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Maximizing Your ROI While Minimizing Your Hassle

Published on October 2, 2023

John Hagensen

We all know about return on investment (ROI), but what about our return on hassle? What actions are we taking when it comes to our finances that are causing unnecessary stress and diminishing our financial peace? (4:50) Plus, we’ll delve into insights from the most recent Fed meeting and what they mean for you and the rest of the year. (13:26)

Episode Description

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

John Hagensen: Welcome to the Rethink Your Money Podcast presented by Creative Planning. I’m John Hagensen and ahead on today’s show, a more important calculation than simply return on investment. The impact of the Fed’s continued fight on inflation and the often overlooked purpose behind international investing. Now, join me as I help you rethink your money.

I’ve got a confession to make. It seems often that when I try to do something on my own, I want save money. That’s not that big of a deal. It turns into a bigger hassle and costs me more money. I recently had standing water in my garage. It kept pooling at the base of the stairs that went up into the entrance to the house. It was a mystery. In fact, that cut open a portion of the sheet rock on the wall because it appeared there was water damage. I’m running the dishwasher.

Is it a water line? I don’t know. The water heaters over there, maybe it has to do with that. No water keeps pooling. I then have my landscaper come. Can you add some drainage underneath the deck? Because I think it’s pooling up underneath there and somehow getting through the stem wall. By the way, if you’re listening and you’re handy and you know something about construction, I’m just throwing out random words.

Just go with me on this. Could be totally wrong. What do you know? Water is still pooling. Well, it did downpour last week. Maybe it’s a roof issue. I mean, there’s an area where two of our roof lines converge, maybe that’s not sealed well. So I have my little giant extension ladder up on top in 110 degree weather as if I know anything about a roof to figure out if maybe that’s what’s causing the water.

Well, I finally called a plumber, guy I trust, I’ve used before, and within 10 minutes he goes, “John, your water softener system is overflowing. It’s not draining properly.” I’m like, “Whoa, whoa. No, no, no. The water softener is way over there.” This doesn’t make any sense. I swear it’s coming from inside that wall. And he showed me exactly where it was leaking and why it was appearing to be on one side, but that in fact the source was this water softener.

10 minutes. “You are awesome. What do I owe you?” He said, “Oh, no big deal. But yeah, you’re going to want a new water softener and I don’t do those, but a couple of other companies that I trust do and let me get you their contact info.” I’m sitting there thinking to myself, first I’m an idiot. Secondly, how much time did I spend outside looking, investigating on ladders for such a simple problem, but I was going to do it myself.

My wife, Brittany’s going to say, “Man, my husband is manly and he is handy.” How’d that work out for me? Nope. And by the way, I can hear you right through this microphone mocking me, but why don’t you take a moment and pause because I know you’ve done the same thing. It might not have been a water leak in the garage, but how about coupon clipping? I’ve seen people spend a couple of hours on a weekend looking through coupons, clipping them to save a few dollars on grocery bills.

And while it’s true that couponing can lead to savings, the effort required to find, cut, organize and then use the coupons at the right stores often doesn’t justify the small discount you obtain, especially when you factor in your time. Extreme commuting to save a little bit on housing costs, I’m going to live 49 miles outside of town because I can get a house for less money and then I’ll spend four hours of my life every day sitting in traffic to and from work. And I have two more quick examples.

Selling anything on Craigslist or Facebook marketplace. So on one hand you want to price it low so that you can just sell the thing, but if you price it low, you’re going to get a hundred texts or emails within an hour. “Oh, well, can you hold it? Oh, now I’m not going to come till next week.” You know what I’m talking about if you tried to sell something online. Sometimes you’d rather just put a sign out, set it in your driveway and go, just take it. I mean your neighbors would probably love that really. High class neighborhood with big pieces of paper sitting on a couch saying free.

But in many cases it’s like, “Man, I don’t want to hassle with it. Can someone just take this thing?” And then how about looking in the woods for a golf ball with your buddy? By the fourth hole that they slice it right into the woods, Sometimes I just want to say, “You’re playing a Kirkland Golf ball or this is a top flight, it’s 40 cents for this golf ball. Can I not get poison ivy on my legs to save you 40 cents?” Let’s be honest, it’s probably as much about the penalty stroke they’re trying to avoid if they can hack it out of there than the ball cost itself.

But those are a few examples of how we fail to really consider the return on hassle. The question I want you asking yourself isn’t, even with your money, well, what’s my return on investment? But rather, what is my return on hassle? Let me define it for you. The amount of money you are going to save or earn divided by the time, money, and potential brain damage that it’ll take you to get there. In my experience meeting with thousands of successful people is that they understand that time and energy are more valuable resources, not even equal of value and resource to your money, but more valuable.

