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Harmonizing Your Financial Expectations with Realistic Success

Published on November 13, 2023

John Hagensen

It’s perspective, not our circumstances, that should influence our emotions and resulting actions. If we forget this and let unrealistic expectations direct our financial actions, it can lead to poor investment decisions and unnecessary stress. Join John as he guides us through recalibrating our financial expectations and the power of perspective, including reasons to be optimistic going into 2024 (4:59).  Plus, he explores the age-old question: does checking your statement more often impact your investment returns? (34:14)

Episode Notes:

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

John Hagensen: Welcome to the Rethink Your Money Podcast, presented by Creative Planning. I’m John Higginson. And ahead on today’s show, the reasons to be positive in today’s market, the FTX verdict for Sam Bankman-Fried, and whether looking at your investment statement more often helps achieve higher returns. Now, join me as I help you rethink your money.

There are people we interact with who are cup half full people. There are others who are the opposite. You know who they are. They’re the Eeyores in your life, see the negative in things. Now, while it’s easy to assume, well, people are positive and content and happy when their circumstances dictate that, and those who are miserable and negative, they usually aren’t great circumstances. But it’s actually not the case. Our feelings, whether it be optimism or pessimism, are far less about circumstances and far more about perspective. This was so obvious to me when I spent time in Ethiopia during the course of our adoptions, I interacted with numerous people who by American standards had absolutely nothing. But you know what? They were joyful and they were content even though their financial circumstances didn’t warrant it.

With about 123 million people in Ethiopia, it is the second most populous nation in the entire continent of Africa after Nigeria. It’s also one of the fastest growing economies in the entire region with an estimated 6.4% of growth over the last calendar year. However, even despite that, it remains one of the poorest countries with a per capita gross national income of $1,020, not per month, per year. And so you can imagine when my boys, Beck and Shea, came to America, they were amazed by things that I completely took for granted, a light switch, my five-year-old Ford F-150. They thought that truck was sweet. And by the way, I like it. It’s a nice truck, but certainly by American standards. It wasn’t fancy. Used F-150, a toilet flushing.

I’ve got some funny stories that I won’t share that we still laugh about related to the toilets here in America. But we were told by our counselors prior to bringing them back to America to ensure that we cocoon them, because just learning our home environment after having lived in rural Ethiopia their entire lives was going to be completely overwhelming. Listening to a language they know not a single word of, having white parents never even seen white people,

This is all crazy from their perspective. And so we took that to heart and we cocooned them and eventually it’s like, “Hey, it’s time to go out and about” and we took them to the grocery store. They were in shock at the entire spectacle. My wife, Brittany and I, we’re certainly not rolling. We were lower middle class if anything, but we explained to them that, “Yeah, we have enough money to buy food once a week for what we need for the house, and you guys don’t need to be worried about that. We’ll always provide food for you and a roof over your head.” The entire thing was just mind-blowing to them. They couldn’t fathom that we would walk over to this mountain of apples in the grocery store, grab one of those little plastic bags, stick them in there, walk up to a machine, put a piece of plastic in the machine and walk out of the grocery store with whatever food we needed for the week.

And while that memory still makes me smile and we reminisce about it from time to time, if you really stop and think about it, it is pretty incredible, isn’t it? What other magical things in your life are you now so immune to that you don’t even recognize it? All of us do. It’s human nature. Those same boys three years later were annoyed that they couldn’t have their own iPhone or the newest Madden game for their Xbox. But I remember my perspective being refreshed from those experiences in rural Africa. I wish that they had lasted. I prayed that those feelings would stay with me, but over time they faded. Have you had a similar experience in your life? Maybe it was from a time you traveled internationally and were exposed to poverty, to others who had less than you, yet in the case of Ethiopia, radiated joy with every fiber of their being. It was inspirational to be a part of.

You see, contentment is found when you close the gap between your expectations and your reality. So often we’re working on the reality piece, aren’t we? But those external factors are only somewhat within our control, yet our expectations, our perspective, we have full ownership over. And so when it comes to your money and when it comes to investing, ensure your expectations are realistic and they’re aligned with what truly matters in your life because that is where you will find contentment and where you will find joy. As I have met with thousands of families across the country, helping them with their finances, I can tell you with absolute conviction, there is no correlation between the size of a portfolio and that person’s contentment. I’ve met with plenty of people with modest portfolios who have great peace when it comes to their finances and plenty of others with 10 and 20 and 100 times as much money with the same proportionately, higher levels of anxiety and stress because as I said, contentment is far less about your circumstances and far more about your perspective.

So what should your expectations be when it comes to investing? You should expect the stock portion of your portfolio to lose money one out of every four calendar years, that you will experience a horrible bear market, potentially even a crash once or twice a decade, that your stocks will be incredibly volatile. You’ll regularly see them drop 10% or more. That for that volatility and aggravation, you’ll probably earn better returns than bonds, real estate, cash, gold, or really any other major asset class. But that volatility along the way with your stocks isn’t the penalty, it’s the fee. It’s the toll to be on the road that more directly gets you to where you’re going. You should also not expect to take 50 grand and turn it into $50 million in the stock market like you may be able to building a business or making a high risk concentrated bet.

