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8 Actions to Take for a Financially Savvy 2023

Published on January 16, 2023

John Hagensen

With the markets still fluctuating and inflation still high, John outlines eight steps you can take for a financially savvy 2023. He’s also joined by fellow Creative Planning Wealth Manager Carlos Lopez, who shares key takeaways for investors from last year’s market volatility — and how you can apply these lessons to your 2023 investing strategy.

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Episode Notes:

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John Hagensen: Welcome to the Rethink Your Money podcast, presented by Creative Planning. I’m John Hagensen, and ahead on today’s show I’ll share the eight money moves you can make for a successful 2023, the most reliable antidote to relieve your money fears, as well as my answers to your questions. Now, join me as I help you rethink your money.

Have you ever noticed that there are times in life where good news is actually bad news? I was watching two really awful NFL football teams play their final game of the regular season this last weekend. And for those of you listening in Houston and Indie, oh you know exactly which game I’m talking about because it was your two dreadful teams. But to summarize, for those who don’t follow football, the Houston Texans had the worst record in the entire league. And the one benefit to that is if you finish dead last, you get the first pick in next year’s NFL draft. You can theoretically take the best player from college.

Well, Houston, somehow, some way converted on a fourth down with 20 yards to go, followed by a successful two-point conversion to win the game. Now, the irony was if you were a savvy Texans fan, you weren’t celebrating that win. You weren’t happy because that win allowed the Bears to have the worst record in the league and subsequent first pick. You see, the win of that single game was a loss in the long run. And this paradox of good news maybe not really being good news is also what the markets have been experiencing for quite some time now.

We’re in a strange environment where positive news leads to poor stock market performance and negative news leads to positive performance. For example, unemployment’s low. Well, isn’t that great news? People have jobs. This is fantastic. Market doesn’t think so. It tanks. Earnings still look stronger than expected. Market drops. I mean, recently we just saw wage growth slowed, not at all good for Americans in the real world on main street, and the market rallied.

It truly is you sitting on the couch dunking your tortilla chips in the bean dip, rooting for your favorite sports team to lose so that you can get a higher draft pick. It’s counterintuitive. But I’m going to take a positive angle at this. Why some of the seemingly bad news and negative sentiment is likely a little better for you and your money moving forward than maybe you would think at first glance. Here are three specific bad news is actually good news situations so that hopefully your optimism for accomplishing your goals is renewed.

Number one, and this is an obvious one, stocks have fallen. Just how bad? The US stock market was down 19% last year. International developed markets down 14%, emerging market stocks down 20%, and global real estate down 24%. Well, how can that be good? Well, because the market reacts historically very positively following declines. The one-year return following a drop of 20% or more, and I’m looking post 1931, the market is positive 18 of the 20 years with an average return of 30%.

Well, you and I both know that stocks aren’t a one-year investment. We need to hold them longer. How about a three-year return following a drop of 20% or more? Well, again, post 1931, it has been positive all but one of those periods with an average return of 55%. And if we expand that out further, the 10-year return following a drop of 20% or more year to date post 1931 has been positive 100% of the time.

Now, of course, past performance is no guarantee of future results, but the average return post 1931 on those 10-year periods is 211%. So yes, stocks have fallen. That is bad news. But that’s already in the rear-view mirror. The stock market is forward-looking, and as the saying goes, history might not repeat itself, but it often rhymes. And there is significant good news on the heels of that bad news.

The second piece of bad news that may be a little bit better for you than you think is that bonds have fallen. The US bond market was down 13% in 2022. The global bond market, so all bonds minus the US, was down 9.76%. So just shy of a 10% loss. And to put this in perspective, if we go all the way back to 1977 using the Bloomberg US Aggregate Index, 2022 was the worst year for bonds. By the way, not just by a little bit. In 45 years, bonds have fallen in value only five times. So if you’re looking for bonds to be a stabilizer from stocks, they traditionally are. The most significant decline of those five times was in 1994 where that bond index fell 2.9%. Think about that for a moment as the aggregate bond index was down more than 10% last year. I mean, that’s some bad news, isn’t it?

Well, maybe, or maybe it’s just bad news that’s in the rear-view mirror just like stocks falling because it would take rates rising even much higher than where they currently sit today but also for bonds to fall in price even more. So in reality, buying bonds today means collecting a significantly higher interest rate than any time in recent memory. I mean, the two-year Treasury is around 4.25 right now. Can you imagine going back even a couple of years and saying in a few years you can lend money to the government and they’ll pay you 4.25 on a two-year bond?

By the way, quick tangent, good news can be bad news for certain people. I saw a commercial for LightStream, one of the major credit providers that consolidates credit cards and other private loans, advertising really low rates in the 7% range. Yikes. I remember not that long ago where those were maybe 3%, 4%. So as we’re discussing, there are two sides to the good news, bad news coin.

