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A Guide to Successfully Navigating Bear Markets

Peter Mallouk Portrait

John Hagensen

Managing Director
PUBLISHED
November 14, 2022

On this week’s show, John provides a checklist for successfully navigating the year-long bear market and talks about the valuable lessons you can learn from recent individual stock crashes. Plus, John speaks with Creative Planning’s Managing Director of Practice Development, Laura McKnight, about donor-advised funds and how charitable giving can be an important part of your financial plan.

Read more about donor-advised funds:

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!

Transcript:

John Hagensen: Welcome to the Rethink Your Money podcast presented by creative planning. I’m John Hagensen and ahead on today’s show, your survival guide checklist for navigating this prolonged bear market as well as how Friendsgiving and financial planning are linked, as well as the valuable lessons we all can learn from the recent individual stock crashes for some of our largest and most well known household names. Now join me as I help you rethink your money.

I want to start with a question. Have you ever made a decision impulsively that you later regretted? Now, of course, this is rhetorical. We all have you get worked up about something you fire off a quick email or a text only to regret later that you sent it. When I was younger, I used to do this a lot. Fortunately now I’ll find myself writing a long email that I know I’m likely never to send, but I just need to get my thoughts down to get that frustration out. And then I let it just sit there helplessly in my drafts folder for a few days and then normally I’m not that worked up about it anymore and I delete it. I rarely send it and I’m usually very thankful that I just paused and let it simmer that I didn’t do anything. Impulsive Vanguard founder, the late great Jack Bogel said that time is your friend and impulse your enemy.

It’s true in not only life, but also when it comes to being a successful investor with the midterms this past week, a lot of emotion around that and a bear market just continues to persist on. We’ve got high levels of volatility and economic uncertainty. One of the biggest risks that you face is your urge to impulsively act upon your emotion with your money. And there are a variety of reasons cited every year in Dal Bar’s annual study as to why the average equity investor has only earned about half the returns of the S and P 500 over the last 30 years. And at the top of that list sits impulsive decisions in the midst of our fear and greed. We’re humans, we send emotional emails and texts and we also make emotional money moves, both of which often can be to our detriment. And if you feel a lack of clarity around your financial plan, maybe you don’t have a documented financial plan.

Maybe your advisor hasn’t reviewed your tax return recently, you haven’t been given the tax advice that you need, you don’t have confidence that you’re being proactive to take advantage of this environment that we sit in right now, which is unique and unprecedented with tax rates near the lowest they’ve been in the last 100 years and will be sun setting at the end of 2025. Here at Creative Planning, we are a law firm, tax practice and wealth management firm with over 85 CPAs, 45 attorneys and 300 certified financial planners, all operating as fiduciaries, acting in your best interests at all times and we offer a second opinion for you with a local advisor that costs absolutely nothing is an hour of your time worth it For a fresh perspective on what you’ve spent a lifetime saving, visit us today to speak with a local advisor by going to creative planning dot com.

That’s creative planning dotcom right now. But here’s why you’re going to be okay if you are a long-term disciplined investor and can avoid those impulsive emotional moves with your money even when it gets difficult. So here we are today, we have a housing market that is softening rapidly. We’ve seen stocks spend much of the year in bear market territory and bonds, especially long bonds have been hit really hard commercial real estate starting to enter into that blood letting period as well. And we have speculative assets like spas, meme stocks, NFTs crypto which had massive volatility this past week and small stocks with little to no earnings that have gotten absolutely destroyed, which I’ve been warning of since they exploded on the scene over the last couple of years during the pandemic. Why am I telling you then that as a long term investor, you’ll survive this economic cycle even if you can’t see a light at the end of the tunnel right now, even if your vision is blurred on how you’re going to get there, let me offer some optimism.

If you’re near or in retirement and you own bonds as part of your portfolio, you benefit from higher interest rates. I know it feels counterintuitive because as rates have risen, you’ve watched your bond portfolio sink in value, but that’s the short term impact. And remember I’m talking about why long term disciplined investors are going to survive this economic cycle. You’ll now be receiving much higher interest rates on that fixed income moving forward. Think about this another way. If you purchased a two year CD and it was paying you 3% a year at your local bank and after the first year CD rates were at 5%, you wouldn’t be upset. You’d either cash it out early and pay the penalty to jump into a 5% CD or you run the math and maybe it makes more sense to sit in the three percenter for another year When it matures, you go out and drop your proceeds into the new 5% cd.

The higher rates benefit you as a lender, which is what you are when you invest in bonds. And so again, for long term investors, if you have a bond allocation, higher rates is very good news and it actually increases your probability if you’re in a diversified portfolio that you’ll hit your target return. Now the stock market is a little bit more of a complex situation. Those speculative investors that I just referenced, they may never recover. It’s like the dot com bubble happening all over again. If you’re a hundred percent in tech in oh one, you haven’t come back. But while the speculative garbage is never coming back, strong companies will survive and thrive and for quality stocks and indexes as I recommend you invest in because those other approaches are really basically gambling with your money, not investing a full recovery and march on a new highs is expected over the long haul.