Contrary to public belief though, a diversified portfolio in the stock market isn’t all that risky. If you’re in it for the long haul. Historically, your money will double about every seven to 10 years without taking a huge risk of losing it all, assuming that you’re broadly and globally diversified. But doubling your money in a short amount of time is unrealistic. Being frustrated that the market hasn’t grown over an 18-month period or a 24-month period, yeah, that’s not typical, but you should assume it will in fact happen and likely happen multiple times over the course of your investing life. But with all of that said, there are many reasons for you to be positive in today’s market. Yes, there are also plenty of reasons if you want to focus on them for why things could be better, but as an investor, you’re in a good environment right now.

Real GDP is up. Unemployment’s load. Net worth across the country are increasing and inflation is slowing. Let’s unpack each briefly. Real GDP. After being negative in a recession, right? I mean, we can argue and debate about whether it was actually a recession, but two quarters of negative GDP in late 2001, early 2022, now it’s up 4.9% inflation adjusted, mind you, in the most recent quarter. That’s great news. US unemployment continued to stay under 4% for the last two years. That is historically low. I mean, what a blessing. What an amazing statistic that the majority of Americans looking for work are able to find it. Related to that, US labor force participation is back up to pre COVID levels. It’s kind of amazing when you consider that we had a global pandemic that shut down the entire economy, massively disrupted supply chains, and we’re back to pre COVID levels, 2023? That’s a reason to be positive and optimistic.

US household net worth, and this is real, meaning adjusted for inflation is up 37% since 2019. That’s the best we’ve seen in the last 35 years. And it’s particularly good for younger people, not just boomers who own homes. Bond yields are over 5%, which is fantastic for retirees and savers looking for low volatility investments that can actually pay them something. For the first time in a long time,, you can earn some real interest on your money. When you look at inflation year over year, we’re under 4% now over the last six months. And US wage growth has outpaced inflation year over year since February. So yes, things aren’t perfect. Maybe one of those apples has a little bruise on it when you get home, but overall they’re pretty darn good.

Speaking of someone who is not pretty darn good, that would be Sam Bankman-Fried, the former head of the now bankrupt FTX crypto Exchange. This last week, he was convicted on seven charges of fraud, conspiracy and money laundering. And this is only the first act and what promises to be a lengthy and really expensive legal drama. There are layers upon layers when it comes to this thing. Southern District of New York Judge Lewis Kaplan already scheduled a second trial for next March, this time from charges arising from SBF’s alleged $150 million bribe to Chinese officials in an effort to unfreeze a $1 billion tranche of crypto cash supposedly linked to a money laundering inquiry. He has parents who are both professors at Stanford, they’ve got $10 million in an account over here and real estate and all sorts of suspicious assets. And that will be interesting to see how that unfolds, whether they will also face criminal charges. He’s also likely to face charges for violating campaign finance laws as part of a wide-ranging political influence operation. And he’s likely to be sued by practically everyone he ever did business with.

I mean, this legal trouble for him is certainly not even close to over. Now some background on this. Bankman-Fried didn’t just control Alameda Research and FTX, his two most notorious companies. He had someone 140 plus registered companies, many of them shells in which he used to direct billions of dollars in investments made with stolen funds. Jacob Silverman over at thenation.com wrote a great piece, if you’d like to look it up, that summarizes the fraud. But what’s wild to me, we still don’t know the full extent of this network of dirty money, where all the cash came from, where it all went. We’re not going to know for decades in my opinion, because he controlled an incredibly valuable vehicle for laundering money. And it will be interesting to figure out exactly who else benefited from all of these crimes. Sentencing could be up to over 120 years for Bankman-Fried. Many estimate it’ll be much less than that. We’ll see how the legal maneuvering plays out over time.

But most importantly, what are the lessons you can learn from one of the greatest scams in the history of finance? First, invest in what you know and speculate with amounts you have no problem losing. If you’re at the blackjack table playing once every five years with some friends, risking a dollar amount similar to what you would spend at a sporting event or a concert, whatever, it’s entertainment. However, if you’re a person that’s heading back multiple times to the ATM, getting cash advances on your credit card at 25% interest and paying a $20 surcharge to get another [inaudible 00:12:09] out of the ATM next to the craps table, you’ve got a problem. So if you are going to speculate, understand your position sizing and be okay with losing all of it in the event that it doesn’t work out.

Next, do your own due diligence. Notice I didn’t just say perform due diligence. No, perform your own due diligence. Sam Bankman-Fried had so much momentum and had Giselle and Tom Brady and Steph Curry and Naomi Osaka and Shohei Ohtani and Silicon Valley centered venture capital fund Sequoia, one of the most well-known in the world, all backing it. I mean he even had the Pat Riley led Miami Heat. Their arena was the FTX arena. This has to be legit. He sits crisscross applesauce in cheap holy sweatpants and a baggy T-shirt and it doesn’t look like he showered in a couple of days. This guy’s a genius. He must be. And no one stopped to actually look at what was going on.