But to summarize, bonds have fallen far more dramatically than at any point the last 45 years. And that’s your new entry point. So it’s reasonable to assume there’s likely less room for prices to fall significantly further, which leads me to my third bad news could be good news situation so that you can feel optimistic. Inflation is high. Well, that sounds terrible, doesn’t it? I mean, none of us root for 40-year high inflation, that’s for sure. But this inflation has caused the Fed to aggressively hike rates again. But, John, do you have a screw loose? That is not bad news, good news. That’s bad news. And now you’re telling me the Fed’s hiking. That’s bad news too. I’m getting there.

Yes, they have done this in an effort to take the heat out of the economy, and it appears at least to some extent to be working. Now, no one knows, including Jerome Powell himself, whether they’ll actually be able to fully execute a soft landing. There’s far too many variables. But unemployment’s remain low and they haven’t completely broken the real estate market at this point, even with rapidly rising mortgage rates.

And here is the silver lining. Unlike the past several recessions, the Fed now has bullets in their gun to fire in the event that they did hit the brakes too hard and raised rates too fast. Think about where rates were at heading into the dot-com bubble bursting, the great financial crisis, the pandemic. There wasn’t much room for the Fed to restimulate the economy by lowering rates. They tried and it was effective, but sitting where we are today the Fed has never in recent memory been positioned with this much flexibility to revive a sputtering economy.

So to recap, stocks have fallen, but as a result, you can feel optimistic about their future prospects. Number two, bonds have fallen, but are now paying much higher interest rates. And number three, as I just spoke of, inflation is hovering near 40-year highs, but this has provided the Fed with significant breathing room in the event they need to pull us out of a recession.

And so just because this environment is atypical, you might be feeling anxious, you might be feeling uncertain. By the way, if you are, it’s okay. That’s normal. But there’s one thing very typical and reliable, and that is that the pundits, the media, commission-driven brokers, insurance agents are going to give you their best Chicken Little rendition. They’re going to scare you, the sky is falling, the sky is falling, and potentially lead you into unwise decisions. And you say, “Well, why would I do that?” Well, because it temporarily alleviates your fears. It reduces stress. It stops the bleeding.

But the problem is that’s a bandaid over a bullet hole. And if you stare right back at that bad advice and you speak truth and you provide data, they’ll tell you, “Well, this time is different.” I mean, that sounds great that the three-year forward return outlook has historically been good. But you know what? This time, well, this time’s different. To that I would say you’re right, it is different because every time is different.

The specific catalysts behind each recession or correction or bear market is unique. But one thing remains true. Every bear market in history has given way to a bull market. We don’t know when that’ll be or where we’ll find the bottom. But while you can’t control bulls and bears, you can’t control the unknowable, you can take action and be proactive to ensure that you’ve done all that you can to position yourself and your family for financial success.

I want to encourage you as we are turning the page on a new year that if you don’t have a written, documented, monitored, and updated financial plan, I strongly suggest that you get one. If you have a plan, get a second opinion to ensure that it is in fact a complete plan, that you’re not missing anything. What is a complete plan? It means you have CPAs, attorneys, financial planners all working together on your behalf. If you’re not sure where to turn, we’re happy to help you as we have for others just like you since 1983.

At Creative Planning, we have clients in all 50 states and 75 countries around the world, 50 attorneys, 85 CPAs, and over 300 certified financial planners. And our number one priority is that you have more confidence and clarity around what you’ve worked a lifetime to save. I don’t want you confused. I don’t want you unsure. And so if you’d like to speak with myself or one of my colleagues, a credentialed fiduciary not looking to sell you something, contact us now by visiting creativeplanning.com/radio. Again, that’s creativeplanning.com/radio to get your questions answered.

Up next, client examples so that you can learn from their mistakes. That and more ahead on the show.

Announcer:  You’ve worked hard for decades to build your wealth. But if you’re like many of us, it’s not enough to simply grow your assets. You also want to ensure that when you leave this world, your money goes to your loved ones and the causes most important to you. That’s why estate planning is a vital part of any financial plan. And contrary to popular opinion, it’s not just for the uber rich. Everyone needs an estate plan.

At Creative Planning, our wealth managers work with in-house attorneys to integrate your long-term wishes with your financial plan, maximizing your legacy through tax-smart investing and distribution strategies. If you don’t have an estate plan or haven’t had yours reviewed in the last year, go to creativeplanning.com/radio now to schedule a free review meeting. With the team of credentialed specialists on your side, you can help ensure your wishes are carried out swiftly and privately without the messiness of a probate process that could cause undue burden on your loved ones. Don’t leave your legacy to chance. Go to creativeplanning.com/radio now to meet with our team. That’s creativeplanning.com/radio.

Now, back to Rethink Your Money, presented by Creative Planning with your host John Hagensen.

John: Well, today my special guest is Carlos Lopez. He is a fellow partner here at Creative Planning and managing director for our Seattle office. Carlos has 30 years of professional experience as MBA. He’s a certified financial planner. And today you’ll get to hear the perspective of another wealth manager. So with that said, thank you for joining me on Rethink Your Money, Carlos.

