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Financial Clarity for a Smarter 2025

Published on January 20, 2025

John Hagensen
MSFS, CFP®, CFS, CTS, CIS, CES

This week, we’re exploring the connection between financial planning and self-awareness, highlighting how understanding our strengths and weaknesses can lead to smarter investment decisions. We also cover strategies for handling financial setbacks, such as natural disasters, and feature a market recap with Chief Investment Officer Jamie Battmer, discussing lessons from 2024 and key financial trends for 2025.

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!

Episode Notes

John Hagensen: Welcome to the Rethink Your Money podcast, presented by Creative Planning. I’m your host, John Hagensen, and today on the show I’ll be joined by Creative Planning’s Chief Investment Officer, Jamie Battmer, to discuss lessons from 2024 and how to apply those insights to make smarter decisions in this year ahead. I’ll also address a common misconception about, when is the right time to hire a financial advisor, and who are they really for? Plus, how to handle risk in retirement, and of course, I’ll answer your questions. Now, join me as I help you rethink your money.

In the 1800s, the famous American frontiersman, Daniel Boone, was once asked if he’d ever been lost. Great question. His answer, “I can’t say I was ever lost, but I was once bewildered for about three days.” Now, whether you call it lost or bewildered, by the way, that’s the new line I’m going with when my wife starts accusing me of not knowing where I am. I’m not lost, honey. No, I don’t need to ask for directions, which, by the way, the iPhone, man, solves so many big marital conflicts, hasn’t it? Google Maps, and thank you, but I’m just going to say, “I’m bewildered, certainly not lost.” But the reality is, if you don’t know exactly where you are, it’s almost impossible to figure out where you’re going. And the very same thing applies to your finances.

One of the biggest mistakes I see people make is trying to set financial goals or make investment decisions without first understanding the starting point. And if you don’t know where you are, how do you know which direction to take? I think of parenting. One of the challenges and joys of raising kids is helping them become self-aware. It’s a part of maturity for all of us.

For instance, I’ve learned that while it’s important to address my kids’ weaknesses, it’s probably even more important to help them lean into their strengths once those are discovered. If you have a child who struggles with math, yes, you want them to pass their classes, sure, but if that same child is a natural artist, wouldn’t it make more sense to encourage their creativity and help them excel in that area? Focus over there, lean into the strengths, because no amount of tutoring will turn them into a math genius. But leaning into what they love and what they’re naturally good at can alter the trajectory of their life for the positive. And here’s the thing, we struggle with this as adults too, and many of us go through life without really understanding our own strengths and by contrast, our own weaknesses, and where we stand financially. And that lack of self-awareness can lead to frustration, anxiety, missed opportunities, and ultimately, even poor decisions.

So when it comes to your finances, where do you start, regarding self-awareness? Well, it begins with creating a net worth statement. Think of it as your financial, you are here, star marker on the map at the mall. Without it, you’re just wandering around looking for Abercrombie and Fitch, not knowing which direction it is. Here’s how you do it. List your assets. So this includes your retirement accounts, your investment accounts, home, car, cash in the bank. Then list your liabilities. These are your debts, your mortgage, car loan, credit card balances, student loans, and then you subtract those liabilities from your assets and that’s your net worth. Now, it’s important to understand that not all assets are created equal. Some, like a retirement account or rental property, contribute to your financial independence, while others like your car, a depreciating asset, actually, costs you money. You have to repair it and you have to put gas in it, it doesn’t bring you any income, certainly. But you do need transportation, which is why they’re not bad, but it does mean you can’t count on that type of asset to help fund your retirement.

Now, here’s the kicker. Even wealthy people often don’t have a clear picture of their exact net worth. They’ll come in for a second opinion, and when we ask for their financial details, they either don’t have them or they’re outdated or they have some of them or they’re disorganized or they’re trying to track them down. And without that clarity, it’s tough to make sound financial decisions. I would argue, it’s almost impossible because you don’t have a good handle on where you are.

So, once you have this detailed net worth statement, you’ve established where you are. The next step is figuring out where you want to go, and this is where personal finance is far more personal than it is finance. Deeply personal. Two people with the exact same net worth on paper, they’ve got the same balance sheet, might have completely different goals and completely different strategies. Maybe one wants to retire early and travel the world. The other plans to work well into their 70s because they love what they do. Maybe one wants to leave a financial legacy to kids, and someone else wants to spend every single dollar they’ve ever saved. Can we make the check to the more bounce? That’s a different person than someone who prioritizes helping future generations. Your goals direct your financial strategy.

If you are charitably inclined, your tax strategies, for example, will look totally different than someone who isn’t. Why would you do a Roth conversion if your IRA dollars are going to be tax exempt when they pass to a 501(c)(3) anyhow? No Roth conversion will get that money out of your retirement account at less than a 0% tax rate. If you have a pension, your investment approach might differ from someone relying solely on retirement savings to generate that income. It all comes back to this, money is simply a tool. It’s not inherently valuable. It’s indirectly valuable. It’s what you do with it that matters. But before you can put it to use, you have to know where you are starting from, or as Yogi Berra famously said it, “If you don’t know where you’re going, you’ll end up somewhere else.”