Another lesson is to remind yourself you don’t need to be first in to make money. There is a big difference between the bleeding edge and the cutting edge. This isn’t a multi-level marketing business where you need to be at the top of the pyramid or you’re not going to make any money. You don’t have to be the first one in. The internet turned out to be really big. I think we’d all agree. People were right that bet on that back in the nineties. I have no idea by the way if crypto will be. I’m not sure the use case at this point, but even if the bull case for crypto turned out to be correct, the early winners when it came to the internet, names like America Online and Yahoo. Yeah, the macro thesis was correct. Wrong horses to place your bet on.

And lastly, know where your money is held. A huge part of what made this fraud so effective was that they were the exchange. They were holding all the money. They were the Fidelity or the Charles Schwab in this example. So what you are investing in is very important, but who is holding those investments is just as important. This story of FTX and Sam Bankman-Fried is absolutely going to be made into a movie and they may not even need to dramatize it. It’s going to be interesting just by telling the actual story exactly as it unfolded, which only reinforces that fact is often stranger than fiction.

I’m joined today by Creative Planning investment manager and charter financial analyst Kenny Gatliff. Kenny, welcome to Rethink Your Money.

Kenny Gatliff: Hey John, thanks for having me back.

John: Well, it’s been an interesting year. I think the sentiment right now is that the market’s been performing poorly. And it certainly wasn’t great in August and September, but overall it has in fact been a good year in the stock market coming off the dismal 2022. Can you set the backdrop here for what has happened this year in the markets?

Kenny: Yeah, it’s definitely been an interesting year. You’re right. It’s certainly been volatile. Early the year, things were actually really good. Through the end of July, the S&P was up over 20%. But you’re right, the last couple months, it’s been down. That’s kind how the market’s been the last few years. We’ve seen a lot of volatility going up and then back down. It’s been pretty flat if you aggregate it all together for a little while now. But we just can’t seem to get a handle on what the expectations are and there’s so many different moving pieces right now that are influencing it.

John: We’ve seen the S&P outperform other asset categories, which has been a theme really for the last 13 years since the last decade. But in particular we’ve seen that this year as well. Can you add some context to why we’re seeing the S&P outperform value in small cap and some of those?

Kenny: Honestly, not all of it, but a lot of it is just a handful of largely weighted stocks. And when I say largely weighted, I think some people don’t realize that the S&P 500 is not equal weighted. It’s not 500 stocks that each have one 500, the index. It’s very top-heavy, especially right now. Some of these tech companies that are really large that everyone’s heard of, your Amazon, Apple, Google, those make up a lot of the index and it just so happens that this year, especially early in this year, a lot of those growth tech-oriented companies did very, very well and they’ve really driven most of the return of the S&P that has performed. It’s a little bit of a double-edged sword. When those are doing well, it’s nice that the S&P 500 is overweighted. But when those are not, you have some risk associated with it.

John: It was one of the conversations I remember having a lot during COVID. People are saying, “The world’s shut down. How is the market going up right now?” And obviously there was a lot of monetary and fiscal response that propped up the market. But more than anything, it was that the biggest companies that make up the index, as you just alluded to, were tech companies that were benefiting from everyone staying home. Everyone was still on their iPhone. Everyone was searching on Google more than they were before. And of course everybody was using Amazon. And so it makes sense when you think of it that way.

How about a follow-up question then, Kenny. If this is the case and tech has been dominating and they’re the big companies that we interact with on a daily basis and that we’re comfortable with, why don’t I own the Magnificent seven? And just by the way, that’s kind of funny, right? It goes from the FAANG to the Maang. We’re just kind of expanding it and giving them new nicknames, but why not just invest in tech?

Kenny: I think the hard thing is to pair reality with investing. And if you think reality, tech is going to control much of the next 10 20 years of growth in the US economy or the world economy, you probably will be right. But that doesn’t necessarily mean that the tech companies that for one we’re seeing now, or just in general, that tech companies will be the only sector that will benefit from that growth.

And what we’ve seen historically is what we’re seeing now, which is when there’s some new wave of technology, we see a huge run-up in tech stocks. Some would say they bubble up and then we see that oftentimes followed by a little bit of a crash. I mentioned this as a double-edged sword. And if you catch this run-up, it’s great, but oftentimes investors get in late and what they end up doing is experiencing the crash on the other side. If you do look back to the dotcom bubble, and when I was graduating high school is when the dotcom bubble was bursting, and my dad invested heavily in it and lost a lot of what would’ve been my college fund in that tech crash. And so-

John: Sorry for those student loans. Sorry [inaudible 00:18:18] moratorium ended.

Kenny: Yeah, I just finished paying those student loans now almost 20 years later. So the NASDAQ was down 80% in 2002. That was the year I graduated high school. I definitely felt that and a lot of investors felt that. And so while this is a little bit different, AI is different than dotcom and people think everything’s different, a lot of it has very close similarities in that it’s this new tech thing that’s going to change the world. A handful of companies are going to benefit, a lot are going to go out of business trying to benefit. Maybe you get lucky. Maybe you don’t.