Carlos Lopez:  Thanks for having me.

John:  I’ve been looking forward to this conversation with a fellow certified financial planner to hear your thoughts on this volatility, on portfolio design, as well as appropriate investor responses. And so let’s just start with the markets this past year.

We’ve had plenty of people coming out of 2022 claiming that the traditional 60/40 stock/bond portfolio is a thing of the past. It’s a relic. It’s broken. And it’s not hard to see why with US stocks down 19%, international only doing slightly better, and the bond market down 13%. It makes sense people feel that way.

So Carlos, when a client or prospective client asks you does the old way of doing things still work? Should we be rethinking conventional wisdom? Are bonds and stocks still creating enough diversification? What do you say?

Carlos:  A lot of clients have told us, gosh, it feels so different than any other market decline that we’ve ever been in. And most investors are suffering from market fatigue due to this long slog that has lasted for more than a year. And it’s emotionally very trying time because when you turn on the news and all you hear are the negative aspects of slowing economies, supply chain issues, central bank rate tightening, the Fed selling off its balance sheet, stock markets are in decline, not to mention the highest inflation in over 40 years and an expanding war in Ukraine, these feel like uncertain times and it’s straining the resilience of even our most tested investors.

So why does it feel so bad? It is in part because times are challenging, but also because we’re in the middle of it. Investors sometimes suffer from this thing we call recency bias, meaning that we’re experiencing something today, so it feels worse than at any time before. So when I ask clients do you recall the last time the market was in a bear market or the last time the Fed was raising rates? They’re not always certain because of that recency bias. But I can tell you that both occurred in just the last four years. But there’s so much bad news piled into the last 12 or 13 months that it just seems like this market is unlike any other.

Now, we are in a bear market, which as you know is a market decline of greater than 20%. And this is one of about 20 in the last 90 years. The good news is that we may have already visited the bottom of this market in early October. And if we haven’t, the one thing that history tells us is that all bear markets have one thing in common, they end. And then the market’s rebound and they go on to new highs every single time.

What we can’t know is the bear market severity or its duration. But it’s important that investors should remember that historically markets will severely punish short-sighted investors and favor long-term patient ones. So it’s really important that the one thing an investor can do is not act irrationally. Review your plan, stay invested, and if it makes sense, harvest losses and opportunistically rebalance your portfolio to really take advantage of these low-entry points.

John:  Well, I think fatigued is an appropriate word. For whatever reason, it’s easier for us to deal with a sudden 30% drop like what occurred during the pandemic than a slow, drawn out bear market like we’ve been going through now for over a year.

A lot of investors I think are still concerned about all the volatility that’s out there, maybe thinking, I just don’t know if I want to get in the market. I mean, as you alluded to, I’m hearing bad news. It feels so uncertain.

So Carlos, how do you address that with maybe a new client who’s coming on board who has these concerns?

Carlos:  Yeah, I think the best way to answer this is to tell you about a prospect I once had. And she came to me in 2014 and she had told me she pulled all of her money out back in 2008 after the financial crisis. And you may recall the Dow hit a low of around 9,000. Now, she stayed in cash. But by 2014, the Dow had recovered to about 16,000. So by the time we spoke, it had already come up quite a bit.

And we talked and I explained that while markets move up and down and the longer you stay invested, the better potential long-term results she may likely have. She really wanted to invest, but she was emotionally compelled to stay out of the market. She felt the markets were too high, she had already missed all of the gains, and if she invested, it would surely collapse because it had already come up so much.

So we parted ways, but we did keep in touch. And I spoke to her each year for several more years. But we ended the conversation the same way. We spoke in 2015, 2016, 2017, and by 2017 the Dow was now up around 25,000. But she continued to delay her decision to invest.

So by January 2018, she was finally ready to invest, having built up enough confidence watching the markets rise for years and years and years. And she, John, she was right as rain. The market pulled back. That year, we went into correction territory twice I think here in the US. And she told me, “See, I knew it. I knew the market was going to go down.”

Now, I tell you that story because while 2018 wasn’t a great year and there was a ton of volatility and she also experienced volatility in 2020 and 2022, the Dow today is around 33,000 despite the market setbacks. So she’s farther ahead by not losing faith, having a plan, and staying invested. Along the way, we harvested losses for her, we bought the dip, and she’s more confident today in her financial plan than any time since we started.

Now, I tell you the story because whenever we bring a new client on, we want to make sure that we have that conversation about risk and volatility. Oftentimes, clients will tell me, “Hey, I want a portfolio that earns me 7 to 8% per year.” And I say, “Okay. If I build you a portfolio that gives you the chance at achieving that level of return, you have to be ready for a three-standard deviation event in any one year.”

And sometimes clients aren’t sure what that is. And so I tell those clients as an example, if I build this portfolio and it’s designed to achieve 8% per year on average, then one standard deviation from that mean is going to either be positive 16% or zero, two standard deviations is going to be negative eight or positive 24, and three standard deviations is going to be a negative 16% or positive 32.

