Crypto FOMO? Wonder No Mo’!
Well, it certainly looks like “crypto,” sometimes called cryptocurrency or digital currency, is having its moment. And I’ve received a whole slew of questions about investing in it, because it would be a shame to miss out.
Before I even get going here, I want you to know that if you are invested in an S&P 500 Tracking Index, ETF, or Mutual Fund anywhere in your portfolio, you are already participating in crypto. You are participating because there are companies represented within this index that hold and invest in crypto themselves. They may have direct treasury investments in digital assets, partner with crypto firms, or participate in the underlying blockchain technology.
Just Enough About RMDs (and a few other acronyms) to Make You Smarter Than Yesterday
I needed to write this now because the end of the year is a critical deadline for Required Minimum Distributions (RMDs). What’s more, there have been so many changes to the tax code over the past five years that there isn’t a financial planner who can keep things straight without a cheat sheet. To top it off, there’s a best practice you should know about, especially if you manage your own IRA/401(k)/403(b) investment accounts.
Apologies to those who would prefer a story. This week I only have cold, hard, financial facts. Let’s start with the basics:
What’s An Emergency Fund Really?
Finfluencers and Financial Advisors alike tell you that you should have an Emergency Fund equal to three to six months of your fixed expenses. Thus, if your fixed expenses are $6,000/month, your emergency fund should be between $18,000 and $36,000. Further, this money should reside in a High-Yield Savings Account (HYSA) or a Money Market Mutual Fund (MMMF) where it will earn better interest than checking or local bank savings.
So far, so good. But if this is best practice, why do so few people get it right? Why am I regularly hearing horror stories about people depleting their emergency funds for things other than an emergency, only to be in deep “doo-doo” when an emergency hits? Why am I hearing about people who regularly dip into their emergency fund for run-rate expenses? This is not a challenge exclusive to cash-strapped people. Plenty of high cash flow households dip into a single pot of money until it becomes dangerously low.
Raise Your Rates
I’ve been having my hair cut by the same woman for three years or so. She’s been in business for over 30 years. She owns her own salon and rents seats to other stylists. I asked her how much more she charges than her other hairdressers, since she’s the most experienced and the owner. She said she hadn’t raised her rates in years. Her answer stunned me. Kids just out of school in the shopping mall are charging more than she is.
I recommended she raise her rates.
I’ve been going to the same aesthetician who has been performing lots of magic on my face for 10 years or so. It was time to purchase another package of sessions. When she told me the price, I reminded her that this was the same price as the last three packages.
I recommended she raise her rates.
I had a conversation about materials and labor with a small builder/contractor. Same story. He says he fights for every dollar of margin. He claimed there’s a limit to what people will pay.
I still recommended he raise his rates.
Paying for Convenience is Financially Inconvenient
Rarely do Fred and I eat out anymore. And very rarely do we indulge in takeout food. We decided it’s almost always disappointing and never really what we want. Besides, we’re low-carbing it these days. So why add stress when we can make perfectly good food at home? As a result, I don’t really care about the price of my fancy organic groceries because, in the end, it’s still less expensive for our household than eating out.
A few weeks ago, I was engrossed in work and Fred was heading back from a client meeting. He offered to pick up lettuce wrapped Five Guys burgers, and I said yes. (Sigh. No french fries for us, alas.)
Oh, Sh*t, the Market’s Down! What Do I Do?
I have a webinar with this title because down days in the market make me laugh. (Seriously!) On 8/5/24, the stock market had its worst day in two years, part of a three-day losing streak. On 8/6/24, the market closed substantially higher, showing a broad rally.
For 24 hours, market watchers wailed and beat their breasts, published articles about recession, and caused retail investors to sell $1 billion. Big mistake. In contrast, the institutional folks bought $14 trillion on the dip, and that was one of the reasons for the rally.
So, what can you do when the market goes south?
I Love It When A Plan Comes Together
Behind the scenes at Madrina Molly™, we’ve been working our little tails off to create a digital home for Financial and Longevity Planning Education. In fairness, my explorations on the Internet have yielded a few good teachers out there in social media land. But it’s hard to find them.
Currently, the “finfluencers” want to teach you how to trade options, buy tax liens, and purchase their “secret sauce” training.
Newsflash: If you haven’t spent any time learning how to trade up until now, what makes you think you’d be interested in it moving forward? Plus, you don’t have to “trade” to invest successfully.
Sentimental Stockholdings
As stock pickers, professionals and amateurs alike are terrible. Seriously, terrible. Like so many wise people before me, I would want you all to know that nobody knows anything about what’s going to happen. And it’s completely possible that a major player in the S&P 500 will be disrupted (think GE, now reinvented and back in the index) or a minor player on the NASDAQ (think any number of de-listed tech or bio companies) will cease to exist. There are no guarantees.
Should You Undertake Your Children’s College Debt?
I’m diving into an ugly discussion here about a middle-class reality: student debt.