John: The point is that when you have market leaders and seemingly dominant companies, it seems inconceivable at the time that they won’t always be on top, yet we’ve seen that rotation. It seems obvious now, but nobody knew about Amazon in 1995.

I’m speaking with Kenny Gatliff, chartered financial analysts here at Creative Planning. As we near year-end, we’re approaching two years of correction territory in stocks. People are feeling fatigued. If someone is a long-term investor, intellectually they understand two years isn’t that long, but it’s a really long time to not make any money. How long do you think investors should expect to wait and be willing to wait?

Kenny: That’s a really great question. And you’re right. This is a difficult one for most people to wrap their head around because two years does feel long when you’re in the midst of it. A lot of people fear the stock market and they’ll point to these last couple of years to say, “See, I’ve been invested in X for the last couple of years and it hasn’t done well for me.” In any one given year, there’s a 75% chance… If we’re going back all the way to 1930, there’s a 75% chance the market’s up, but that means there’s a 25% one in four years the market’s down. But if you expand that out to five years, that goes from 75 to 91%. If you go out to 10 years, if we’re using just the S&P 500 as our metric, 97% of the time, the S&P 500 has been up over any rolling 10 year period essentially over the last a hundred years, and that’s not including any diversification outside of the S&P. That’s not including any fixed income. That’s just saying this index of 500 US stocks has almost never been down over a 10-year period.

So again, the market is only volatile in the short run. So if I’m an investor saying, “Okay, what is long-term?” Well that data gives me information to work off of. If we’re willing to hold five to seven, maybe even 10 years, you have a really good chance that you’re going to come up on the other side no matter what the volatility looked like in the interim. You’re going to come up above where you were when you got in, which is ideally what you want. We don’t know exactly which 10 year return is going to be the best, if we’re going to have the best 10 year or not so good, but we feel pretty confident that at least it’s not going to be a significant loss.

John: To your point, if you expand it out further and get away from these two years, let me share with you the last 10 years, 2013 S&P was up 32%. ’14, up 14%. ’15, up just barely. ’16, up 12%. 2017 up 22%, down about 4% in ’18. Then the previous three years to what we’ve experienced the last two, 2019, up 31%, 2020, up 18%, 2021, up nearly 30%. So if you actually expanded out and look at the mean reversion, you’d say, “Well, this isn’t that surprising that the last couple of years haven’t done as well. Look at what the previous decade did.” And when you factor that in, if you’ve been an investor the last 10 years, you’re still looking pretty good from a big picture standpoint regardless of what’s happened the last 24 months.

Kenny: Yeah, you’re absolutely right. And I know people get caught up in the very recent past, but those numbers are astounding when you look at them.

John: They really are.

Kenny: They’re like, how many were double-digit returns in the last 10 years? I think you said seven of them were above 10%. Those are great years of returns. So that is what investors have to do is in order to get those returns. They’re going to have to have one to two, maybe even three or four year periods where things don’t look so well. And that’s why you build a portfolio with this in mind. You should never be 100% in equities if the two-year return matters to you.

John: What do you think an investor can expect? Someone that says, “I don’t want all my money in the stock market because it is too volatile” and maybe they need some of their assets over the next three years or five years and they don’t want that to be exposed to the uncertainty of the stock market. What do you think a bond portfolio should look like and what can an investor expect moving forward?

Kenny: Yeah, and this is definitely another area where I think a lot of investors are gun shacked. Bonds have done really poorly the last couple of years. The Fed raised rates a significant amount, mostly we’ve seen since the ’80s for sure. And that has a negative impact for those that were currently holding bonds because if you’re holding bond not paying very much, the market’s paying a lot, well, all of a sudden the ones you’re holding aren’t worth a whole lot. And so that’s why we see these big drawdowns. But we are on the other side of that. To a certain degree, the persistent rising of rates has at least somewhat plateaued. And we’re actually at a much better spot for bond investors now than we have been anytime in the recent past where bond funds are yielding 4 or 5, sometimes 6% depending on where you’re at.

John: It’s a great point. If you have questions, you’re here in Kenny and thinking, “I wonder if my asset allocation is in line with my risk tolerance, in line with my time horizons. Do I have the right duration of my bonds? Is my stock portfolio diversified in a way that’s consistent with my goals?”, you can reach out to us and speak with a local advisor just like myself at creativeplanning.com/radio.

Kenny, one final tip let’s give the listeners. What do you have in terms of changes people could be considering within their portfolios as we head toward the end of the year and into 2024?

Kenny: I think you hit the nail on the head, right? People’s goals change. And we have seen material changes economically over the last couple of years. Interest rates were at zero, now they’re at 5, 6. If you look at mortgage rates, above 8%. We’ve seen inflation go from staying pretty stagnant to extraordinarily high in the last couple of years. And so if you haven’t got your portfolio looked at, if you haven’t reset your asset allocation or even looked at, “Hey, it was my current asset allocation that may have been good a couple of years ago” Does that still make sense?