Here are two things that I do know. In fact, by the time that we have the data to even know there was an official recession, the stock market’s usually already recovered. And here’s the second thing I know when the market does turn, it tends to soar very quickly. The market usually won’t work its way out of a bear market at 6% per year. In fact, from these levels where we’re sitting today, the average cumulative three year return for stocks is more than 40% and the average cumulative five year return, and I don’t want you to miss this, is 70% get money to work if you are a long-term investor. And finally, one of the reason why you as a disciplined long-term investor will survive this bear market is that looming in the background are our buddies, our friends over there at the Federal Reserve, and this time they have something they haven’t had in decades and that is a loaded gun. And of course I was joking about the Fed being our buddies. They’ve created a lot of pain with rising rates this year, but even if this fourth hike in the year of three quarters of a percent throws us into a recession, there is a silver lining to higher interest rates because it puts the Fed in a better spot to respond to future economic toil created planning. President Peter Mallouk recently spoke about this on his podcast down the middle, Have a listen,

Peter Mallouk:  I think if you look at the last four major bear markets we just rolled through from the pandemic nine 11 and so on, the Federal Reserve was lowering rates to get the economy going again. Well now that they’ve raced rates, if something does happen that’s unexpected, another pandemic of some kind or another war of some kind or a cyber attack or something we’ve not experienced before, we’re not thinking about, they now have the capability to use their most effective tool to restimulate the economy because they’ve now raised rates enough that they have room to lower them if they need to in the future. It’s a much better spot than the vulnerability that we’ve had in past bear markets where the fed’s going near zero and they’re really kind of out of bullets if something goes wrong. So that’s another reason to feel pretty good about the direction of this bear market. I mean, bear markets are not good in general, but if you’re going to have them, this is the kind of one that you want to have to go through.

John:  Peter’s absolutely right, and you as a disciplined long-term investor aren’t blowing up your plan because you’re going to control exposure to speculative assets. You’re going to take advantage of these market opportunities and most importantly, you’ll avoid impulsive moves that you’ll later regret. And I want to piggyback this with a survival guide checklist for you to mentally go through right now to ensure that you are on track. I like checklists as a former flight instructor and then airline pilot. You’re not doing anything without your checklist in an airplane if you want to have a safe flight and if you want to have a great financial plan, knowing that these boxes are checked around your plan is vital to your success. Let me start with the still working, not retired checklist. If that is you, this is a really easy checklist. I want you to write down “Be John’s mother-in-law.” Eh? I know you’re like, “What is this guy talking about?”

That’s right. I want you to be exactly like my mother-in-law. What that means is you love seeing a sale sign. You love it more than any human being on earth, just as my mother-in-law does when she walks into the house and she exclaims to my wife, Brittany, you’re not going to believe the sale that’s going on blank name the store and the endorphins are flying and she’s in a great mood because she can’t believe how much money she’s saving. It might be something like a candle that she’s just adding to the candle graveyard drawer with the other 36 different candles that she’s bought on sale over the years. It might even be some sort of alcohol. I mean she doesn’t even drink, but if it’s on sale, she may be coming home with a six pack of White Claw, I don’t know. It was on sale.

She’s saving money. You want the market to drop. You want bear markets to be prolonged because every two weeks you are buying more while they’re on sale. So your checklist is continue to save and increased savings rates as much as possible during bear markets. That’s your survival guide. Now if you’re retired, there’s a bit more nuance, but here’s the checklist. Do I have money set aside that I might need over the next six months in cash or some sort of cash equivalent, short term liquid stable investment that I can access for my emergency fund? Number two, do I have monies that I need over the next five years beyond that six month emergency fund in bonds and other more stable investments? And the third item on your checklist, do I have everything else in a diversified low cost portfolio of stocks and then continue to buy as much as possible through regular rebalancing?

That’s the list to survive bear markets, have your emergency fund, have the next five years set aside in some safer vehicles that still pay you some decent interest, especially in this environment as we just discussed. And then put everything else long in the market and rebalance. Of course, along with these things, take advantage of any and all tax opportunities that are available to you and what sits at the very top headlining this checklist. Do I have a written documented financial plan? I know I say it every week, but it’s as true this week as it was last week, as the week, week before. My hope and my objective is that every adult in America has a plan. If you do nothing else, I say just have an awesome financial advisor who’s a fiduciary, who’s independent, who’s credentialed, who’s not looking to sell you things, have them working with your CPA and your attorney.