You see, your money is just a tool to advance your most important priorities. So simply earning more or accumulating more without an evaluation of the surrounding implications. That’s not winning. We all know the rich person, who doesn’t have meaningful relationships, works 80 hours per week. It’s not success. It’s not something to be admired just because their net worth statement has a high number. At what cost? There are plenty of examples where the hassle is completely worth it and others where it’s clearly not worth it. Would you walk down into a drainage ditch like a ravine because you saw a penny?

Probably not. Some of you listening are super frugal and you’re like, “Oh, John, I would go down there no matter what and I would get that thing.” You’re crazy, but all the rest of us, we’re not going down there and risking our life to get a penny. But if you’re walking down the street and there’s a hundred dollars bill on the sidewalk, maybe outside of Elon, we’re all saying, “Well, that’s worth the hassle. I’ve got to bend over. It takes a half a second and I’ve got a hundred bucks.”

Let’s unpack the two primary ways this applies to your finances. Number one, I see people overestimate the hassle of getting things organized so they just procrastinate or they try to do it on their own. Secondly, people will overestimate the cost of professionals like a financial advisor, like an attorney, like a CPA, and as a result, they try to do the entire thing on their own even though it’s a massive hassle and often not done correctly. Let’s use Creative Planning as an example. We can meet in our office or on Zoom, where you never even need to leave the comfort of your own home.

We’ll quarterback everything. So aside from you needing to DocuSign some documents and contributing to conversations and returning occasional phone call or email and setting just a little bit of time away, you can have an entire team helping you. You have one point person, your wealth manager, which is the role that I’m in here at Creative Planning, who helps coordinate all of the in-house specialists as they’re needed for your plan.

There is far less hassle if you work with a great wealth management team, and I’m not talking about just a financial advisor. And then you have to try to quarterback your taxes and estate planning and insurance and everything else. That can be a bit of a hassle. But if you have an in-house team who can help you with anything in your life that begins or ends with a dollar sign, the hassle factor upfront is minimal and now you’ve saved yourself significant hassle as you move forward over the coming years by having that team in place and a great plan in place.

So don’t overestimate how difficult it is to get your financial house in order and organized and established. It’s not. You simply visit creativeplanning.com/radio and we will walk you through the entire process. And transitioning to my thesis that people overestimate the cost, certainly relative to the value and so they do it on their own. Even Vanguard, one of the largest do it yourself providers in the world did an extensive study that they entitled Advisors Alpha, which focused on the value that financial advisors can potentially add to their client’s investment portfolios and more importantly, overall financial wellbeing beyond just investment returns.

The study suggests that advisors can provide various services and guidance that lead to improved financial outcomes. And some of Vanguard’s key findings were behavioral coaching. We know that the average American over the last 30 years has made about half what the S&P 500 has earned due to bad behavior. We’re humans, we have greed, we have fear. Money is very emotional. It’s hard to stay pragmatic. Vanguard also found that advisors added Alpha that increased return through asset location.

It’s not which investments you hold, it’s where do you hold them. Is it in an IRA, non-qualified account? A Roth? Many advisors are able to find lower cost investment options than what retail investors are utilizing on their own, so they’re saving some money there. Advisors like us here at Creative Planning rebalance accounts regularly. We take advantage of dissimilar price movement within the portfolio systematically to not only maintain the proper asset allocation and risk tolerance, but to strategically sell high and buy low.

Vanguard found that advisors help with withdrawal strategies. Many people hire advisors around and at retirement. That’s not by coincidence. You will now be depending for your livelihood on the money that you have squirreled away during your working years. What are the tax implications? How much risk should I have? Which accounts do I draw from first? How do I know that it’s a safe withdrawal rate?

And Vanguard found that advisors can assist clients in developing estate plans and optimizing distributions, which obviously can minimize taxes and ensure a smooth transfer of wealth to heirs. The Vanguard study suggests that these services when delivered effectively can collectively add value. And here’s the key that exceeds the cost of the advisor’s fees. And that concept is referred to as the Advisor’s Alpha and the Vanguard Study doesn’t even reference services that we provide at Creative Planning like tax planning, social security planning, retirement planning, gifting strategies, Medicare guidance, debt management, business services, risk management and insurance.

But it does underscore the importance of comprehensive financial planning. And the valuable role and take it for what it’s worth. I am biased on this, but that a financial advisor can play in helping you achieve your goals. Let’s put a bow on this return on hassle conversation. If you are not receiving value in excess of your advisor’s fee, both in hassle avoidance and monetarily, you have choices. You likely want to fire that advisor. I know it sounds harsh, but why not give your wealth a second look. And if you’re not sure where to turn, I’m going to make this hassle-free.