Let’s turn to a different topic that’s been on many people’s minds recently with these tragic and devastating fires in California. We still have a home in Maui and have many friends whose families have been impacted greatly by the wildfires there in Hawaii as well. And there are some critical financial steps to take if you find yourself in this heartbreaking situation. A colleague of mine, certified financial planner, Dylan Dunlea, wrote an article that I’ll post to the radio page of our website on the financial steps to take after losing your home.

First, you want to contact your insurance provider immediately. After you make sure your loved ones and your pets are all safe and accounted for, notify your insurance company and file a claim. Acting quickly helps ensure that you can access funds for temporary housing, repairs and rebuilding. Some of the key steps to include, documenting the damage. Take photos, take videos, this is a whole lot easier nowadays with smartphones, of what remains your home and belongings before beginning the cleanup. The evidence will be crucial for your claim. Also, keep records of expenses. So you want to save receipts for costs like hotel stays, meals, transportation. Start maintaining records of everything from the moment that natural disaster occurs, because a lot of them may be reimbursable under your policy. And then stay in contact. Follow up regularly with your insurance adjuster to monitor the status of your claim and provide any additional documentation needed.

If you don’t have homeowners insurance, you can look into federal and local disaster assistance programs to cover some of those losses. So, once you have contacted your insurance provider, apply for federal and local assistance, as I just alluded to. Some of the available resources you can look into, FEMA, SBA disaster loans, local charities, and nonprofits. You should research all available programs in your area and apply promptly, as some of the funds are distributed on a first come, first serve basis. Then, reassess your financial situations.

So once those immediate needs are met, take the time to reassess your overall financial picture, because the value in a great financial plan is not in building it, it’s in changing it. And this applies more than ever when you have a sudden event, whether it be positive or negative. I won the lottery, I inherited money, it could be a financial windfall. In this case, it could be, my home burn down. How does this impact my long-term objectives? So, evaluate your insurance payouts, prioritize your spending, and consult with a certified financial planner. Sit down with a professional who can help create a recovery plan and explore options for bridging financial gaps, such as personal loans or tapping into savings, and which accounts would you hit first? This is a really important step.

Next, you’ll want to manage your debts. If you’re still responsible for a mortgage or other debts tied to your damaged property, contact your lender immediately to discuss your options. This has been a big issue in California. Read an article about someone with a very expensive home in the Palisades who has a massive mortgage on a monthly basis. The home is gone and he was notified that he still owed the mortgage payment, and that was what this article was about. But many financial institutions will offer relief programs for disaster victims. So, you could explore options like loan forbearance, or refinancing, or debt consolidation. Number five, plan for rebuilding or relocation. So, once your situation stabilizes, decide, am I going to rebuild the home here or does it make more sense to relocate? Both options require careful financial planning and a realistic assessment of your resources.

And finally, number six, update your financial preparedness plan. As you recover, use this experience to strengthen your financial preparedness for future emergencies. And I’m not saying right away, because your head will be spinning. You need to meet your immediate needs and do all the other steps that I listed but once the proverbial dust settles and you can get your head above water, actions like replenishing your emergency fund, reviewing and updating your insurance policies, digitizing and securing important financial documents for quick access. These are all really important steps to ensure that if another life altering event occurs, you’re hopefully even more prepared from a financial perspective, to weather that storm.

For those in California, my heart goes out to you during this unthinkable time of loss. And certainly, if there’s anything we can do to help, myself and my colleagues here at Creative Planning, we are happy to do so.

Today, we’re diving into a market update, reflecting on what happened in 2024 and what investors should consider heading into 2025, and I have the perfect guest. Joining me is Jamie Battmer, the Chief Investment Officer at Creative Planning, where we manage your advice on a combined $330 billion. Jamie has his master’s degree from the London School of Economics and oversees the firm’s investment policies and strategies. If there’s anyone who can help us make sense of what’s been happening and where things might be headed, it’s Jamie. So Jamie, welcome to the show.

Jamie: Hey, John, thanks for having me back.

John: Absolutely. Well, 2024 was another fantastic year for the broad markets. If you had to sum it up, how would you describe 2024?

Jamie: Not as different as people might think. We had these 20 plus percent return for elements of the stock market. That actually happens almost 25% of the time, that stocks are up 20% or more. And so while it feels different, it actually wasn’t, and really, we’re just continuing to recover from the terrible markets we saw in 2022. One out of every four years, the stock market’s down, stocks were down double digits. By some measurements, bonds were, 2022 was the worst year ever. So, we’re really just continuing to recover from the inevitable valleys that sometimes present themselves. And yes, it was nice to have a positive year, but this actually happens more often than people think. It’s really just a recovery by a lot of elements, the worst market we had since the global financial crisis of 2008.