If you’re working with us here at Creative Planning, we’ve got all the advice and all the expertise you need, all in-house coordinating that guidance in a comprehensive fashion. As we near the end of the year, if you have questions around your financial plan and your investments, your fees and expenses, your tax strategies, your estate planning strategies, anything that is on your mind, we are here to help As we’ve been doing for thousands of families just like you in all 50 states, in 65 countries around the world since 1983, visit us at creative planning dot com to request your second opinion from a local financial advisor 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. Again, visit us right now. Don’t wait any longer. Go to creative planning dot com for your complimentary financial planning visit.

Announcer:  Have you thought about what your retirement will look like or whether you’ll have enough save to do the things you want? Don’t risk not knowing. Why not give your wealth a second? Look and learn how the creative planning team is structured to cover all areas of your financial life. Visit creative planning dot com now back to Rethink Your Money, presented by Creative Planning with your host John Hagensen.

John:  Well, I’m being joined today by an extra special guest, one of my colleagues here at Creative Planning. Her name is Laura McKnight and she serves as Managing Director of practice Development here at the firm. And I want to give you a brief introduction because Laura’s background is diverse and like many of my colleagues here at Creative Planning just filled with phenomenal accomplishments. Laura’s articles and editorials have appeared in publications across the country, including the Wall Street Journal and Market Watch. Her first book, Cereal for Dinner, Cake for Dessert was published in 2012 and is a true story to inspire women to think differently about how work life and community are intertwined in their lives. She’s a leading expert on the connection between philanthropy and positive psychology. A theme that she explores in her second book, which was published in 2017, entitled Do Good Feel Better. And I can’t think of anyone more qualified to discuss with us today the topic of giving philanthropy being generous and what we can be thinking about around that as we approach the end of the year. And so without further delay, thank you so much for joining me here today on Rethink Your Money. Laura.

Laura McKnight:  You’re welcome. Thank you for having me.

John:  Well, social responsible investing seems to be a topic that’s gaining momentum. We’re hearing a lot about it. Is the surge in its notoriety just my perception, or would you say, Laura, that it is in fact the reality?

Laura:  I think that’s reality. It’s been really interesting over the last several years how it’s become a thing. But really what people will tell you is, gosh, forever we’ve been giving to charity, we’ve been volunteering, we’ve been trying to help the environment, we’ve been sharing with neighbors, we’ve been donating stuff out of our closet. So I don’t think it’s new. I think it has caught on as a buzzword and as something that people are more highly in tune with these days, especially as we hear more about people in need, philanthropies become a bigger thing.

John: Well, people are certainly more connected, which leads them, in my opinion, to being more in tune with how they can help others, which is a great thing. But once they’ve committed to giving, it’s important that they execute it tax efficiently. And as an attorney who specializes in charitable giving, I’d love to know your thoughts on maybe the top three tax planning gotchas that you see related to charitable giving.

Laura:  Well, first, just not being organized. That is such a basic thing. So many people are writing checks to charity or giving to stuff online and then they completely forget about it. And then of course, come April 14th, they’re scrounging around and thinking, Oh, I know I have these receipts somewhere. So that’s a big gotcha. Just in general, just good record keeping. Another is people who are thinking about at some point down the line selling a business and they’re philanthropic people and then they’re not combining those two thoughts. They can get to the point where right before they’re ready to close on a sale of a business, they’ll say, Oh, and I would kind of like to give something to charity. Well, the time to think about that would’ve been way before they signed any paperwork because you can get such amazing tax advantages by giving a portion of your company to charity long before you ever think about selling it. That’s a big one. The third is not paying attention to what assets you’re giving to charity. In normal years, the best possible gift to charity for most people is appreciated stock. And a lot of people just don’t think about that and they write checks when they could and should, in their case, be giving highly appreciated stock to not have to pay that capital gains tax and have the charity get the full value of the money.

John:  That’s a great suggestion and I see all three of those challenges. So my next question would be, what type of accounts should be considered to receive these assets if they’re not going to donate directly to organizations one by one,

Laura:  Donor advice funds for most people really will work very, very well. They’re very easy to set up. A lot of people worry that they won’t be able to involve their family or won’t be able to name it what they want not true. You can name your donor advised fund, the Smith’s Family Foundation if you want. At most providers the record keeping is handled very inexpensive. You can do it very quickly, all of those things. So for most people, donor advised fund’s going to be a really great fit and in many cases the types of assets you’re donating to charity to a donor advised fund, you’re going to get much better tax advantages than if you were to donate those to a private foundation, closely held businesses. And for real estate being a couple of those assets. Private foundations are certainly really great vehicles for people that have tremendous wealth, but even people with a lot of wealth, sometimes a donor advised fund is a better fit typically with a private foundation. If you are wanting to hire people like hire your family members to run it, that might be a vehicle for you.