So then I ask a test question, “Are you okay with your portfolio dropping negative 16% in any one year because that happens pretty regularly?” And this will usually help shape a realistic conversation about what the client needs the portfolio to accomplish for them, the risk they’re willing to accept to achieve that goal, and then from there, we can have a fluid conversation on appropriate asset allocation and investment strategy.

John:  I’m speaking with Creative Planning partner and Pacific Northwest managing director Carlos Lopez. And if you’d like to visit with one of our local advisors like myself, like Carlos, you can visit us at creativeplanning.com/radio.

All right, so Carlos, this is a classic reminder that the risk of being out of the market is often greater than the risk of being in. And the first thought that I had as you were telling that story is that as I just alluded to, the time to invest is still now on monies that you don’t need right away. And the second thing that came to mind is how important setting realistic expectations actually is for our success because frustration’s the gap between expectations and reality. And I admire the way that you approach these conversations with Creative Planning clients because if expectations are off, it doesn’t matter what the results are. We won’t be content. We won’t have peace. We won’t be happy.

So let’s stay on that topic concerning education. Carlos, what’s the number one lesson that you try to educate your clients about so that they hopefully avoid the big kill your financial plan type mistake?

Carlos:  Very simply, it’s to not make rash, emotional decisions and to follow their plan. Take advantage of markets that are in decline by harvesting losses, buying the dips to opportunistically rebalance are all really key. What they shouldn’t do is exit the market based on fear. This is almost always the worst mistake you can make.

So I’ll tell you another story. During COVID, I had a client that was extremely nervous about the market. I think most of us were, right? The stock market had fallen 34% as measured by the S&P that year. No one had any clue what was going to happen. Borders were closed worldwide. Few were traveling, schools were shuttered. Employers globally sent workers home. And we had a deadly disease spreading that didn’t have a cure. It turns out that it’s actually fairly easy to completely shut down a global economy with a few policies and switches, but not so easy to turn back on.

No one knew that the market bottom was going to be March 23rd. And I had a particular client that was extremely nervous. And between early March and that 23rd date, I had had no less than probably seven or eight conversations with this client trying to talk him down from the trees. He was so fearful he was going to lose his entire life savings.

And while I acknowledged the severity of the market, we were confident the downturn would be temporary and eventually the market would recover, but we just simply don’t know when. And so I pleaded with him not to use emotions and exit the market and if he did so he would lose out on this market recovery. I further discussed that we had a plan for this market and how we’d been selling bonds and using some of those proceeds to buy equities to take advantage of the discount that would later aid his recovery.

But despite my professional advice, he instructed me to completely sell out on March 23rd.

John:  Wow.

Carlos:  Now, this was the lowest point in the market. The very next day, you probably remember this, the Dow rallied up over 11% that day, and the S&P was up over 9%. And it never looked back.

My client called me the next day and he told me he should have listened to me and he regretted his decision, but the damage was done and he had permanently lost over $300,000 that couldn’t be recovered.

So it’s really important that in volatile times that investors stay invested and focus on their plans, and if they don’t have a plan, ensure that they reach out to a competent advisor to help them create one.

John:  Well, that is a sad story if I do say, Carlos. I wish it was a rare situation, but you and I both know it happens far too often to those who don’t have a strong plan and strong accountability to that plan because fear is a very powerful emotion to navigate, especially when it pertains to something as important as our life savings and our family’s financial security.

Carlos, thanks so much for sharing your experience and your insight. Lot of great lessons for us all as we look to steward our resources with wisdom. You’re helping a whole lot of people up in the Emerald City in a very meaningful way, and I appreciate you taking some time for the listeners and me here on Rethink Your Money.

Carlos:  Thanks, John.

John:  That was Creative Planning wealth manager Carlos Lopez. And do you believe you’d benefit from a complete wealth plan like we offer here at Creative Planning? A financial plan that takes into account not just your investments but also taxes, estate planning, risk management, truly all phases of your financial life.

If you aren’t confident in the plan that you have, haven’t had a second opinion recently, or maybe have never had the opportunity to sit down with a fiduciary who isn’t looking to sell you something, but rather give you a clear and an understandable breakdown of exactly where you stand with your money, why not give your wealth a second look by visiting us now at creativeplanning.com/radio? We’ve been helping families since 1983, managing or advising on $225 billion of assets across all 50 states and 75 countries around the world. Remove the uncertainty and get your questions answered now by going to creativeplanning.com/radio.

Well, we’re halfway home, but there is so much more in store. When we come back, the eight actions to take for a financially savvy 2023. That and more up next.

Announcer:  At Creative Planning, we provide custom-tailored solutions for all your money management needs as our team is structured to cover all areas of your financial life. Why not give your wealth a second look? Visit creativeplanning.com.

Now, back to Rethink Your Money, presented by Creative Planning with your host John Hagensen.