John: I’ve had plenty of people say, “Why do you think it’s almost forgotten how bad ’22 was, and people think we’ve just been in this perpetual bull market?”

Jamie: Well, I think it’s a great dynamic of human nature, is that we forget about the bad things, remember the good things, right? I’ve got three young kids now, 40 years from now, I’m only going to remember all the great things. I’ll forget most of the difficult things. And so yeah, people think it’s been going on forever, and that’s another really key thing for listeners to think about, John. This bull market’s been going on for a long time. No, it’s actually been a very short-lived bull market. And so really, from October of 2022 to now, it’s about less than half of the duration of what the average bull market has provided.

John: What was the biggest surprise in the markets last year that no one saw coming, Jamie?

Jamie: A core tenant of Creative Planning is not trying to pretend like we can foretell the short-term future, and that just reinforced itself again in 2024. All the prognosticators were saying international was bowing out, performed domestic. That didn’t happen. We didn’t project it, but no one can, no crystal ball works.

The big one was that the “Wall Street consensus view” was that interest rates were going to drop dramatically. The Federal Reserve was going to lower rates eight or nine times. Well, that definitely didn’t come to fruition. They only lowered interest rates twice. Mortgage rates actually went up after they started lowering interest rates. So, the key thing was people trying to look into their crystal ball. It once again proved completely worthless. And any sound long-term investor is never focused on the short-term [inaudible 00:13:26].

John: Well, and there was a lot of chatter about interest rates in 2024. Is that what stood out most to you about how the feds actions impacted markets? That they ended up doing what they did and then the market still had the performance they did?

Jamie: The Federal Reserve can only dictate the short end of interest rates. It’s more driven by overall economic conditions. And what happened? And you talk about surprises, the economy continued to surprise to the upside. The underlying strength of the American consumer continued to surprise. Data now, everyone likes to talk doom and gloom because that’s what sells headlines, that’s what gets people to click on websites. But the household debt to asset ratios in total right now are at 50 year lows. And so everyone’s saying, “Well, no, we’re going to dip into a recession or the consumer’s going to stop spending, or these higher interest rates are going to choke off that growth.” It just hasn’t materialized, it just reinforces not focusing on the short-term prognosis.

John: It still a little bit of that good news is bad news? Right now it’s almost like, jobless claims, oh wow, unemployment’s still really low and you’ll look at the stock market for the day and it’s getting crushed. These are really good reports. It’s a little bit backward, isn’t it?

Jamie: Yeah. Sometimes it’s frustrating in the short run where good news, people having more jobs, people earning more, is perceived by the markets as bad news because the markets aren’t going to get additional stimulus by lower interest rates. And so in the short run, yeah, it can have that kind of anomalistic effect or almost the opposite of what you might anticipate. But over the long run, good news is good news.

John: Sure.

Jamie: And over the long run is what we always focus on, and any prudent investor is always focused on.

John: That famous quote that in the short run, the market is a voting machine, but in the long run, it’s a weighing machine. It ends up usually calibrating back to what it should be, even if it’s not always perfectly efficient, certainly in the short run. Well, AI and tech dominated headlines this past year. Do you think the hype was justified or are we setting up for a bubble here, Jamie?

Jamie: To your point earlier, there’s a reversion to the mean. It might happen tomorrow, it might not happen for another decade. And the exciting thing has been the most amazing potential technological innovation since the Industrial Revolution. But what is it? It’s just excitement. You can call it irrational or not, but it’s excitement about a new technology. And we don’t have to go back to the printing presses and developing more effective technologies in the 1800s. You only have to go back about 20 years to the last time we were really, really jazzed about technological innovation. The infancy of the internet, and always used as the example that yes, there was a bubble in technology stocks, it burst and it was a very, very difficult period.

For an entire decade, large cap technology stocks lost 33% of their value. That’s why you don’t have all your money in that because during that same time, international stocks were up really big, small caps up big, [inaudible 00:16:01] bonds were positive. That’s why you have to maintain that diversification, but you can’t be beholden to the individual names. Is this a bubble? We don’t know. But that last bubble, the NVIDIA of that moment was Cisco. It momentarily became the largest stock in the S&P 500, was taking over everything. Cisco stock today is still 70% below its all time high, but the S&P 500 is up 400 plus percent since then.

John: Yeah, it’s a good history lesson on remaining disciplined and remaining diversified.

All right, Jamie, let’s look ahead. What trends or themes are you keeping an eye on here in 2025?

Jamie: If someone says, “Okay, here’s what’s going to happen the next year in the markets,” it tells you absolutely nothing about what’s going to happen over the next year, but it tells you everything you need to know about that person and the false value proposition they’re trying to bring to the table. So again, markets are up three out of four years.

John: Okay, so what’s your S&P target? What’s the exact number going to be, Jamie?

Jamie: It’s four trillion or zero, somewhere in between there.

John: Oh, wow. Thanks. That’s going to be really helpful.