John:  If you’re someone who gives the charity each year and you’re not sure that you’re maximizing that gift or that your strategy is optimal from a tax standpoint, visit us at creative planning dot com right now and speak with a local advisor. What are you seeing with your experience and the perspective that you have relative to the end of the year that people are maybe just have blind spots too, they’re not focused on or things that are being missed related to charitable giving.

Laura:  Year end. It’s such a busy time for so many reasons. And on top of that, we have these tax deadlines of course. So number one, if you need or want tax deductions, you got to start looking at that now with your charitable giving so you can give the right kind of asset look for highly appreciated stock, that type of thing. So that’s a big one. Second is this is such a wonderful time to involve your family. I know a lot of families that do really wonderful things around the holidays, they volunteer at a food pantry or some families even ask each family member to come to the Thanksgiving table with a non-profit that they’ve researched and to describe, here’s why this struck me. I really care about children’s health or I really care about people who are food insecure or whatever. And it is a fun time for the family to get to know each other on a different level.

And a lot of times these families will say, Well, let’s all pool, let’s each give throw in five bucks or 50 bucks or whatever, and then let’s all make a joint gift. That seems so natural, but it’s amazing how many families, like you said, say, Oh, I wish we would’ve thought to do that because in the hustle and bustle and everybody’s so busy, even just 15 minutes of those conversations around the table or around the kitchen counter, wherever it may be, can be really uplifting and meaningful for the entire family and do something good in the community as well.

John:  I love that suggestion at the Thanksgiving table, Laura, because even seemingly small acts of generosity can have a huge impact on others’ situation, but also, which is often forgotten toward our own financial piece as well.

Laura:  And there’s science behind it, your blood pressure goes down. There’s studies that show people who volunteer actually sleep better at night. Who doesn’t want that? Right? <laugh>, especially around the holidays, we all need a little more sleep so we can throw in charitable giving and get that extra 15 minutes

John:  Well that’s fantastic because we thought we had Laura McKnight, two time author and attorney, but now we’ve got Laura McKnight also your Path to a better Night’s sleep. So keep up the impactful work you’re doing for the industry as a whole, as well as of course our clients here at Creative Planning. I love that I get to be on your team to help people change the world with the resources that God’s blessed us with. Thank you so much for being a part of the show today and joining us. Laura,

Laura:  You are so welcome. Happy giving season to you,

John:  You as well. Again, that was Laura McKnight, managing Director of Practice Development here at Creative Planning and I’d like to unpack donor advised funds a bit more. You may have heard about these because they’ve grown significantly in their popularity and their recognition over the last couple of years, and for good reason because they are an incredibly efficient way to make donations. And I will be posting an article from Troy Coon, MBA and certified financial Planner here at Creative Planning to the radio page of our website at creative planning dot com slash radio all around donor advised funds if you’d like to learn the details. But let me share with you a 30,000 foot snapshot of what these are if you’re unfamiliar and some of their benefits. According to Giving USA, Americans donate nearly 500 billion a year to US charities and over the last decade, donor advised funds have gone from accounting for less than 5% of those donations to well over 15%.

And as I just mentioned, gaining traction rapidly. And so let’s just start with what is a donor advised fund. It’s a 5 0 1 C three charitable fund that receives and here’s the key irrevocable charitable gifts from individuals and couples, and when you make a gift to the fund, you retain control over the timing of its distributions and the organizations to which the donations are made. I’ll give you a few quick hitter reasons why you may want to consider using one of these donor advised funds. First off, they’re really simple to set up. They also have simple record keeping. The entity you use for establishing that donor advised fund will track contributions and distributions and provide simplified tax reporting. And the third are the tax benefits. You see, you can donate multiple years of giving into a donor advised fund all at once, and you’ll hear this referred to as bunching deductions because you receive a larger itemized deduction one year when you make that contribution and then claim the historically high standard deduction in future years due to that tax cuts and jobs act doubling of that standard deduction.

So the best part is you can do all of this to minimize taxes while keeping the gifting schedule exactly the same for when the charities actually receive this gift. So think of it this way, you get the deduction all at once, but you’re able to gift slowly over time as you may have always done. So if you’re charitably inclined and you want to learn more about whether establishing something like a donor advised fund makes sense for your broad financial plan and your personal financial situation, we are here to help at creative planning. We all view charitable gifting strategies as not just a little part of your financial planning, but a central key component for you truly maximizing your wealth and your contentment around what you’ve worked so hard for. Visit us now at creative planning dot com to schedule a complimentary, no obligation, second opinion with one of our local fiduciary advisors who’s not looking to sell you something but rather give you a clear breakdown of exactly where you stand with your money answering your most important questions. Again, that’s creative planning dot com. Why not give your wealth a second? Look

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 creative planning dot com now back to Rethink Your Money, presented by creative planning with your host John Higginson.