John:  Can you imagine meeting someone who was in tiptop shape and inquiring as to their action plan? What do you do for nutrition? What’s your workout regiment? I mean, I want to learn what you’re doing. Only to have them answer, “Oh, I don’t do anything. I just sit around and think about how healthy I’m going to eat, the workouts that I’m going to do. I just imagine them in my head. I don’t actually go to the gym, work out. That’s lame. But I think about it.”

Of course, this example is ridiculous because you and I both know that progress is only made through actions. It doesn’t matter what our intentions are. And because it’s January, if you’re like me, this is a well-timed illustration that will lead into some actions that we should take for a financially savvy 2023 because most of us have our fitness and health resolutions, don’t we?

Oh, my wife, Brittany, the other day, she made chicken, these organic green beans, kind of the longer skinny ones, really good, and she also made some rice. Well, do you think I ate that rice? No, because it’s January. I don’t eat rice until my New Year’s resolution’s blown up by the end of January or early in February. I’m still on my low-carb kick.

And the overarching explanation as to why I don’t have a six pack is because my actions don’t match up with my intentions. And if we’re being honest with ourselves, isn’t this so often true with our money as well? And that’s why I want to share the eight actions you can take for progress here in this new year. Notice I didn’t say eight thoughts to consider or eight actions to ponder. No, eight actions to take. And I’ll post a great article on getting your financial house in order to the radio page of our website at creativeplanning.com/radio if you would like to reference these action items for yourself.

Let’s jump in to number one, understand your spending habits. Gaining and understanding of where your money goes each month is critical to your financial success. Here’s how I suggest that you go about this. Take a month or two to thoroughly track your spending habits and classify each expense into one of two categories, fixed expenses and discretionary expenses.

By the way, if you are married, this is a great one because you’ll not only see how you spend, but you’ll also see the spending habits of your spouse. And you can give each other a hard time if you are like my wife and I and you spend on some different items. For example, about once every year I spend 15 minutes online at two or three different websites where I buy all of my clothes. I like to buy good coffee. I spend on nicer hotels, but not on expensive cars. I mean, I think nice cars are awesome. They don’t do it for me.

Instead, I’d prefer to overpay for DoorDash where they charge you one and a half to two times as much as the meal would cost if you went there just because I have seven kids. And when that glorious food shows up on my front porch that I had to do nothing for and I didn’t have to try to soothe a screaming child in their highchair while waiting for our food to come out feeling terrible that everyone else in the restaurant hates me with passion that I happen to bring my family to that very same restaurant, yeah I love DoorDash. Great.

Meanwhile, my wife’s actually stylish. She likes shopping. She has a nice car, but she thinks DoorDash is a waste of money. And she would much prefer any hotel with a continental breakfast. Don’t ask me why. She loves the waffle makers. You know what I’m talking about. You put the batter in there, you flip it over, it beeps when it’s done. It’s like college cafeteria style. It’s like, “Why spend money on a nicer hotel when we could use that to buy another pair of shoes? That’s crazy.”

But in all seriousness, your first action to take is to understand your spouse if you’re married and your spending habits. Once you’ve done that, number two is create a budget. Now, I can always tell when meeting with a new client if they are an engineer or not because if they’re not, they won’t have a budget, like most people. If they are, their budget will be on a spreadsheet with tabs of every month with each subcategory broken down to the penny.

So by the way, if you don’t have a detailed budget, it’s okay. You’re probably just not an engineer. But it is an important action item to take. This is where the 50/30/20 rule comes into play that divides your post-tax monthly income into three separate spending components.

The first is 50%, and that is on needs, such as rent, utilities, gas. Nowadays, you might argue that a cell phone is borderline need, difficult to function in today’s world without a cell phone. The next piece of the 50/30/20 is 30% on wants. This is my DoorDash. I know, sadly I don’t think I can categorize that as a need. Other wants would be getting a new iPad, your Netflix subscription, hobbies like golfing, going to the movie theater, shopping for clothes, traveling. And the 20% portion of the rule is on savings or on paying off debt if you have high-interest debt not including your mortgage.

So again, creating a budget doesn’t need to be overly intimidating. Start with 50% needs, 30% wants, and 20% on savings. By the way, if you save 20% of everything you make for your entire life, you will retire with tremendous flexibility and independence.

And my third action item, establish an emergency fund and prioritize debts. When it comes to how much you should have in an emergency fund, there are some debates as to the exact amount, but widely accepted is three to six months of living expenses saved in a liquid account that you can quickly access should something unexpected occur.

If you are a single-income household, I would tilt toward the side of six months. If you are dual income and both incomes are relatively similar in proportion to covering your monthly living expenses, then maybe you could lean more toward the three months, but somewhere in that range.

Now, the reason that this emergency fund action item is also paired with prioritizing debts is because that’s a common question asked, if I have debt, should I pay that off before establishing an emergency fund, or should I establish an emergency fund and then begin working on my debt? And the answer is that you should establish your emergency fund first.