Jamie: Yeah, but the idea is, okay, the compounding value of doing things right, regardless of what market conditions are giving us, always works out over the long run. But if you’re asking, okay, really what do we focus on in 2025? Is some of the stuff within our control. We are a financial planning led organization. With the new political regime coming in, are there going to be regulatory adjustments to tax rates at the corporate level or at the individual household level? Those are things that objectively we know, okay, we can make adjustments depending upon what happens there. So that’s really what we’re looking to see, what comes out of a regulatory environment, and how that from a taxation standpoint can drive more effective allocations on behalf of our clients. That’s what we need to be focused on and we always have been, always will be. Instead of the market hot topic of the moment.

John: With inflation still in the headlines, how can investors protect their purchasing power from an investment strategy standpoint?

Jamie: Stay invested, stay properly diversified. You are rewarded always in an inflationary environment or not, for being an owner versus being a lender. Stock ownership is a great hedge to inflation. Private markets is a great hedge to inflation as well. We do a lot in save up private infrastructure space, investing in companies that build the roads, build the bridges, maintain the roads, maintain the bridges. Well, if the cost of cement goes up 30%, that’s adjusted accordingly because we still have to fix the potholes in the streets, we still have to make sure bridges don’t fall down. And so there are great inflation diversifiers out there, but staying aggressively diversified from an investment standpoint, adding private markets that respond to inflationary conditions differently, is what we’re recommending to our clients. And that’s what the empirical data has supported as a prudent allocation for decades.

John: If I’m an owner of Chipotle and all the ingredients cost me more money because we’re in an inflationary environment, I don’t just accept that everything costs more, sell the burrito bowl for the same amount of money and lose money in perpetuity, right? You’re going to raise prices and they’re going to pass that through to consumers. We understand this even if we don’t entirely link it to the stock market, that this is happening everywhere. But if I’m lending money to Chipotle to build a building, they’re going to give me a set interest rate for the next 20 years. It’s the same reason why my mortgage is really good in an inflationary environment because it doesn’t change. Well, in that example, as a bondholder, I’m the one collecting the interest payments, which is not good in an inflationary environment.

So, it doesn’t mean that if someone’s near retirement or needs money from their portfolio and can’t withstand all the short-term volatility of the stock market, they shouldn’t have some allocation to fixed income or have some money in cash for their short-term needs. But understand that those will do poorly when inflation’s high, which is why again, it goes back to the buzzword of the day and the buzzword of the century, remain diversified.

Jamie: Yeah, and oftentimes people only focus on one side of the ledger. People that are selling news headlines, they only want you to know how much bacon has gone up in price. I have three young kids, my wife and I can’t buy enough bacon.

John: Sounds good on a Saturday morning waking up to the smell of bacon.

Jamie: Exactly, it’s gone up dramatically. But what they’re failing to tell you is that wages, average wages have actually gone up more than the average price of bacon. So while yes, bacon costs more, your average worker can actually still, on that basis, purchase more bacon than they could before all this happens. And so yes, there are some people that are left behind, some people on fixed income that’s more challenging. Another reminder that these narratives are oftentimes hyper-focused on just one particular data point to try and create more eyeballs.

John: Well, still the most important question here, Jamie, are you guys still eating bacon?

Jamie: We are, and being the morning parent that I am, I’m the morning parent. My wife works far much harder than me. I’m a huge believer of oven bacon. It allows you to be more efficient in other ways. You don’t have to sit there and stare at it like a hawk. You don’t have to spend all this time cleaning it. And so you can still-

John: Directly on the pan or you got foil down or what do you do? How do you-

Jamie: Yeah, yeah, you got to have foil down. But again, it’s just like efficient financial planning. It allows you to focus on other things. And so yes, even though bacon prices are up, the Battmer family is still consuming bacon.

John: Man, you are giving me so much more wisdom than I ever bargained for. All right, last question then I’ll let you get out of here. You’ve always emphasized the importance of diversification. International and value Jamie continue to get crushed by large growth. Is diversification still relevant? Does the principle still apply, or is it time to abandon it?

Jamie: It’s even more appropriate now and necessary. And again, we don’t like to try and outsmart the public markets. We just want to broadly own them. So, what does that mean? That means the vast majority of our clients’ assets are in these larger domestic stocks, but again, just because market dynamics are dictating that. But there’s still these unbelievably great companies overseas. We were joking about bacon. What’s the remedy for bacon these days? Ozempic. The maker of Ozempic, Novo Nordisk, they’re based out of Copenhagen, a wonderful company. Or the Toyotas of the world or the Nestle’s of the world. There’s still these great companies overseas that you don’t want to abandon completely. You want global market dynamics to dictate that. And even if you’re only investing the S&P 500, the largest local companies, those companies on average, those 500 largest United States companies, they still make over 40% of their revenue from international markets. So it’s not as disconnected as you might think.