John: Well, this week we hosted Friendsgiving at our house and if you’re unfamiliar with that term, it’s exactly what it sounds like. It’s celebrating Thanksgiving, but rather than doing so with your family, you do it with your friends. And we had about 30 people over here at our house and each person brought their favorite Thanksgiving dish to share with the group. So my wife, Brittany, was texting people throughout the last couple of weeks about which dishes they planned to bring to make sure that we didn’t have 17 people bringing mashed potatoes and we were responsible for the turkeys. Of course, there was the mashed potatoes and stuffing and sweet potatoes and cranberry sauce, fresh rolls, pumpkin pie, and my favorite pie, which is pecan pie, green bean casserole. I’m sorry, I got, I’m just going stop because my mouth watering, I’m going be drooling all over the microphone.

And a couple of interesting things happened leading up to Friendsgiving, one person texts that they’d like to bring mac and cheese and Brittany said, “Well, that’s interesting, John, Mac and cheese. Have you ever heard of that as one of the traditional dishes?” Now in fairness, she’s a Norwegian from North Dakota, and so mac and cheese definitely wasn’t something that her family had at Thanksgiving. But not long after that text, another friend sent her a text and said, Hey, is anybody bringing mac and cheese? We’d like to bring that. Of course, she looked at me and said, Wow, all right, well maybe I’m the one who doesn’t get it. Maybe mac and cheese is a thing at Thanksgiving. Where have I been? But the best by far was that we had a friend text and ask if they could bring wait for it. Bacon wrapped water chestnut.

Naturally, my wife responded the only way any rational person would possibly respond to such an atypical dish with surprisingly no one else is bringing bacon wrapped water chestnuts yet. So we’ll make sure you get dibs. It was just a tremendous reminder of how different all of us are like our backgrounds are different, our traditions are different. Certainly our holiday dishes are different. And this is why my favorite financial writer, Morgan Housel in his best selling book, The Psychology of Money titled the first chapter, No One is Crazy. You see, when we’ve all experienced different things and we witnessed different examples in our home and we heard different discussions and some of us came from affluence and some of us came from poverty, some of us came from big homes and some from studio apartments. Those experiences shape the way that we think about the world and certainly about our money.

And that’s why personal finance is so much more personal than it is finance. And the connection that I’d like you to ponder is do you have a financial plan and an investment portfolio and strategy that’s tailored to your needs? And that’s why my colleagues and I here at Creative Planning believe your financial portfolio should be as personalized as your dna. And I have a few practical examples of how I’ve seen this play out where not customizing can leave a lot on the table when it comes to your efficiency. Had a client come in with a portfolio that was growth and income oriented, in fact it set it right on their brokerage statement, objective growth and income. Well, this was really interesting because they didn’t need any income. They were in their late forties making a ton of money, saving a lot of money, 15 plus years from retirement.

They had a lot of bonds, most of their stocks were dividend oriented. And they said, Well, this is my advisor’s strategy. And they said he really likes dividends for their stability of income. And I’m like What? Let’s back up a second. You don’t need income. Why then are you in a portfolio that is focused on growth and income and is by the way, highly tax inefficient because it’s spitting off income that’s taxable, that is then being reinvested back into the portfolio after unnecessarily paying taxes on income that you don’t even need or want and they sort of just shrugged. I’m like, actually, yeah, that’s true. I mean, it’s kind of why we’re in here, but I don’t know. I guess that’s just how they like to invest. And so my question for you is when you think about the way that you are invested, is it actually aligned directly with the objectives that you have or were you just thrown into some standardized model portfolio along with a hundred other people whose situation likely looks a lot different than yours?

Here’s another example of why customization is important. I saw a client who was heavily involved in real estate with his business. Meanwhile, they’d been sold these trash, high cost, high commission, non-trad real estate investment trusts that were highly unsuitable for their situation, his earning potential and almost all of his net worth was already tied up in real estate. And then an advisor went and took a chunk of the liquid part of his portfolio and allocated it to real estate. That person should have zero real estate exposure inside of their portfolio. And this is why wealth management needs to be customized for the big picture looking more broadly at their situation. How about this one? While at Friendsgiving, someone asked me if they should be funding a Roth like, Hey John, we’ve heard Roths are really good. Of course we’re standing in my backyard and the setting isn’t ideal for me to ask them, Tell me about your adjusted gross income.

Is it over 340,000 because that’s where you jump from the 24 to the 32% bracket if you’re married finally jointly. I did not say that, but rather I gave the answer I always give in those sorts of social settings. That’s a complex question that depends upon a variety of other factors that I’d have to ask you and are pretty personal. This probably isn’t the best time to go through that because it would require me to know things like your income, your future prospect for income, how much money do you have total, and where is it saved and what types of accounts from a taxation standpoint do you plan on needing to help aging parents down the road? Or will you likely inherit money? If you’re going to inherit money, what types of accounts will you be inheriting so that I know the taxation of those dollars?

