the other recommendation I threw in there for this client. It relates to the final point below from the Forbes article and the spin instructors quip to “add one more”.

Don’t hold back on new investments while waiting for market clarity.

Non-disciplined investors tend to want to pull back or stop adding to their portfolio when the line is trending down. If you’ve ever had this reaction, it’s completely normal, but I want to help you understand why, in most situations, this is not the way to go.

Think about this. If you are OK with making a purchase when the cost of a product is at Think about this. If you are OK with making a purchase when the cost of a product is at a premium, but it’s really what you want and you know it’s worth the investment (literally), then why would you NOT be OK with purchasing the SAME PRODUCT when it’s at a steep discount?

It’s a bargain to be buying into the market when it’s down, so if you are not already maxing out your 401(k) or other retirement plan, try to “add one more” (increase your contributions).

If you know your company will do a true up match at the end of the year (mentioned here in last month’s newsletter), you may want to consider frontloading your contributions now while the market is down. Yes, it may still be down in December, but there is no crystal ball and we know it’s down now, so it can’t hurt. But ONLY if your company does a true up. You don’t want to max out too soon and leave free money sitting on the table.

Stick with it. You’ll get there!

Quote

“The ability to learn is the most important quality a leader can have”.

– Sheryl Sandberg, Facebook COO

THIS Drives Me Crazy!

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Last week, I was out running errands and listening to the local news station on the radio. The 60 second financial segment came on, and they were talking about the volatility of the S&P and how the month of September had ended with “significant” losses.

I get it, it’s the news, and we all know their main goal is to sensationalize EVERYTHING.

Here’s the part that burns me.

The reporter goes on to make a comment, and I’m paraphrasing, about near retirees and how this will seriously impact their ability to retire.

And not just for near retirees, but comments along the lines of, “investors saw their 401(k)’s take a huge hit last month”.

What?!?!

In my not so humble opinion, this is reckless reporting of the “facts”. It’s sensationalism and exaggeration and although it is FACT that the S&P saw a decline in September, it leaves out other very important FACTS, and sends anxious listeners into a panic.

Here are two key facts, one which was reported, the other which was not.

The S&P finished the month of September “down” by 4.7%.
Listeners definitely got the gist of that message, and then some.

Here’s what was NOT reported:

The S&P is UP 16% year to date through 10/11/21 (see lovely trend line in graph below).

Yes, that’s right, your 401(k) may have seen a decline in September, but I will bet the bank that if you have a well-diversified portfolio of investments, you still have more now than you did in January.
 
Heck, even if you only own the S&P index, you can see above that you are definitely up for the year.
 
I’ll leave you with two final thoughts that I know I’ve touted before:
 
Growing your wealth is not about one month of returns, positive or negative. You are in it for the long game. This means consistent and diversified savings of your earnings over time. DO NOT PANIC.
 
The stock market is always going to have up and down DAYS, MONTHS and YEARS.
Always has…always will. And that’s a fact!

My Favorite Quotes

“A goal without a plan is just a wish”

My Two Cents on Cryptos

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A friend of mine recently posed a question on her blog about Cryptocurrency.

You know-Bitcoin, Dogecoin, Ethereum-to name a few.

She was asking her followers what they knew about it, had they invested in it, and she made the statement that she thinks it may be here to stay.

I think she’s right, but whether I think the average person should be investing in it is another question.

Around the same time, I was talking with my oldest about needing to get his taxes filed so we could make a Roth contribution.  I was trying to educate him about why this was a great investment for his future. I liken what he was probably hearing was akin to the teacher’s voice from Charlie Brown.

His response, to my surprise, “I want to buy Dogecoin.”

My darling first born, you don’t even know what FICA taxes are or the difference between owning a stock vs a mutual fund, and you don’t necessarily need to understand all of this right now, but it’s also why you should not be buying Dogecoin with your very few hard earned dollars.