All the data says, again, mean reversion might occur tomorrow, it might not occur for another decade. Don’t try and outsmart the public market just broadly own them. And so that still requires some exposure to international because that’s what the data says. Same thing with small cap stocks. They did very well after the election. There might be kind of a local boom, maybe tariffs get injected by the new administration. Wasn’t some active call, it’s just they did what they were supposed to do based upon these market conditions. And so you always want to have all these different dynamics in there because you never know which one’s going to be the ballast in the storm because again, that entire decade, 2000 to 2010, tech stocks were down 33%. We cannot have our client’s portfolios erode in value by 33% over an entire decade. That’s why you have to put more of your eggs in more different baskets and know the fact that some are going to outperform while others underperform. It’s the inevitable necessity of prudent decision-making that always leads to better outcomes over the long run.

John: Well, Jamie, I appreciate your insights. Thanks again for being here on Rethink Your Money.

Jamie: Yeah, thanks a lot, John. Appreciate being here.

John: Pieces of common financial wisdom, ideas that you’ve likely heard, and some of which hold up, but others that really need a closer look. And this applies to not only your finances, this happens all throughout life. In fact, we can go all the way back to the age of exploration to find a great example of this.

For centuries, many believed that the earth was flat. And it wasn’t because people were uneducated, it was because that’s actually how it seemed. Look out at the horizon, it looks flat, right? But thanks to thinkers like Pythagoras and later explorers like Ferdinand, we came to realize, no, the earth is actually round. And that discovery, regardless of what Kyrie Irving thinks, revolutionized navigation, it revolutionized trade, and really, our entire understanding of the world. And why does this matter? Well, because when it comes to your money, the flat-earth theories are alive and well. They haven’t been totally debunked. Things that seem true on the surface, dig a little deeper, or you go talk to a certified financial planner. And they say, “Oh, I’m sorry you’ve heard that. I know that’s out there, but it’s simply not correct.” And I want to dive into four pieces of common wisdom that need some rethinking.

Our first is that financial advisors are only needed for rich people. Now, one of the most pervasive myths out there when it comes to personal finance is that you don’t really need advice unless you’re wealthy. And this couldn’t be further from the truth. A financial advisor can be beneficial for anyone who is looking to make smarter decisions when it comes to their money, regardless of net worth. Let me parse this out a bit to different types of people who can benefit from a financial advisor. I mean, someone who wants to start early, maybe they’re just beginning their financial journey. Their net worth isn’t high. Their investment account balances aren’t large, but their stakes are high.

For example, if you start investing $500 per month at age 25 and you have an average return of 8%, you have over $1 million at age 65. But if you wait until you’re 35, so just give it 10 years longer before you get going, you barely have over a half million dollars. So, you have nearly twice as much money just by starting 10 years earlier. An advisor can help you maximize your early years where maybe your experience level is less because you’re younger, and help you in those pivotal years get compounding by choosing the right investment vehicles, the right places and types of accounts from a tax standpoint to save within, and what strategies to apply on an ongoing basis.

Maybe it’s that you’re navigating complexity as life becomes more complex, marriage, children buying a home, starting a business, your financial decisions and the impact of those begin to multiply. Maybe you are dealing with tax planning or stock options or estate planning. A financial advisor brings expertise to simplify this complexity because a good advisor has generally a lot of experience helping other people just like you navigate things that for you are happening for the very first time. Maybe instead of starting early, you’re starting late. You’re in your 50s or you’re starting to think about retirement, mistakes are even higher and that time horizon is compressing with less time to course correct. You think, now’s the time to get a financial advisor hired because I want to avoid costly mistakes and optimize these final years to ensure I can actually retire on time.

And lastly, and certainly this is not a comprehensive list, business owners. Again, not tied to your net worth, but if you’re a business owner, having an advisor can help you with succession planning, business valuation, setting up retirement plans for employees, determining the best way to sell or transfer your business when that time comes. Tax structures, entity structures. The bottom line, financial advisors aren’t just for the ultra wealthy, they’re for anyone who is looking to optimize their financial situation, avoid mistakes, and build for a better future.

Our next piece of common wisdom is that once you’re in debt, there’s no way out. Now, debt can feel like an insurmountable mountain, but the idea that you just suck your thumb in the fetal position in the corner because you’re in debt because there’s absolutely no way out, is simply an idea that needs to be rethought. And there are two proven strategies for paying off debt, and it’s a challenge. It takes discipline, it takes hard work, but you can do it. There’s the snowball method and the avalanche method.

Now, the snowball method focuses on paying off your smallest debts first, regardless of interest rates. So you list all of your debts, and if you’re following Dave Ramsey, it’s including your mortgage. So you’re listing credit cards, auto loans, your mortgage, you’re putting all of them down sequentially by the smallest balance at the top of the list, largest at the bottom. And this snowball method is all about building momentum. So, once you’ve eliminated a small balance, you roll that payment into the next debt, and it creates, as it sounds like, the snowball effect. You combine the previous payments that you were making, you roll that into the next payment, and you roll that one into the next payment and that one into the next payment. So as you’re paying off debt, your payments become larger and they’re attacking fewer and fewer total debts. This is great for people who need quick wins to stay motivated. It might not be on paper the most efficient, but it does allow you to more quickly build momentum.