How charitably inclined are you and how much do you currently give? Do you think that will remain the same? I’m just scratching the surface of hypothetical questions as a wealth manager that I’d be asking in a setting where we are building out a financial plan for a client. You see? So a seemingly simple question like that really isn’t simple to answer. And so after telling this person that, it depends, I followed it up with a very generic and general statement. If your taxes are lower today than you anticipate, they’ll be later. The Roth is a great option. But the question that I want you to consider is do you feel that your financial plan, your investment strategies, the integration of your estate planning, your tax strategies, are those custom tailored for your specific situation? Or are you just buying an off the rack generic suit, buy two, get three free, wherever that place is, it’s the weirdest thing.

Three for free, I don’t understand it. You are a unique individual with unique aspirations, unique goals, and unique circumstances. Your plan should reflect that here at creative planning. It is one of our three pillars that we customize our planning and our portfolios specifically for you as our client. And to speak with one of our 300 plus certified financial planners for a complimentary second opinion, visit us at creative planning dot com to sit down with a local fiduciary financial advisor. Again, that’s creative planning dot com to learn more about how we customize portfolios for families in all 50 states and 65 countries around the world. Well, the second takeaway I had from Friendsgiving was that in the 80 or so years that we all have on this ball of dirt, it’s all about relationships. That’s what life comes down to. I mean, it sure as heck isn’t about how much stuff can we accumulate?

I mean, my cup was filled in such a meaningful way, just breaking bread with close friends as well as with other neighbors who I’m just getting to know, was it an expensive night? No, the night cost only the food we were responsible for the Turkey, the drinks too. We provided the drinks. I do make a really solid old fashion if I do say so myself. But the point is it was an amazing night, but it wasn’t an expensive night. You see, money’s interesting because it is meaningful and valuable, but it’s not inherently valuable like relationships are. Money is only valuable because it is a tool that we can use to enhance valuable parts of our lives. And so as someone who’s a partner at a wealth management firm and has dedicated my professional life to helping my clients, and hopefully you listeners make better money moves and have more clarity around that financial side of your life because I know it can be confusing.

I also had a reminder during Friendsgiving that oftentimes we are focused on the wrong things when it comes to our money, the insignificant aspects of our money. And I’m just as guilty of this as anyone. When you read the Confessions of a Hospice nurse, interestingly, the common Regrets Center not on what the dying did and now are wishing they hadn’t done, but rather what they never attempted, the dreams that they didn’t pursue, the risks that they didn’t take. And what might that be for you as the great one? Wayne Gretzky said, You miss a hundred percent of the shots you don’t take. What shots are you not taking right now? For me, I was reminded that I often don’t step out of my comfort zone to build new relationships. I don’t invest the time and the energy and maybe even the dollars and the resources into some of these areas of life that truly are meaningful.

And with that said, here are a few of the best ways to spend your money. I mean, obviously you spend your money however you want to, it’s your money. But here’s what I found to be true in interacting with thousands of families. Number one, spend on hobbies. Hobbies usually keep your mind sharp and often involve some activity. So I mean, I guess your hobby could be watching movies are binging on Netflix, but generally when you finish that you don’t feel great. Another good use of your money. Exactly what I was just speaking of, spend it on friends and family. Countless studies out there show that there is a strong correlation between happiness and satisfying relationships, but relationships take work and in some cases they take money. I respect my brother-in-law, Justin, because he was born and raised in New Zealand. His whole family is in New Zealand.

He’s a Kiwi through and through. But he came to America and fell in love with my sister, met at a costume party, not joking. They look weird from the photos that they still have from that first night that they met with their groups of friends. I don’t, my sister couldn’t resist the smooth New Zealand accent, but the amount of money that they spend taking their four children back and forth regularly to New Zealand to see their family and the amount of time he spends taking off from work and flying for 15, 20 hours, whatever it is to get there. It’s a big commitment, but it’s one that he understands is the best possible use of his money. How about spending money on education and job training? Perhaps the greatest asset that you can invest in is yourself. Education and job training are often necessary to being promoted or acquiring a job that you enjoy more or make more money doing.

We’re just a lot happier and more satisfied when we enjoy our jobs. Most of us spend a lot of time working. And lastly along the lines that I spoke with, create a planning attorney Laura McKnight about earlier in the show, and that’s give it away. Donating to charity often leads to increased contentment and satisfaction, and most importantly, you’re doing a good deed for an organization or individual who is in need. So as you look to customize your plan, we here at Creative Planning understand you might be like me and dump cranberry sauce over everything on your plate. Or maybe you’re a little out there with your bacon wrapped water, chest nuts, whatever your unique priorities are. We are here to help create a plan that’s tailored for you, not only for the benefit of your account balances, but also to improve other meaningful parts of your life.