“Crypto” – it’s all the hype, I know. And don’t get me wrong, I’m not saying it’s a scam or investors haven’t or won’t in the future make money by investing in it. They have and they will. They’ve also lost a lot of money over the past month as well, at least on paper.

At this stage of the game, it is unregulated (which is kind of its modus operandi ), extremely volatile and very speculative. Its “buy in” has grown exponentially since its inception. I do think it has the POTENTIAL to EVENTUALLY be a small part of every investor’s diversified portfolio. Maybe. Time will tell.

It is my opinion, and only my opinion, that the AVERAGE investor, of which most of us are and why the term “average investor” was coined, should not be pouring our hard earned money into crypto, at least not for the hyped up reasons of turning a quick profit or easily becoming uber rich.

Unless you plan to “set it and forget it” like you would your 401(k) contributions and savings, and earmark it for the long term, then don’t do it.

Unless you are OK with potentially losing whatever you invest, don’t do it.

If you want to buy it to ride the wave and think it’s a get rich quick option,

DEFINITELY DON’T DO IT.

Because honestly, no one knows for sure what direction this is heading and I’m just not comfortable with the fact that a tweet from Elon Musk can singlehandedly make it soar or tank in a 24 hour period.  Are you???

For the majority of us, investing is meant for the long term, using investment strategies that are tried and true, and have proven to pay off for 100% of those of us who follow a disciplined and diversified approach to saving and investing.

A very small percentage of your portfolio…for the long term…with money you don’t need and are OK with losing?  OK, if you must, but do your research. Be aware, be informed and understand your decision.  

To be buying and selling crypto currencies on a regular basis is nothing short of day trading or trying to time the market. Most lose at that game in the long run.

That’s my two cents…I wonder what it’s worth in Crypto?

Financial Fitness

When you make an IRA contribution of any kind during the tax year, the institution where you made the contribution is required to file Form 5498 with the IRS. You will also receive a copy and it should be kept with your tax records. It is usually right around now.

For a deductible IRA contribution, this filing “proves” to the IRS that you did indeed make the contribution for which you are getting a tax break.

For non-deductible IRA contributions, keeping track of the contributions you make is important because you don’t want to pay taxes on that portion (known as your cost basis) of the IRA again in the future.

The usual deadline for these filings is May 31st and you would receive your copy in June. Since the tax filing deadline was extended this year, they have until June 30th, so don’t be concerned if you don’t see it until July.

There is no action on your part other than to make sure it is accurate and keep it for your records.

Favorite Quote

This month I’m taking a proud auntie moment to congratulate my nephew Jimmy, who is Valedictorian of his Class of 2021 and off to West Point in just a few weeks. He gave an awesome speech to his Senior class this past weekend and used this quote from Mark Twain that I really loved:

“The two most important days in your life are the day you are born and the day you find out why.”

Mega Back Door Roth: This Supersized Option is Good for your Health

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This topic has come up for me twice in the last week, so as is often the case, I’ve made it the topic for my newsletter this month.

I often get asked about the best strategies for saving outside of one’s 401(k).

My first caveat is that one size does not fit all, so what is a great solution for your neighbor may not be the best strategy for your situation.

I’ve highlighted in past newsletters the benefits of saving into an HSA, if you have one.

There’s also the option to contribute to an IRA, but regardless of which type of IRA you are to contributing to (deductible, non-deductible, ROTH, backdoor Roth), you are limited to how much you can contribute each year ($6,000 for 2020, $7,000 if you are over 50).

But what if you are in the fortunate position to be able to save more than this?

Introducing the Mega Backdoor Roth

There’s a little known strategy that I’m seeing as an option with more employers as of late. It’s the option to make after-tax contributions to your 401(k).

This strategy can offer tax diversification in retirement, but there are certain criteria that make it most effective.

It’s known in my industry as a  “Mega Backdoor Roth”, but you will not see it described that way in your benefits guide. It allows you to sock away more into retirement than the annual limits on a 401(k) or IRA.