The avalanche method is where you write down all of your debts, but instead of sorting them by balance size, you sort them by interest rate, and you attack your highest interest debt first because those are the ones that are costing you the most. And so getting those eliminated first will minimize the total amount of interest paid as you’re eliminating each individual debt. So, this one saves you the most money in the long run, but it requires more discipline because it might take a longer to pay off your first debt completely. Whether you use the snowball or the avalanche method, taking action and staying disciplined is the first step toward freedom from that debt.

The next piece of common wisdom I’d like to rethink together is that my will is done, so I’m set. One of the most dangerous assumptions that I hear. I’ve knocked out my estate planning documents, so I don’t need to think about any of this ever again. No, estate planning is not static, it’s dynamic. And your documents need to evolve with your life, here’s why. I mean, this is logical. Life changes. Have you had more kids? Do you now have grandkids? Did you move to a new state? Maybe unfortunately you went through a divorce and maybe now after that divorce, you’re now remarried. All of these events can impact how your assets should be distributed.

Outside of internal changes, as I just alluded to, there are external changes. Tax laws change frequently, and what was an optimal strategy five or 10 years ago might not be today. For example, the estate tax exemption limit has shifted significantly over the years, and it’s as of now set to drop and sunset at the end of this year. If you haven’t revisited your documents, you might be leaving your heirs with unnecessary taxes or legal headaches. I remember around the turn of the century, the exemption was down around a million dollars. You had someone once they liquidated their house and their life insurance proceeds and their investment accounts, they may not be someone that considered themselves wealthy, overly wealthy, like high net worth, but their net worth was two or $3 million. Well, they had AB trusts and all sorts of complexity with their estate plan. Now, that same couple would need $26 million to justify any of that being necessary, from a strategic standpoint. Well, if they haven’t updated it, they have an overly complex and rigid plan that serves no purpose. This is just one small example.

But another one would be trust funding. It’s a common mistake. People forget to fund their trust, they create the trust and then the trust owns absolutely nothing. The trust is the beneficiary of nothing. Without proper funding, the trust doesn’t serve its purpose and the estate ends up going through probate anyhow. Think about it this way. If you bought a new car but you never bothered to put gas in it, how useful would that car be? Same goes for estate planning, it requires maintenance. A practical step you can take today is, review your beneficiaries. At least do that. Do you have outdated names listed? Worst case scenario, an ex spouse, maybe a deceased parent. Ensuring these are up-to-date is simple, but it’s a crucial part of keeping your estate plan current.

And our final piece of common wisdom to rethink is that in retirement, you should shift everything to lower risk investments. This piece of advice has been around forever and while it’s well-intentioned in some cases, sometimes it’s not well-intentioned, at steak dinners all around your town trying to sell you a bunch of high commission insurance products, it can often do a lot more harm than good. This idea is that you want to avoid risk in retirement. Here’s the problem. If you’re 65 years old, you may be in retirement, but there’s a good chance you’ll live another 20 or 30 years. That means some of your money, if you just think of all your dollar bills running around in your account, some of those dollar bills are going to still need to keep growing to sustain you. They’re still going to be sitting there decades later. You don’t want that dollar bill in cash or in a short-term bond.

Here’s a breakdown for you. Number one, you’ve got longevity risk. If you shift everything into cash or bonds, you run the risk of running out of money. Those investments may not even keep pace with inflation, so you’ll have an erosion of purchasing power. A dollar today historically needs to double about every 20 to 25 years, simply to not be going backward.

Next, remember that volatility is not your enemy. Stocks are volatile. Average year has a correction of about 14% peak to trough. So if you’ve got a million dollars broadly diversified in the market, it’s typical that even potentially in a year that finishes up in value, at some point during the year, you’re down at 860,000. That’s real volatility. One out of every three or four years, the market’s down in value. You’ve got less money New Year’s Eve than you had the previous New Year’s Day. That’s also normal. But that doesn’t mean they’re risky for your long-term monies. You don’t need to sell all of your investments all at once. So, having a portion of your portfolio and growth assets even in retirement can help ensure, maybe somewhat ironically, that you don’t outlive your money.

I like taking what’s called a buffered approach. Figure out about how much you’ll need from your portfolio over the next five or 10 years. Allocate that to more stable investments, allowing your growth-oriented volatile investments the one thing that they need, which is time to work back to their averages. Of course, past performance, no guarantee of future results, but over five-year periods, the market’s up about 90% of the time. Over 10-year periods, up nearly 100% of the time. Over 15-year periods, up 100% of the time, assuming that you’re broadly and globally diversified, and that you’re regularly rebalancing your accounts. So, it’s all about aligning your time horizons with your needs.