Now, mathematically this doesn’t make a whole lot of sense because money sitting in a savings account certainly won’t earn a higher interest rate than what you’re being charged, especially on high-interest debt like credit cards. But if you choose to pay off your credit cards before establishing an emergency fund, you can often become a hamster in a wheel where just as you work down your debt, your car breaks down and now you have to put that back on a credit card because you don’t have an emergency fund established, and the vicious cycle continues.

So work hard to build up the emergency fund, then prioritize your debts. And when it comes to paying off those debts, I recommend you start with your highest interest rate debt until that’s paid off. Then use that same dollar amount to pay off your next debt. Then combine the amount of those two previous payments to pay down the next highest interest rate debt and so on and so forth until your debt is fully paid off.

Number four, tax planning. If you are still accumulating, saving toward retirement, are you saving in the correct places? If you are withdrawing money, you’re in retirement, you’re distributing your wealth, do you know which accounts are most tax efficient to draw from first? Or maybe it’s a combination of multiple accounts. And I cannot stress this enough, a complete wealth plan means that tax planning must be included. When is the last time that your financial advisor reviewed your tax return? Better yet, when’s the last time that your CPA and your financial advisor met together to discuss your financial situation?

Here at Creative Planning, because we are a tax practice with over 85 CPAs, we provide tax planning and coordination throughout the year. And I highly recommend that you do tax planning here in 2023. Don’t just file your taxes and report what you already did. Instead, be proactive. What tax moves might you be missing? And really give yourself a true assessment, are you doing any sort of tax planning right now?

If you’d like a review of your tax situation, go to creativeplanning.com/radio. We’ll look at that within the context of your investments, your estate plan. Truly from a comprehensive standpoint. Why not give your wealth a second look by going to creativeplanning.com/radio right now? That’s creativeplanning.com/radio.

Continuing on with our eight actions to take for a financially savvy 2023. Number five, rebalance your portfolio. When was the last time you reviewed your investment allocation? Has it been a while? If it has, it might be time to rebalance. Rebalancing to your original or an updated asset allocation helps lock in possible gains from top-performing sectors and helps to ensure your portfolio remains in line with your investment objectives and your time horizon.

We all desire with our investments to sell high and buy low. We understand that’s how we make money, but the data tells us that we’re not going to likely accomplish that by trying to time the market or figure out which asset classes or sectors or individual stocks are going to perform better in the future and which aren’t going to do as well. And so in light of that, we’ll try to make trades to time the tops and the bottoms. Just rebalance your portfolio.

Let’s suppose in January of 2020, before the drop from the pandemic, you wanted 50% in stocks and 50% in bonds. Well, by March of that year, stocks were down almost 35%, bonds, depending on which types of bonds you were in, but high-quality, shorter-term bonds were actually up a little bit in value. Well, your account would no longer have been 50/50. No, as a result, you would’ve had far more of your portfolio in bonds than stocks.

Well, rebalancing means that you’d sell off some of those bonds at a premium and use those strong dollars to buy stocks while they’re on sale. And this accomplishes two things. One, it brings your allocation right back to the 50/50 that’s consistent with your financial plan and long-term goals. And number two, allows you to take advantage of market volatility systematically per a rules-based approach without you ever needing to successfully predict or forecast what might happen next.

Oh, and that’s a good thing because I’m not sure any of us would’ve predicted with the entire world shutdown that stocks would finish 2020 up nearly 20%. If your portfolio is not being regularly and proactively rebalanced, fire whoever you’re working with. You don’t need to work with us here at Creative Planning, but get rid of who you have. They should be doing that for you.

Number six, protect your loved ones. I’m talking about insurance, wills, and trust. Do you have these completed and are they updated? Insurance and estate planning are vital components to any comprehensive financial plan. After all, it’s not enough to simply build your wealth. You do need to protect it as well. And Creative Planning President Peter Mallouk spoke about this recently on his podcast. Have a listen.

Peter Mallouk:  So I’ve seen, in my career I’ve seen a couple families just get wiped out by not having the right term life insurance coverage. Term life insurance is extremely inexpensive. If you are 30 years old, 40 years old, 50 years old and your family needs money to finish paying for the house and college and pay off debts and whatever if you’re gone and have some money to sustain themselves, a term insurance policy usually for hundreds of dollars can make sure the family has the money that they need to cover them in the event you pass the next 10, 15, or 20 years.

And really, the consequences of not having it if it’s needed are very, very significant. A lot of people moved into bigger homes. They made major purchases. They have debt. It’s time to reexamine your term insurance and make sure that the family has enough to cover their needs in the event that you part ways with Earth early.

John:  Again, that was Creative Planning President Peter Mallouk.

Number seven, plan for major purchases. If you anticipate buying a house, a car, writing a big check for college education, whatever it might be, a bit of advanced planning can really help that that purchase doesn’t derail your other long-term goals.