John: Well, great insight as always. Kenny, thank you for joining me here on Rethink Your Money.

Kenny: Yeah, thanks for having me, John.

John: Well, our first piece of common wisdom. I’d like to rethink is that Bitcoin is an investment. We use this word often. It’s like in the Princess Bride when Vizzini keeps saying inconceivable, it’s like, “I do not think that word means what you think it means.” I do not think the word investment means what you think it means. Cryptocurrency enthusiasts. So you look at Bitcoin, this digital cryptocurrency that’s gained significant attention and popularity over the last decade. And while many people do consider it this investment, it’s not. Bitcoin has characteristics that make it distinct from traditional investments, and it comes with certain risks and challenges that make it unsuitable for most investors with money that you actually need, like money that you’re counting on for retirement, money that you will be depending upon for healthcare or for legacy planning.

There is a difference between speculating… By the way you can make money, speculating. You can go be a 49er going out in the Wild West looking for gold and make money speculating. You can buy baseball cards and keep it in mint condition in one of those fancy cases in a dark room and hope that 50 years later someone will pay you more money for that baseball card. It may work. It’s not an investment. When you put gold bars in your safe, it’s not an investment. You’re just hoping, “At some point down the road, someone else will pay me more for this gold than I bought it for.” There’s no compound component. The gold bars aren’t in the safe having fun making little baby gold bars running around when you open up the safe. There’s still the same amount of gold bars sitting there than when you close the safe earlier. And Bitcoin is no different. There’s a lack of intrinsic value.

So when you look at stocks and bonds, Bitcoin doesn’t represent ownership in a company or a claim on future cash flows. It doesn’t have any intrinsic value, which means that its price isn’t directly tied to the underlying value of any asset or any business. There’s tremendous volatility. That could absolutely go to zero. And we’ve already seen multiple drawdowns in huge proportions, well over 50%. There’s a high degree of speculation because no one really knows the future. And so there’s this giant hope that if I buy it, it may go up 20000% and I’ll be able to sell it later for a huge profit. Well, that speculative nature leads to significant price bubbles and increased risk, which we’ve seen play out. There’s also a lack of regulation.

The cryptocurrency market, we saw this with Sam Bankman-Fried and this trial. I mean with FTX, it’s relatively unregulated compared to traditional financial markets, and that was always seen as a positive. There’s no intermediaries, there’s no record. And then people lose their password and along with it, the $10 million they had in crypto with absolutely no way of recovering it or somebody scams you out of hundreds of thousands of dollars or millions of dollars because they gain access to your crypto wallet.

There’s also a limited history. Bitcoin hasn’t been around a long time. Certainly compared to traditional investments, it’s limited historical data makes it difficult to assess its long-term performance and suitability as a store of value. Certainly it’s far too volatile now, as I mentioned in point number two, to be used as a store of value. Imagine if our currency was fluctuating by 50%. In a short amount of time, you’d go to Starbucks and, “Hey, I’d like that caramel Frappuccino.” And you go to whip out your $8 or whatever crazy amount it costs these days. Like, “Dang, my money’s not worth much right now, I guess I’m going to need to pay $14.” And so the use case of currency, businesses being paid in crypto, and in particular in Bitcoin, that’s going to be near impossible until there’s more stability within the price.

Here’s one of the big ones for me, a lack of income or dividends. Traditional investments, stocks, bonds, real estate. They provide income, they provide dividends, they provide profits, they provide interest. Bitcoin doesn’t generate any of that, so it doesn’t provide any regular cashflow to investors. Bitcoin also has an uncertain future, high costs and complexity, a lack of investor protections and a lot of diversification concerns. Again, if you got in early on Bitcoin and you made a bunch of money, great. But it was a speculative bet more than what I would consider to be an investment.

My next piece of common wisdom to rethink is that claiming Social Security as early as possible is the smart move. Let me start by saying many Americans do in fact choose to elect Social Security as early as possible right at age 62. But by claiming early, you obviously don’t get as much as if you delay and wait maybe until full retirement age, which is 67 if you were born in the year 1960 or later. And if you’re in that age cohort, taking your benefits at 62 means you’ll only get 70% of your earned full retirement benefit.

Now, that gradually increases to 100% at full retirement age, at age 67. And if you wait longer, it’s pretty cool, you’ll receive an 8% benefit boost every year up until age 70. Now, side note, I had this happen, about fell out of my chair. This was several years ago. Client came in, they were still working, they were making a ton of money. 73 years old, do it yourselfer, and it was a good thing they were coming in looking for advice because I asked him how much he was getting in Social Security benefits as I was building out his financial plan, and he said, “Well, I’m not taking it yet. I’m making a couple hundred grand a year, John. I don’t know when I’ll retire. I’m just going to let it keep accruing.”

“Wait a second. Are you 73, right?” He’s like, “Yeah, I’m 73.”

“And you’re not taking Social Security right now?”