So, unless you run that exercise and you say, “Well, I need 90% of my entire portfolio in the next five years, which by the way, you’d have a problem because if you’re still alive at 70 years old, retired at 65, what are you doing for the next 20 or 30 years? Assuming, Lord willing you stay alive that long. You’re not going to do that, which means putting everything in CDs or cash or treasuries or money markets, getting sold some high commission annuity and sticking it there. It might feel good in the short term, it’s not a good long-term financial strategy. So, a more diversified approach ensures that you have stability for immediate needs while allowing other parts of your portfolio to grow over time. Remember, the goal in retirement is not just to preserve your money, it’s to grow it wisely so that it lasts as long as you do.

Let’s dive into my tip of the week, and that is to eliminate at least one subscription expense. One of the best parts of automating your bills and payments is that it saves you time, it saves you energy, it saves you hassle. You’re not getting headaches from licking all those stamps. Get your tongue feels all weird from all the envelopes. Don’t have to do that anymore, but here’s the downside, it’s really easy to lose track of where your money is even going. Automation removes the pain of physically handing over cash and writing checks but before you know it, you signed up for six different streaming services, three of which you don’t use. You got Peacock for one NFL game a year ago, didn’t watch it again, and had been paying for the last 12 months. I heard about that from a friend. I don’t know who that might be. You’ve got a gym membership that you’re not using by February 1st, and a newsletter subscription that sounded good at the time, but now it just clogs your inbox.

So, what I want you to do is go through all of your subscriptions this week. If you’re an iPhone user, this is incredibly easy. Just head to your subscriptions in the settings and it will list them. If you’re not sure where to start, go through your bank or credit card statements and look for recurring charges. Find one you don’t need anymore and cancel it. There might even be more than one. It doesn’t matter if it’s $9 a month, $19 a month, or $50 a month, it adds up, and eliminating at least one unnecessary expense doesn’t just save you money, it forces you to be more intentional with your spending, which is a good thing for us all. So there’s the task, find something you don’t use or value anymore. Cancel it and redirect that money to something that truly matters.

Now it’s time to dive into your questions. Britt, one of my producers is here, and she has helped me pull together some of these questions from this week’s inbox. All right, Britt, who do we have up first?

Britt Von Roden: Up first today we have Dan from Wisconsin. And Dan shares that him and his wife are both about five years away from retirement and have began the discussion about downsizing or selling their home. He says their kids are out of the house now and that he’s heard that using the money from their home to invest would be better use to them. His question for you is if you see many of your clients take this approach, and if it is a good idea.

John: Thanks for the question, Dan. Downsizing is something I do see a lot, especially as people near or transition into retirement, and there’s a practical side to this, as well as a financial one. If you’re living in a home with a lot more space than you need, you’re paying for square footage that you’re probably no longer using. Larger homes often mean higher property taxes, more upkeep, and more time spent cleaning and maintaining spaces that you no longer utilize. So forget the money, downsizing may help simplify your life and reduce your costs. But there’s an emotional component too, because this isn’t just a random investment, it’s your home, it’s where you live. So the counter argument to the points that I just made is that if you’re in a perfect location and you’re surrounded by memories and there’s a lot of sentimental value and you’re close to a lot of friends, it might not make sense to move even if the home’s a little too big or boost your retirement situation a bit, maybe not at least right now, because the house is a lot more than an asset, it’s where you do life.

With that said, from a purely financial perspective, downsizing very well could be a smart move. You may have significant equity tied up in your home right now, and that equity isn’t helping fund your retirement unless you sell the house or refinance. And so while real estate appreciates at about 3% annually on average, and that’s a national average, real estate tends to be very localized. So you may have gotten significantly better appreciation or much worse. Again, that’s just the average, but the average of the broad stock market for the last 100 years is 10% per year. Past performance, no guarantee of future results, but that also comes without any of the upkeep costs associated with real estate. Probably would boost your retirement, your ability to have more flexibility for travel and taking the grandkids on trips or buying them Christmas presents or hobbies or whatever else is on your mind, maybe giving more. If you were to basically take a sledgehammer, for all intents and purposes, and whack the wall of your family room and watch all the money that’s sitting right now in equity in your home, spill out onto the floor.

I’ve also seen the scenario where someone stays in their home, it’s completely paid off, it represents half of their net worth, they’re tight in retirement. A day after they pass away, their kids pick up the sledgehammer, smash the wall, watch all the money spill out. They call a realtor almost immediately after their parents passing and sell the home, and then they benefit from all the money that was stored up in the house. So if you sell your home, you downsize and invest the difference, you are giving that equity a chance to grow in a more efficient way. Of course though, there are a lot of trade-offs.

I recommend you sit down with a certified financial planner, look at your entire situation. Where is most of your money currently saved, from a tax standpoint? How is it invested? How much more would be augmented by the sale of this home? What are some of the drawbacks and benefits of doing so? What’s the interest rate on your current mortgage, if you have one? How much would you be putting down on the new home, or would you be paying cash? If you financed it, what would that rate be right now? So it’s all about weighing the financial benefits against your personal goals.