Announcer: If you’d like a second opinion on your financial plan or you don’t have one currently we have been helping families since 1983 here at Creative Planning. We manage or advise on 225 billion. We are a law firm and a tax practice helping families in all 50 states and 65 countries around the world. Why not give your wealth a second look. Visit us right now for your complimentary, no obligation conversation with a local financial advisor by going to create a planning dot com. Do what thousands of others just like you have already done. Go to creative planning dot com to request your second opinion.

You’ll learn how your investments, taxes, and estate plan can work harder together. Go to creative planning dot com. Creative planning, a Richer Way to Wealth. Now back to Rethink Your Money, presented by creative planning with your host John Hagensen.

John: I heard Jeff Bezos being interviewed recently and he was talking about the value of getting eight hours of sleep that he really prioritizes that. And I think the interviewer was a bit surprised because the assumption is, well, you’ve been running one of the largest companies in the world, you’re one of the richest people in the world. You’ve got responsibilities all over the place. How do you have time to sleep eight hours per night? He said in a position like I’m in, my goal is really just to make a couple great strategic high level decisions on a daily basis. I don’t need to make a lot of different decisions. Most of them aren’t that important. I need to make a couple and I want to have the clarity to make those as thoughtfully as possible. And when it comes to our investments and our financial plan and just our money moves in general, the key isn’t making hundreds of decisions on a monthly basis.

It’s periodically making very sound, high level, big decisions when necessary. And probably the biggest and most impactful of all of those decisions for you as an investor is where you’re going to get advice. The reality is we hire professionals when we no longer have confidence in our ability to execute the job. And we do this because we want to fast track the knowledge gap. We don’t know as much about something as someone else. We don’t have the time or desire to close that gap and try to know as much as that person. And so that’s why when there’s a problem with my toilet or sink or you want to add a tankless water heater as we just did recently, I call a plumber. I could try to go to YouTube, maybe could figure it out. I could go try to get trained as a plumber or I could just hire a plumber.

And we have a really good one that we like. So I’m happy to just pay him because he’s installed a bunch of tankless water heaters before. Anytime you hire a professional to answer whatever question you have or to solve whatever problem you’ve encountered, you’re placing a lot of trust that that person will do a good job, that that person is competent and will execute at a high level. And so you don’t wanna misplace that trust when it comes to any of those professionals, including your financial advisor. Here are a few examples where I’ve seen bad advice delivered by financial advisors in 2021 had an advisor load up their client on tech stocks and stay at home stocks. And if you remember at the time, it felt too easy, the world had changed. This is the new way to invest Facebook. I mean they went all in on the future changing their name even to meta.

I can’t even get over that. I still call ’em Facebook, but they’re down 70%. And Mark Zuckerberg announced this week that they’ll be laying off about 11,000 employees. Think about this, at one point this stock was outperforming the s and p 500 by 600%. It’s now down 120% to the s and p 500 since its ipo. I mean, this is why it’s so difficult to know when to buy and sell stocks. Even if you hit on something that becomes one of the largest companies in the world, good luck figuring out when to sell it. How about Peloton? This stock went from $162 a share to around $8 a share, 95% drop Teledoc from almost $300 a share to 26 a share. So both of those companies down 90% or more. How about Zoom? That was at $559 a share. It’s at $71 a share on October 29th, 2020, it’s market cap was just under 140 billion.

It was larger than Exxon. And I remember at the time saying, Wait a second, I love their video conferencing. We’re using it with a lot of our clients. This is great, but worth more than Exxon. If that doesn’t signal a bubble, nothing does. By the way, today Zoom is at 21 billion of market cap, which I don’t know frankly still feels high, but what do I know? And Exxon is at 448 billion. Remember as the saying goes in the short run, the market’s a voting machine, but in the long run it’s a wane machine. And what’s the lesson here of this terrible advice that was given to someone by their financial advisor? Stay disciplined and diversified because timing the market and picking the right stocks and knowing when to buy and knowing when to sell is a loser’s game even for a professional. Another one I saw recently, and this may apply to you because the data showed that there was in fact a lot of margin balances out there, but it was a client with a margin balance.

And because margin accounts that these custodians are floating rate, they’ve obviously increased a lot. Many are up around four, five, 6% now. And I looked at this perspective client’s account and they had far more than the balance of their margin in cash, which was obviously earning basically nothing and bonds that were yielding about three to 4%. So think about this, they were using margin, carrying a balance and paying interest at a little over 5% while dollars in their portfolio were earning far less than that interest rate. They had negative arbitrage. It made no sense. And so here’s a good thing to remind yourself of if you’re using margin under no logical circumstance, would you want a big margin balance and then invest in things that earn less than the margin’s interest rate. This person should first liquidate their cash and then if needed, any other low interest bearing bonds to pay off the now much higher interest rate margin account.