“No, I’m letting it grow at that 8%.” I said, “Wait, it doesn’t grow anymore after age 70.” Now, we could file and get the previous 12 months, but he was a really high income earner who had delayed until age 70. He had lost nearly $100,000 in Social Security benefits that he’d never recoup. These are some of those mistakes that it’s like, “Oh, it’s expensive to have a financial advisor.” No, a lot of times it’s way more expensive because you don’t rebalance or you don’t know when to take Social Security to not have a financial advisor. Now, I know that’s a shameless plug because I’m biased and this is what I do, but I see things like that, either tangible mistakes or less obvious ones that cost people hundreds of thousands or millions of dollars because they’re going to do it on their own. They don’t need someone’s help.

So if you hear nothing else for this entire show, know that you must take Social Security at age 70 no matter what. A recent Schroeder survey found that only 10% of people in America start benefits at age 70. What was their top reason? The fear that Social Security may run out of money and stop making their payments. So let’s pause and talk about that for a moment because what’s even the point of talking strategy or delaying or staggering benefits with a spouse? If you think that Social Security is actually going to run out of money, clearly you’d want to take it as soon as possible.

So let’s look at the facts. Yes, it’s underfunded. There will be a decrease in benefits around the year 2033, so about 10 years from now, if nothing is to be changed. And by most estimates, benefits would go down about 23 to 25%. So if you were getting $1,000 a month, nothing was changed. It’d go down to $750 a month. By most projections, that then sustained Social Security for another 50 plus years. So the idea that Social Security would completely go broken you would receive nothing, that is highly unlikely. Also, the political implications and the social implications. When the vast majority of Americans are depending upon Social Security for more than 50% of their retirement income to actually just lose Social Security would be devastating on the economy. And it would be political suicide for any legislators supporting that when their largest voting cohort are those nearing and already on Social Security. So that’s unlikely.

The Democrats and Republicans have all sorts of ideas for how to solve it. Of course, they’re not the same, but it’ll probably be some combination of pushing full retirement age back longer or creating higher payroll taxes for Social Security and/or removing the earnings cap on Social Security. So yes, it’s underfunded, but is it likely to not be around or reduced? No, it’s not. And it’s important to know because claiming before age 70 results in an estimated median household loss of about $182,000 in lifetime discretionary spending.

Does that mean as a blanket rule, you should wait until age 70 to claim Social Security? No, that’s not what I’m suggesting. But taking it early out of fear can also be very problematic and should be considered. You should talk to a great advisor who looks at your entire plan and takes into account some various factors such as your financial need. But do you need the income right now to cover living expenses? Well, you might need to claim a little bit earlier. It certainly wouldn’t make sense to put things on credit cards at 23% while you’re delaying Social Security at 7 or 8% growth. That wouldn’t make sense.

The number one factor in when you should claim benefits, health and longevity. If you are 62 and you have stage 4 cancer and not many years left to live, well, of course why would you delay until age 70? But if your mom’s on no medication toodling around her garden at 99 years old and so are all of your aunties, then probably you want to factor that in. There’s a break even. Obviously if you wait until 70, the longer you live, the more beneficial that is. The shorter you live, the bigger mistake it was. For most Americans, their Social Security benefit, if you were to put a present value on it, would be by far the largest asset on their balance sheet. It’s not something that off the cuff you just say, “Oh, let’s just claim at 62 so I can get it in case it’s gone.” No, no. Put some strategy around this with a great fiduciary advisor that can help you. And if you aren’t sure where to turn, of course, visit us at creativeplanning.com/radio.

Well, our final piece of common wisdom to rethink is that the more you look at your statement, the better the investor you are. So this is something we absolutely need to rethink. Actually, I would argue one of the keys to being a good investor is to not pay attention to returns every minute of every day. Some people can do it, they can control their emotions even in the midst of constantly looking at it, but that’s rare. Most people have an erosion of their peace of mind. They’re more likely to make impulsive investment decisions. They’re less likely to think long-term, which is what being an investor entails by looking at their statement consistently.

In fact, a study shows that people who look at their investment statement every month, I’m not even talking about every day, just every month, have an allocation of about 41% stocks, 59% bonds. People who review their statements once per year, get this, have about 70% stocks and 30% bonds. Do these groups have widely different goals? No, this is a massive sample size in the study. By all accounts, they’re very similar people. But those who are looking at their investments frequently get caught up in the day-to-day financial narratives, and it causes them to behave more defensively. And ultimately, that does more harm than good because stocks have outperformed bonds significantly over the long haul.

Investors who look at their statements annually are more growth-oriented, while investors who look at their statements monthly are more likely to underperform. The lesson here is not for you to bury your head in the sand, blindly trust an advisor or a money manager, not adapt to the changes in the economy or the financial markets, but rather to focus on your long-term goals rather than the next 10% move in the stock market. And keep in mind, the more you are looking at your statements, probably the more that you’re engaging with financial media, which like all news is interested in ratings and clicks, which means their bias will be toward fear and negativity. And that pessimism makes it difficult for you to achieve optimal long-term returns which require patience, optimism, restraint, and discipline.

Well, it’s time for listener questions. To read those today, one of my producers, Lauren, is here. Hey Lauren, how you doing? Who do we have up first?