And number eight, have a real financial plan in place. And when I say a comprehensive plan, I’m referencing a written, documented, measurable, adjustable financial plan that is based off of your financial goals and includes things like a net worth statement, budget and cash flow planning, debt management, retirement planning, insurance coverages, estate planning, tax planning. There is simply nothing more foundational or impactful to your financial success than having a plan.

As a former airline pilot, I relate so often a financial plan to the flight plans that I used to build and then reference and work off of in the cockpit. I certainly can’t imagine a time where we would push off the gate at LAX with you and your family as passengers in the back and say, “Well, we’re headed to O’Hare. Let’s just fly East. We’ll get there somehow.” And while very infrequently would the entire flight follow that exact flight plan without any deviations for shifting winds, rough air, maybe a change in the specific arrival being used, we still always left with a plan and then worked off of that plan, as it was critical for a safe flight.

The same is true if you desire to optimize your financial life. And if you’d like a comprehensive plan, we here at Creative Planning have been building and monitoring plans for people just like you since 1983. Why not give your wealth a second look? Contact us to meet with a local fiduciary advisor at creativeplanning.com/radio. It’s complimentary and there’s no obligation to become a client. We have provided this for thousands of radio listeners just like you. To get your questions answered, visit us now at creativeplanning.com/radio.

When we come back, a game of rethink or reaffirm, as well as your questions and my answers. All of that and more as we continue ahead on Rethink Your Money.

Announcer:  Do you worry about outliving your savings? Americans are living longer than ever, and that means your financial plan must support you well into your eighties, nineties, or beyond. If you’re not sure you have a sustainable retirement plan, it’s time to speak with a professional.

At Creative Planning, we help you live a richer way to wealth by providing a clear roadmap for the long term, no more guessing or hoping for the best. We’re here to help make sure you’ll have a plan to support your desired lifestyle and an advisor to give you assurance throughout your retirement years.

To get your plan or to get a second opinion on one you already have, just go to creativeplanning.com/radio to set up a visit with us. Our team will integrate all aspects of your financial life into a single comprehensive plan designed to help you achieve your retirement goals and give you clarity about your future. Don’t wait. Get a plan today. Visit creativeplanning.com/radio to schedule your introductory meeting. That’s creativeplanning.com/radio.

Now, back to Rethink Your Money, presented by Creative Planning with your host John Hagensen.

John:  Each week, we break down common wisdom or a hot take from the financial headlines, and together we’ll decide if we should rethink it or reaffirm it.

First up today is the common wisdom, all taxes are unavoidable. Well, let’s examine this, shall we? First off, if you’re making $1 million a year and you don’t have major loss carryovers and you’re not just evading taxes illegally, yeah then, taxes will be unavoidable. You’re going to pay some taxes.

And by the way, I think most of us would agree that paying some taxes so that we can have smooth roads and a police officer or a firefighter show up if we’re in need, along with all the other many great things that our taxes go towards now, yeah. Can we nitpick? Are there a lot of things that we probably think the government could be doing better with our money, making it stretch a little further? Do we feel like sometimes our tax dollars are maybe somewhat wasted a little bit? I think we’d likely say yes to that, but I think it’s also obvious that taxes are necessary to having a great country, having a great city or town or state.

So while some taxes are unavoidable, many taxes that I see being paid by prospective clients are very much avoidable. And this is incredibly relevant and important per the environment that we are in right now. If you feel uncertain about the economy and the subsequent future performance of your investments, maybe you’re pessimistic about accomplishing your financial goals due to aspects of your financial plan that are out of your control, here is one area in taxes that you have a lot of control over. And unfortunately, many people are out looking for the next best thing, the next great investment, while right under our noses is an opportunity today to minimize taxes.

Due to the Trump tax reform, we’re in the lowest tax environment we’ve seen in decades. These rates sunset at the end of 2025 and revert back to the Bush tax cut years, which are higher. It also wouldn’t be surprising if new legislation between now and then increases taxes even more with many government programs like Social Security drastically underfunded.

And so if you are like most Americans and you have dollars that you will be depending upon in retirement, saved in retirement accounts, like IRAs and 401(k)s and 403(b)s and 457s and TSPs, depending upon where you work, those are monies that you have deferred taxes, that you are waiting to pay taxes on. And at some point between now and the day you die, those will be distributed and you’ll pay ordinary income rates.

And again, I say those rates today are lower than they have been in a long time. What is your proactive tax plan? Because common wisdom that all taxes are unavoidable is a resounding rethink. Many of the taxes that you are paying, and not just this year, but taxes that you would’ve had to pay for or five years from now, but by being proactive, by having a CPA involved in your financial plan, you were in fact able to legally avoid and minimize your lifetime tax bill.

Are you getting that sort of advice? If you’re not, you should be. And if you want to know, we can show you how. Go to creativeplanning.com/radio to take the first step and ensure that you’re not unnecessarily paying additional taxes beyond what are legally required.