Simply visit creativeplanning.com/radio now, like thousands of others have done just like you, to speak with a certified financial planner just like myself. Again, that’s creativeplanning.com/radio. Go there, put in your information, that’s it. We’ll take care of the rest. And lastly, as a bonus, let me ask you a question. What’s the value for your peace of mind? Many do it do-it-yourself investors not only spend considerable time and hassle trying to manage their own money, even though by the way, they’re not a certified financial planner.

They’re not a CPA, they’re not an attorney. No one else on the planet would ever hire them to manage their life savings, yet they’re doing it on their family’s behalf. But even setting all of that aside, I have seen do-it-yourselfers walk into my office because the stress of not knowing potentially what they might be missing and the lack of conviction and confidence that it is being handled right for their family is no longer worth it. So while the goal for all of us, we want to save money, we want to be prudent. We don’t want to overpay for things.

That’s all well and good, but if you can find the right group that gives you the confidence, the plan is set up correctly. It allows you to avoid the hassle and avoid the stress. And according to Vanguard likely end up with a better financial outcome. Well, that’s a have your cake and eat it too type of scenario, isn’t it? So think more about return on hassle than just return on investment and fortunately with a great financial advisor, you’re likely to get both.

Want to transition over to our buddies over at the Federal Reserve? A little over a week ago, they held off on a rate hike at their September meeting. Since March of 2022 by the way, the Central Bank has raised its benchmark borrowing rate 11 times. Get a lot of questions from clients, why are they doing this? Well, inflation is still not as low as they’d like it to be. That’s the simple answer. It’s come down a lot, but it’s still not at that 2% target and unemployment is also really low. The irony of that one is practically speaking, isn’t that a good thing?

I mean, on one hand you look at what the Fed is doing and say, isn’t it a good thing that even while raising rates, you haven’t completely broken the real estate market or put 10% of Americans out of work? Why is this a bad thing? Are you trying to avoid a soft landing? And of course they’re not, but sometimes it feels like that. I’m not claiming that their job is easy, very complicated and multifaceted. More importantly though, what does this mean for you? Well expect to continue to have pricey car loans, expensive credit card rates, expensive home equity lines of credit.

New mortgage rates are going to be high enough that you’ll probably do what most Americans are doing right now and stay put, unless you have to move. Because the current rates are at the highest level in two decades. But there are two key bright spots. Number one, if you’re a bond holder or you’re a saver, you’re seeing the best yield since 2007. I mean, when’s the last time we were able to lend money to the federal government at 5% or have a money market paying over four?

And now with the reduction in inflation, it’s easy to find a yield that eclipses inflation, where you’re actually getting a positive real rate of return from a purchasing power standpoint through bonds, money markets, high yield savings account, which is a positive for shorter term monies that you have on the sidelines. The other positive implication to these high rates? We have a ton of room to stimulate the economy moving forward in the event that times get rough.

When interest rates were at near zero, there wasn’t much the Fed could do. But now theoretically, if times get bad, they have over 5% a wiggle room and that has me optimistic about the depth and length of the next inevitable recession. How can I say inevitable? Well, because the economy is cyclical and it’s not if one comes, it’s just when. And now the Fed has more arrows in its quiver to combat a slowing economy than it’s had in decades. And today I’m joined by one of those specialists, Creative Planning Business Services, Lee Roberts.

Lee is an incredible teammate of mine and a valuable resource for the business owners that we help here at Creative Planning. Under Lee’s leadership and execution, Creative Planning Business Services has been named a pacesetter by the AICPA listed as INSIDE Public Accounting’s fastest growing firm. Ranked in the top five in growth of all top 100 CPA firms nationally, as well as UKG’s Partner of the Year. Lee keynotes at several national conferences each year and serves on multiple boards. Lee Roberts, thank you for joining me on Rethink Your Money.

Lee Roberts: Happy to be here.

John: This is an appropriate season of the calendar for us to discuss planning. Summer’s over. We’re getting back in a rhythm. Kids are back in school and enough of the year has passed to have a reasonable estimate of business revenue and your business expenses, but more importantly, there’s also still enough time for adjustments to be made and strategies to be implemented. How important, Lee, is it to be proactive, and that’s the key word, proactive, and take advantage of the remaining opportunities here in 2023?

Lee: It’s an important time because I see far too often everyone is busy and the planning actually doesn’t take place till after the first of the year. And it’s a really good time to take a fresh look as we look to close out ’23 and turn the page to 2024. To look at the different areas of your business and personal situation and put a plan together that is going to help you be successful.

John: Well, it’s a lot like when you schedule a 6:00 AM flight and you think to yourself when you’re booking it, “Well that’s not that early.” But then as the day draws nearer, you start working the clock backward and you realize, “Oh, this is going to require me to arrive to the airport at 4:30 AM which means I’m going to need to leave my house at 3:45 in the morning, which means I’m going to need to get up at 3:00 AM.” That’s a lot how financial planning and business planning works as well.