Lauren Newman: Hi, John. So the first question I got for you today comes from Bob in Athens, Georgia, and he writes, “I’m contemplating changing my 401(k) contribution to be Roth. I know this will mean paying more taxes now, but since tax rates are expected to go up after December 31st, 2025, I’m thinking this is a better move than contributing pre-tax. Doing Roth conversions may also be effective, but at present this seems more cost and tax efficient. I would like to know your thoughts in this regard.”

John: Well, Bob, that’s a great question, and you are not alone. Since the Trump Tax Reform went into effect in 2018, Roth IRAs have been more noteworthy, and for good reason, they are more appealing than really at any point in history because unlike a traditional IRA where you receive a tax deduction on the contribution and then the growth is tax deferred and you pay ordinary income tax on distributions, well, the Roth is the opposite. You receive no tax break upfront, but then the growth is tax-exempt. And assuming you follow a few rules, the distributions or inheritance down the road is not taxed. Of course, if today’s tax rate is much lower than historically speaking as it is, then paying tax right now may make sense.

And you alluded to the fact that the current tax rates are sun setting beginning in 2026, and if nothing is changed, they’ll revert back to the Bush tax cut rates indexed for inflation. Without knowing the rest of your situation, and of course we have an office there by you and your Georgia Bulldogs, if you’d like to sit down to speak with one of our wealth managers to look at your situation in depth, I think that would be very helpful. Certainly something you would want to do before making a shift to Roth contributions within that retirement plan.

But generally, if you are falling within the 12% bracket, which married filing jointly is about $80,000 of income, if you are below that, the Roth is kind of a no-brainer. Of course, again, without knowing the rest of your situation. Because the case you’re making with that contribution is that you don’t anticipate asking the IRS to pay taxes later rather than 12% will result in a future distribution that’s taxed at less than 12%. And I think it’s a reasonable assumption when looking historically at tax rates. And the fact that we have nearly $33 trillion now of national debt, it’s reasonable to assume that.

Conversely, if you are in a 32% bracket or higher, which is over about $350,000 of income married filing jointly, generally you’re better off deferring and asking to pay taxes later via a traditional retirement account because it seems reasonable to assume when you’re not working and you’re in retirement, that even if tax rates increase, you’ll pay a lower percentage on that distribution than 32%. The more nuanced consideration comes if you’re in a 22 or a 24% tax bracket, which a lot of Americans and certainly many listening to the show fall within. That’s income if you’re married filing jointly of between about $80,000 and 350.

This is where looking at the entire picture, “What other income sources do you have in retirement? What are your prospects of receiving another pay increase or a promotion at your current job prior to retiring? Are you going to inherit monies? If you do, are those taxable or will they be stepped up in basis like you’re receiving maybe real estate or after tax brokerage account assets from a parent or a sibling? Do you have legacy considerations? Or are you looking to spend everything down? Are you charitably inclined?” And by the way, that’s a huge question to answer because I’ve interacted with certain clients where they don’t plan on spending down much of anything from their retirement accounts and when they pass away, all of those monies are going to charity. And a 501(c)(3) of course does not need to pay tax even on retirement account dollars.

So that tax rate would be zero if it’s going to charity, in which case, even if you’re in a 12% tax bracket, but certainly a 22 or a 24 or a 32 or a 35 or a 37, you would not want to be doing any Roth conversions or even in this case contributing to the Roth side of your 401(k) when you could defer taxes forever because ultimately those assets are going to go to a charity who doesn’t need to pay tax. But without knowing the specifics of your situation, it’s impossible to answer. But a general rule of thumb, 12% or lower, the Roth is pretty attractive. If you’re 32 or higher, you probably want to defer. And if you fall in the middle, it’s a maybe. If you have questions like Bob, you can email those to radio@creativeplanning.com.

All right, Lauren, who do we have for our last question?

Lauren Newman: Last, I’ve got a short and sweet one from Beth in Raleigh, North Carolina. She says, “I have an old HSA account from a company I no longer work for. What should I do with it?”

John: Beth. Good question. That health savings account that you’re referring to, you have a few different options. You can consolidate the old account into a new HSA that’s offered by your next employer, assuming that you’re not retired. You can keep your old HSA. In many cases, you aren’t forced to move it. A lot of times people want to just because you’re not associated with that company anymore. Sometimes you have to go through HR of that company to even gain access to it, and that can be a bit of a pain or uncomfortable depending upon the circumstances with which you left. You could roll it over to a new HSA under a completely different financial services firm. You could also use your HSA to pay for qualified medical expenses even if you’re ineligible to contribute to an account any longer. Just keep that in mind. You can still use it.

And remember, you can invest the money within your HSA, which is another option. My suggestion would certainly be to consolidate if you have multiple HSAs into one. And if you have an active HSA at your new employer, that’s the most logical spot. If you don’t, I would put it with a custodian that you’re comfortable with and that has a good platform, easy to use, good customer service. If you have a financial advisor, they should be able to help you get that out of your old employer and somewhere that they’re able to help you merge that into the rest of your financial plan.