My second piece of common wisdom for us to rethink or reaffirm is financial education is the cure to your money fears. Let’s face it, money can be intimidating, it can be scary, it can be uninteresting. Some of you right now are going, man, this is boring. John, I like when you tell more stories about your family or sports analogies or something. I mean, this one’s just been all about finance. But because of that, we sometimes don’t lean into learning more and educating ourselves. And that lack of knowledge increases our fear. And then we’re often afraid of doing the wrong thing with our money or making a huge mistake. And when you make money moves that are rooted in fear, it can lead to devastating results.

So I want to encourage you, the best way to alleviate anxiety and fear is to educate yourself, arm yourself with the best resources possible. And if you have a financial advisor like in our case here at Creative Planning, a team of professionals and specialists, like attorneys and CPAs and certified financial planners all working together, our number one goal and the huge reason for this show is that we believe it’s important for you to know for yourself the basic principles and building blocks of how to have financial success.

Although we execute on behalf of our clients so that our clients can get back to doing the things that they really value and love doing, and that hopefully they do benefit from our experience, we also want our clients and I want you to be able on your own to separate myth from truth because that education will bring about confidence, and that confidence will increase your peace of mind. And that peace of mind is more valuable than any additional dollar amount could ever bring.

Our listener question for today comes from Al in Tucson, Arizona. Remember, you can email your questions to us by submitting them to radio@creativeplanning.com. I will personally answer your question either on the air or directly via email.

Al’s question for today says, “I bounce between several jobs and haven’t always immediately rolled my 401(k), and now it’s hard for me to even keep track of all the old ones. How do I find out if I may have forgotten one?”

Well, if any of you listening think that Al’s situation is unique to him, you need to rethink that. In fact, in the final weeks of 2022 with this Secure 2.0 Act that Congress just passed, among other things, it promises to establish a national lost and found database for all lost retirement accounts by 2025. I’m not joking. And the reason for that is because as of May of 2021, there is an estimated 24.3 million forgotten 401(k)s holding approximately $1.35 trillion, with a T, in assets with another 2.8 million accounts left behind every single year. And leaving behind a forgotten 401(k) account has the potential to cost an individual almost $700,000 on average in foregone retirement savings over a lifetime.

So Al, good news, this is going to get a bit easier by 2025. But what can you do until then? You can visit the National Association of Unclaimed Property Administrators. And I would also suggest calling the HR department of every previous company where you’ve worked where you are unsure and/or don’t have documentation that the 401(k) was in fact rolled out. And I wish you the best of luck tracking down any of the money that is potentially floating around out there.

And as we come down the home stretch of today’s show, I want to share an interaction that I had with one of our children because I had a takeaway. It was something that just hit me in that moment that I believe might have an impact on you as it did for me as well. And with seven kids, I’m asked all sorts of questions. As a parent, some of the toughest questions to answer are frankly the simplest ones they ask. And some questions are profound, not despite their simplicity, but because of their simplicity.

So the other night, I walked down into my daughter Zaya’s bedroom. She’s in second grade. And I was putting her to bed. And when I got down there, she was reading a book on Black heroes of America, and she was on the page of Martin Luther King Jr., which is well timed with the Martin Luther King Jr. Holiday being this weekend. And so after saying the prayer that I’ve said with all seven of our kids almost every night that they’ve been in our home, which is such a simple prayer that I stole from a pastor that I heard this from probably 15 years ago, that says, God, help us to know what is right and have the courage to do it.

And Zaya looked up at me and started asking questions because she didn’t want me to leave the room. That’s what kids do. They ask a million questions, get extremely talkative to stall and delay bedtime. But the final question that she asked really struck me. It was profound in its simplicity. And she said, “Dad, if it weren’t for Martin Luther King Jr., would we be a family? Would you be my dad? Would I be able to be your daughter?”

See, Zaya’s Black, and my wife Brittany and I are white. We adopted her from birth. But what struck me was how far reaching, I mean far beyond what we could ever even imagine or envision or predict or even see in our lifetime the positive impact of courageous actions like those of Martin Luther King, Jr. He didn’t know that I’d have a little girl with thick brown, curly hair and Coke-bottle glasses in second grade looking up at me asking if I would’ve still been her dad if it weren’t for Martin Luther King Jr.

And while you and I are probably never going to have a federal holiday in our honor, it doesn’t mean that we can’t make a difference by following Martin Luther King Jr.’s lead and having that deep conviction and clarity as to what is right, and then following that up with the courage to do something about it. Martin Luther King Jr. is a legend in the Hagensen home. And I’m grateful that you and I have a chance to reflect on his legacy on the third Monday of January each and every year. Let’s remember that we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

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Disclaimer:  The preceding program is furnished by Creative Planning, an SEC registered investment advisory firm that manages or advises on $225 billion in assets. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning.

This show is designed to be informational in nature and does not constitute investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels.

Clients of Creative Planning may maintain positions in the securities discussed on this show. For individual guidance, please speak with an attorney, CPA, or financial planner directly for customized legal, tax, or financial advice that accounts for your personal risk tolerance, objectives, and suitability. If you would like our help, request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.

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