Well, I have one other example of not necessarily bad advice, but just being a mean human being. And the reason I bring this up is because David Newt, who had his certified financial planner certificate revoked, owns the firm Creative Retirement Planning. Please do not confuse that with creative planning. Our firm, there is absolutely no affiliation with his firm out in Quim Washington near the base of the Olympic Mountains. His firm’s advisory business reports just two and a half million of assets under management. And also because that’s not going to bring in much revenue. It makes sense that Creative Retirement Planning is also a licensed insurance agency specializing in reverse mortgages under the DBA name Northwest Reverse Mortgage. Now, why am I talking about this? Because he did some really mean things in his business is called Creative Retirement Planning. And we are creative planning, managing, or advising on 225 billion.

And I do not want this gentleman, and I’m really generously using that word to be in any way associated with my colleagues and myself. And if you’re wondering what this guy did, he had a client who asked if she could drop off documents at his office, not for him to come pick them up at her house or anything, just if she could drop them off at his office and he wasn’t working at his office. And he replied, and I quote, It is totally ridiculous to expect me to drive into town and waste a couple of hours of a thousand dollars hourly time. And according to the CFP board, he then added, I was only trying to help and your reactions tell me why your husband left you. Yikes. Well, it’s not hard to figure out why the CFP board revoked his certificate. And thankfully as a certified financial planner myself, they did so because I don’t want to be affiliated with him in any way.

Not the name of his company or one of my professional designations who you go to for advice is one of the most impactful money moves that you will make. Why not give your wealth a second look by going to creative planning dot com to request your tailored customized financial planning visit. Again, that’s creative planning dot com. Well, I want to spend a moment busting a financial myth that I see regularly promoted and that is let’s take Social Security as early as possible because I don’t know how long I’ll live and I paid into the system and I want to make sure I get my money back as soon as possible. And frankly, I don’t even know if the program’s going to be able to be solvent and around. And I just want to make sure I claim this before it’s too late. If you turn on Social security at 62 and you’re still working, once you make about $20,000 or more for every $2 you make over that amount, Social security will temporarily withhold $1 of your benefits.

Another common mistake I see remarrying without understanding the consequences. Now I get it. When you’re falling in love, you’re not like, Hey, let’s talk about your social security benefits and figure out how this is all going to work. But frankly, it does matter because if you’re currently collecting an ex spousal social security benefit and you remarry that benefit may cease. Also, consider if your ex-spouse passes away, you’ll step up to their full benefit amount, which is kind of a morbid thought, but it is important to know. And one that I see often missed. Another common mistake around social security that I see is waiting on a spousal benefit until age 70, and here’s where this will play out. Maybe you don’t need the extra income. And so both of you are waiting until 70 to start taking Social Security because you want the higher benefit by deferring.

But keep in mind that while the primary worker’s benefit will receive that 8% increase on an annual basis by waiting, unfortunately the spousal benefits, which is half of the worker’s benefits do not receive that same level of increase. Here’s what I see all the time thinking that if you were to die at 70 years old, you would’ve been better off collecting early. That’s not always the case. What if you have a spouse? If you die at 70, but your spouse lives to age 92 and their benefit was much smaller than yours, your spouse could be over a hundred thousand dollars better off with your decision even though you didn’t receive even a penny. Your spouse will have that much more during the rest of their lifetime. And Kiplinger recently posted a great article regarding this exact situation, but people often forget that when one spouse passes away, the lower social security benefit disappears.

That doesn’t sound good, right? But the positive is that the surviving spouse keeps the higher of the two benefits and it’s not half of that benefit. It’s the full benefit. So the increase in benefits you receive by deferring might not just be for your life, but it’s also for the life of your spouse as well. And the last common mistake around social security that I often see is not understanding how social security is taxed. There are certain thresholds where Social Security becomes 50% taxable and another one where it becomes 85% taxable. And it all depends upon your provisional income, which is a calculation that I’m not going to get into. But you can certainly go to creative planning dot com, speak with an advisor. We will walk you through this calculation. But the key here is that you do want to factor in and strategize all of your retirement income and how turning on Social Security at different ages will impact the taxation of not only those benefits but the other income sources that you’re relying on. And if you’d like to hear today’s show in its entirety or listen to any past episodes, you can find Rethink Your Money anywhere you listen to podcasts or by visiting the radio page of our website at creative planning dot com slash radio. And of course, if you’d like to request a complimentary second opinion from one of our local financial advisors, go to creative planning dot com. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter. If you enjoy the podcast, please subscribe, share, and leave us a rating.

Disclaimer:  The preceding program is furnished by creative Planning and SCC registered investment advisory firm that manages or advises on 225 billion in assets. John Higginson works for creative planning and all opinions expressed by John’s 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 creative planning dot com. Creative Planning tax and legal are separate entities that must be engaged independently.

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