But my suggestion, and this goes beyond the scope of your question, but I think it’s important when we talk about health savings accounts, I like the strategy of investing the money and not using it for immediate medical needs. Because think about this, an HSA has triple tax benefits. Meaning you receive a deduction on the way in, it then grows tax deferred. And if you use it for qualified medical expenses, it comes out tax-free. It really is a unicorn when used appropriately within a plan. But you don’t realize those benefits entirely if you contribute money, receive the deduction, and then immediately spend it that year on medical needs. I mean, that’s fine. And it’s still more efficient than not receiving the deduction and contributing those monies pre-tax certainly. But it’s really nice if that account compounds and doubles a few times before you start taking distributions.

Now, this also assumes that you have enough money and flexibility to spend up to the $7,750 per year into the family HSA while still paying out of pocket for medical bills. I mean, a lot of families certainly don’t have the ability to do both. But if you have the flexibility, it can be a fantastic strategy. For example, if you contributed that family max $7,750 per year, let’s not assume any inflation adjustments, which we know there will be, and you’ll be able to contribute more down the road, but let’s just say that number was static, and you did that from age 30 to 67. So for 37 years, you funded your HSA, it was on autopilot. You made those contributions and you invested those monies. You didn’t spend them on medical needs and it grew at 8%. You’d have $1.9 million in that HSA at retirement at age 67. A giant bucket that’s tax-exempt if used for healthcare. And you might be thinking to yourself, “John, that’s overkill.” And it probably is for a lot of people, but let’s use that as an example.

In the event though, you can’t use all of it for medical expenses. It’s not a use it or lose it. It comes out taxable. And as long as you’re over 65 years old, you are not subjected to the 20% penalty. So it basically just comes out like it was a retirement account all along. You received a deduction on the way in, it grew tax deferred and it came out at ordinary income. If you pass away with an HSA, let’s assume you do fund it for 37 years, and at 67 that $1.9 million account, it’s saved up, you pass away. If there’s a surviving spouse that inherits the HSA, it is exactly as if it were their account. They have the 1.9 million to use for qualified medical expenses. If it’s inherited by a non-spouse, say a child, it’s an IRA distribution. The fair market value of that HSA on the date of death is inherited at ordinary income.

So there is a lot of flexibility with HSAs and certainly the tax benefits, if used for medical expenses, are phenomenal. If you have questions about your retirement planning, are you on track, how much income could you drive in retirement, how do your tax strategies need to be considered within the context of that plan, we help over 60,000 clients in all 50 states in over 75 countries around the world here at Creative Planning. Speak with a local advisor at creativeplanning.com/radio.

One of my most vivid memories as a young financial advisor, probably about a year in, and I signed up for and attended a mastermind group. We were in Dallas, Texas. And I walked into a room with about 75 other financial advisors all across the spectrum of experience level, success level. And that first morning, the person sitting next to me pointed out a lady toward the front of the room. He said, “You see that lady up there?”


“She’s the most successful advisor in this room. She’s in Florida, has been doing this for 35 years and makes 5 million a year.” This is another younger advisor sitting next to me telling me this. But what I found incredibly interesting is that she was taking more notes and listening to the speakers more intently and asking more questions than any other person in the room. And it stood out to me because I thought to myself, “Well, she’s in her 60s, crushing it, been doing this for decades, and she’s more interested in learning new ideas than everybody in here.” And then it hit me, “That’s why she’s the most successful person in this room.” It’s the whole question about what comes first, the chicken or the egg. Her success was a result of her desire to be a constant learner, seeking new ways to improve what she was doing. And I’m sure she had done that since she was a small child. It was just part of her makeup.

And when I look at what the most undervalued asset in the world is, it’s curiosity. Ben Franklin said, “An investment in knowledge pays the best interest.”

Five surprising benefits of curiosity that I’d like to highlight as we wrap up today’s show. Number one, it helps you survive. You remain vigilant and gain knowledge about your constantly changing environment. It makes you happier. Being curious expands your empathy. Because when you’re curious about others, you end up talking to people that are different than you and outside of your social circle, which allows you then to become better able to understand others whose lives and experiences and worldviews are different from your own.

And lastly, it strengthens relationships. You ever been around someone who only talks about themselves, they never ask questions? Well, the root of that is they’re probably not all that curious or interested in learning about you. My children ask a one word question, what feels like hundreds of times per day. That word? “Why?” Absolutely exhausting as a parent to answer the follow-up “why” questions over and over throughout a day. We should be grateful in encouraging our children. That’s good. Keep that curiosity going. It’s likely going to lead to very positive outcomes. Fantastic trait for them to develop. And when it comes to your money, be curious. Consider what you may be missing and seek others’ perspectives. Because 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 proceeding program is furnished by Creative Planning, an SEC registered investment advisory firm that manages or advises on a combined 245 billion in assets as of July 1st, 2023. John Higginson works for Creative Planning and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning or this station. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney-client relationship. Past performance of any market results is no assurance of future performance. 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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