I’ve seen this movie too many times. Far be it from me to cast aspersions on the failings of my clients or their children. But at least a couple times a year, I would find clients who had signed on to pay for their children’s college debt, assuming that once out of school, the child would be responsible for repayment. Alas, the child decided (for whatever reason) they were not interested in “adulting” at that level. And Mom and Dad, responsible on paper, continued to make the payments, often at the expense of their own retirement security.
Okay, okay… This is It (I Promise)
I’ve probably bored you to tears over the past few blogs, but I can’t help trying to be more complete. (This is in response to some finfluencer posts I found that only give the sexy part of any story.)
Somewhat tangential to my recent Taxes Matter posts, I want to offer two more tax ideas for diversification, but first a word on Required Minimum Distributions (RMDs).
Do I Need a Diversified Portfolio? And Other Risk/Reward Questions
“Wide diversification is only required when investors do not understand what they are doing.”
These are strong words from Warren Buffet, the CEO of Berkshire Hathaway, which arguably is its own diversified investment. Buffet has been known to say that concentration builds wealth and diversification protects wealth; that diversification is a hedge for when you are not knowledgeable.
That said, what should you do with your nest egg: build wealth or protect it?
Financial Literacy:
April is Financial Literacy Month, wherein we encourage Americans to create and maintain healthy financial habits. The only problem is, depending on your source for financial education, you can go down a rabbit hole quickly in the wrong direction.
Not every self-proclaimed financial “expert” delivers best practice information; in other words, generally accepted and researched principles and guidelines. And that means it’s sometimes hard for you to extrapolate what information is right for you. Most of the reputable talking heads deliver solid data, but they also have something to sell. And that can be problematic when what you are learning is sales opinion and not fact.
Taxes Matter In Retirement (Part II)
Last week, I discussed why tax diversification matters in retirement. In it, I described how we tend not to think of tax treatment in distribution as we build our wealth. Instead, we place most of our wealth in accounts that are taxable as income (IRAs, 401(k)s) and in our homes (equity.)
But in retirement, we may want to finesse how much income we show year-over-year in order to take advantage of the tax code; because having assets with different tax treatments (capital gains, Roth, deferred) provides more choices, which lead to (potentially) paying less tax out of your savings.
Taxes Matter In Retirement (Part I)
It’s Tax Day! Welcome back to the surface, all my CPA friends. Well done on this year’s efforts. Get all the extensions filed and head out on your well-earned spring vacations! When you come back, let’s do coffee.
As for the rest of us, we tend to think of taxes as a necessary evil, which of course, they are. It’s hard to love tax information. Now, before I lay some on you (tax love, that is) in honor of this auspicious annual event, I’d like to address something truly important in grammatical constructs. And while my reach is not far (yet), I will be gratified if just one person learns this and uses it properly going forward:
The Max Match, The Max Contribution and the Max After Tax
Prospective clients would regularly tell me they are “maxing” their 401(k)s. Upon closer inspection, I’d discover that they were not maxing their 401(k)s. What were they doing? They were maxing their employer match. This happens often enough that I think it bears explaining. When financial planners say you should “max your contribution to your 401(k),” I don’t think it means what you think it means. (See The Princess Bride.)
Nobody Talks About their Financial Failures
Let me tell you a “not-so” secret: I bought AAPL (Apple) in 2001 at $17. I had a feeling that the iTunes thing was going to be big. And I was right. Yippee for me! Having just come off the bursting of the dot-com bubble and the horror of 9/11, I made a great call.
How Can You Say No To Guaranteed(!) Lifetime Income?
There are some crazy and absolutely true metrics about the percentage of clients who, when offered guaranteed lifetime income by their financial advisors, refuse to take the advice. And it’s a high percentage. Since I pride myself on clear communication, I don’t think the challenge, for my own clients, was my failure to describe what it is, what it isn’t, why it’s a good thing, and what are any potential gotchas. I think it’s fear.
The Normal Aging Process And Frailty Risk
It’s hard to imagine arriving at that age where you start a conversation regaling people with your latest doctor’s appointments. Lots of us arrive there, however. Sometimes it’s a necessity, like when a child takes over a parent’s health logistics. But mostly we joke how we’ll never be that person, when in reality, we know, deep down, we are destined to become precisely that person.
Leslie F*cking Jones Wants You To Have Life Insurance
Recently, I drove east from Cincinnati to Saratoga Springs, New York, as I do twice a month; and let me state for the record that I-71 and I-90 are not interesting roads. The trip is much more tolerable when it includes catchup phone calls and audiobooks. This time, my 11-hour pilgrimage called for a weighty tome. A substantial piece of thought leadership.
The Market Is Not A Casino
It’s not our fault that we think of the stock market as a form of speculation. Pundits and consumers alike refer to investing as “playing the market,” as though we’re walking up to a blackjack table, slot machine or roulette wheel. And just like gambling, participating in the stock market comes with risk.