Here’s how it works:

  1. Your 401(k) plan (your employer) allows after-tax contributions. If they don’t, game over.
     
  2. Your employer offers in-service distributions of these after-tax contributions to a Roth IRA while you are still employed or allows you to move the after-tax potion of your 401(k) to the Roth 401(k) part of the employer plan (if they offer one).

    If not allowed, game might be over, but not necessarily. It depends.

    I know, you hate when I say that. 
     
  3. You convert the after-tax contributions to one of the above as soon as allowed in order that the growth on your contributions is tax-free. You will now have a Roth IRA in retirement where there are no RMD requirements and distributions are tax free. Game changer.

When MIGHT this strategy be an effective strategy for you?

  • You already max out on your 401(k) contributions.
  • You max out on your HSA, if your employer offers one.
  • You make too much money for traditional IRA contributions to be deductible.
  • You max out a Roth IRA or backdoor Roth ($6,000 for 2020, $7,000 if you are over 50).

As with most financial planning and tax strategies, there are a lot of ins and outs and I try to stick to top level highlights to educate and make you aware of possible options available to you.  Consulting with your financial advisor or CPA is always prudent to determine which strategies are your best fit.

Financial Fitness Tip

Speaking of 401(k)’s, we are quickly approaching the end of 2020 (thank goodness). It’s a good time to check where you are with your 401(k) contributions for the year. You may have dialed back the % you contribute when things got a little coo coo in the markets or you had a temporary need for increased cash flow.

If things are looking brighter in your financial world, increase your % for these last few paychecks of the year and into 2021. And if there was never a hardship yet you are not maxing out, consider increasing it a percent or two now.

Little steps carry us a long way over time.

Things I Love

I will be pulling out my mom’s tattered and stained copy of her mom’s recipe to try to match what my grandmother used to create – a true masterpiece! I can never quite match it (my mother always said the same thing when she made it), but I can try.

And besides, it’s simply the tradition of making it and remembering them both that is my true Favorite Thing!

Happy Thanksgiving!

Wowzer, What a Week

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A fun meme was going around on Facebook last weekend that said:

“Just a Warning, this week is starting by changing the clocks, has a full moon and ends with Friday the 13th. Good Luck People.

P.S. Don’t forget to wash your hands”.

As it turns out, that warning did not do the week justice as far as the stock market and our investment portfolios are concerned.

It happened whiplash fast.  A week where the biggest warning for the coronavirus was to wash your hands and stay home if you feel sick ended with many of us feeling quite sick, but not because we had the virus.

This past week ended a record breaking 11 year bull run as the major market indices officially entered bear territory, defined as falling 20% or more below their all-time highs.

Because in this life none of us can predict the future, we rely on what we know and have learned from the past. But there is always that underlying itch that says, “but is this time different”?  In talking with my friend and colleague Michelle this past week, also a financial advisor (a phenomenal one I will add), she remarked, “‘this time’ is always different, but also not different”. Meaning, it’s a new catalyst that pushed our markets into bear territory this week, but not different because we’ve been here before, and each time, the market eventually recovers and investors continue to make money in their portfolios.

So, following this crazy week, I thought I would share with you a compelling video by Loring Ward that depicts the value of $1 invested in the Total US Stock Market in 1927 and if left untouched, the value that single dollar would be today.

It gives a great perspective on the long term effects of “bad news” and “bear markets” on the overall stock market.

It covers over 90 years in about 3 minutes, so stick with it to the end for an inspiring quote from legendary investor Warren Buffet.

This clip will eventually be updated to reflect this past week and whatever the weeks and  months ahead will bring, but I remain confident that history will again repeat.

None of this is to say it’s easy to watch our portfolios take a hit.  It’s a punch in the gut and it takes resilience to stay the course.  But when we ride the wave, history shows us that staying in the market is the best place to be for the long game.