Appreciate that question. We do have offices there in Wisconsin, if you’d like to sit down with us, we’d be happy to meet with you. All right, Britt, let’s go to Mike in Delaware.

Britt: Yeah, sure. So Mike wrote in that he noticed that the US stocks got clobbered last Friday despite a blockbuster jobs report. He wants to know, John, if you can explain what is going on.

John: Great question, Mike. On the surface it does sound counterintuitive. You hear blockbuster jobs report, you think, shouldn’t this be great news for the stock market? But here’s the deal. Sometimes as it’s been now for actually quite a while, good news is bad news for stocks. Let me explain.

When the economy shows strong job growth, it signals to the Fed that the economy’s running hot. That’s a concern because if the economy doesn’t cool off, inflation could remain elevated. And to combat inflation, the Fed often keeps interest rates higher for longer or even raises them further. And higher rates are bad for stocks because they increase borrowing costs for companies, they slow consumer spending, and reduce corporate profits. It’s a bit like being on a treadmill that keeps speeding up when you’re trying to slow it down.

Another analogy would be, imagine you’re driving a car on a long, steep downhill road. The Fed’s the driver in interest rates are the brakes. So when the economy’s strong, like a week ago, Friday’s job report indicated, the Fed sees it as a steep downhill slope and keeps their foot firmly on the brake pedal, i.e. higher rates. That slows the car, but also makes for a bumpier ride for stocks. Essentially, the market said, “We don’t believe there will be as aggressive of rate cuts in 2025 based upon this data. And because of that, already having been somewhat priced in, we’re going to recalibrate the markets to adjust for this new assumption.” It’s not necessarily a reflection of any underlying problems in the economy, but more about how expectations are shifting, because that’s not good or bad, it’s always better or worse, in terms of how the market moves.

Thank you for that question, Britt. Let’s go to the next question.

Britt: Our next question is from Sharon from Wichita, and she shared that her husband has been retired for 10 years and that he takes a required minimum distributions from his IRA. She’s heard that in retirement you can set up a one-time disbursement to a health savings from an IRA, and wants to know if this is true. She’s curious, John, because their medical expenses keep growing and if there’s a way for them to pay out of pre-tax funds, she feels it would be helpful.

John: What you’re referring to is called a qualified HSA funding distribution. That sounds complicated, it’s not all that complicated. It allows you to transfer funds from your IRA directly to a health savings account without incurring taxes or penalties. This is the key, though. It’s a one-time opportunity, and the maximum you can transfer is limited to the annual HSA contribution limit, which is currently a little over 4,000 for individuals, or just over 8,000 for families. If you are over 55, which you are in this case, you can add an extra $1,000 catch-up contribution.

In general, HSAs of course are fantastic tools for retirement, especially because of that triple tax benefit. Contributions are tax deductible, growth within the HSA is tax deferred, and ultimately, tax exempt if the withdrawals are used for qualified medical expenses. Then you’re receiving the tax benefit on the way in, it’s off your return while it’s growing, and then it’s coming out off of your return as well. Medical expenses in retirement can be significant. Fidelity estimates the average couple retiring today will need over $315,000 just for healthcare, and HSAs are flexible, that’s one of the benefits. You can use them for everything from doctor’s visits to prescription drugs, to long-term care expenses.

But there is one caveat to make this IRA to HSA transfer, you must already have a high deductible health plan and to be eligible to contribute to an HSA. So, once you’re enrolled in Medicare, you can no longer contribute to an HSA, although you can still use the funds tax-free for qualified expenses. I know that became a little confusing, there are some technicalities. Before you do anything, talk to a certified financial planner, someone like us so that financial advisor can look at your entire situation, talk through the pros and cons and how you might be able to best accomplish this if in fact it is in your best interest.

Thanks to everyone who submitted questions this week. If you’d like to send one of your own, email me to radio@CreativePlanning.com.

Well, as I wrap up today’s show, I want to leave you with a reflection on the value of not your money, but of your time. Imagine you had $86,400 in your bank account and someone stole $10 from you. How much time would you spend with the remaining $86,390 trying to chase down those 10 bucks? Not a lot, right? That wouldn’t make any sense. Now think about this. Every day, you’re also given 86,400, not dollars, that’d be kind of nice every day, right? But 86,400 seconds. Don’t let 10 seconds of frustration, anger, or resentment, ruin the entire rest of your day. Life is too short to sweat the small stuff, forgive more and faster, focus on what matters, and remember to align your time and your money with your values. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show. Go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.

Disclaimer:

The preceding program is furnished by Creative Planning, an SEC registered investment advisory firm. Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31st, 2023. John Hagensen works for Creative Planning, and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment, tax, or legal 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 the show, will be profitable or equal any historical performance levels.

The information contained herein has been obtained from sources deemed reliable, but is not guaranteed. 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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