If your flight or in this case your deadline is December 31st, right now is the time to start strategizing. It’s not on Christmas morning. It’s not even on December 1st, it’s now. So I couldn’t agree more with that. Lee, let’s shift our gaze toward 2024. What do you see as some of the top challenges facing businesses this upcoming year?

Lee: There’s always the short-term, things around taxable income and those types of items that go into the annual tax return at both the business and personal levels. That’s certainly what I think is the known and on the front of the minds of most people. But when you think about planning, we believe there are some core components to each business. There’s certainly the vision component of having a good plan. There’s the data component. We continue to see a lot of businesses just struggle.

The question I like to ask is if you sat down an employee and asked his or her to go to all the different software applications that they would need to go to do their particular job, start counting how many of those there are, number one. And then number two, is that data being shared between? Is there data inconsistencies? What is that data actually telling you from a business decision standpoint? I think is a big theme. Processes and getting processes that are followed by all that are simple, that are easy and that are going to help add to the enterprise value of the business.

And then the last one is certainly on the people side, both in terms of finding people that can do the jobs, but also taking that floor of the talent that you have within your organization and how do you grow that in quality and quantity. So I think it’s certainly starting with the plan, but then looking at the different software applications, the processes, the data and the people are some of the things that we see as consistent themes out there in the marketplace.

John: That’s interesting. I’m speaking with Creative Planning Business Services, Lee Roberts. Let’s suppose a business owner’s listening, what do you think they need to be considering of how they could leverage that relationship to really maximize their business?

Lee: When you look at it, and we can talk a little bit about some of the services specifically that we provide, but I think about it in two ends of the bookshelf. On the right side, there are known items that need to be solved. Maybe it’s a different CPA relationship, maybe it’s a different payroll service provider, maybe it’s a different technology relationship. Maybe they’ve outgrown whatever the attributes of that current situation are. That’s one side of the bookshelf.

On the other side, it can be very much more abstract, so they don’t know what they need. But they know they’re not growing as fast as they would like or they know that there’s a strategic opportunity in the marketplace that they’re not capitalizing on. Or they know that they want to build in M&A as part of their strategy. Or they know that they want to launch a new product or service. Or they know that they’re just spinning their wheels and working 70, 80, 90, a hundred hours a week and they’re not sure on whether it’s time to bring in a number two and how to go about that.

It could be legal entity structure, and that’s what I would consider people think about and where our best clients enjoy us is we certainly solve the known needs, but we also take a planning approach towards focusing on doing our part to help in the growth of that organization at the top and bottom line. And then more importantly, always having our pulse focused on how we are adding to the enterprise value or that targeted equity valuation of that particular organization.

John: What does Creative Planning Business Services look like right now? Tell me a little bit about the scope and the team.

Lee: We’ve got about 30,000, round numbers clients that we work with all across the United States. We provide traditional tax, audit and attest services for organizations that might need reviewed financial statements or a compilation. We provide outsource business accounting services, so that would look like an organization that maybe does not want to have an internal finance function. We would become their CFO, their controller and their bookkeeper on the people side. But then we also are an independent as far as the software goes.

So if you want to use QuickBooks online and that’s a great fit for you, we can put you on that platform or take that over. If you want to use a product like Sage Intacct in the mid-market. If you want to get into something that’s going to be a little bit more scalable and grow with you as you get into that upper side of the SMB, we can use a product like NetSuite. So we act in that realm as a little bit of your technology advisor on the application side, but then make sure that we’re providing very prescriptive financials so that you can understand what happened.

And then also we do a lot of cashflow modeling, forecasting, and looking out the front windshield. We take care of outsource payroll processing and provide HR timekeeping and payroll services to organizations large and small throughout the United States. We implement accounting software and ERP software. We take care of managed IT both in terms of cybersecurity as well as making sure that the computers and the networks and everything is safe and that your teammates are able to work very fast.

And then we’ve got that general business consulting group that I talked about where there’s not always a known thing, but maybe there needs to be some work on some executive compensation or maybe there needs to be work on how to build a leadership team and make that leadership team more effective.

John: So basically, if you’re a business owner and you have known or unknown issues, we can help. We’ve got you covered.

Lee: We would love conversation. We’ve got you covered.

John: To speak with Lee and his team at Creative Planning Business Services, visit creativeplanning.com/radio. Well, thank you for joining me, Lee here on Rethink Your Money.

Lee: Appreciate it very much.

John: How much do you think past experiences help you for your future circumstances? And the answer may seem obvious. Well, of course it does. The more experience I have, the better off I’ll be in the future. But if you dive a layer deeper, doesn’t it have to be the right experience? An experience that applies to the present circumstances rather than just any old experience. Mark Twain said it best when he said it ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. See sometimes actually our past experience leads us astray when making future decisions.

Imagine hiring an administrative assistant who had decades of experience. I’ve been an administrative assistant for 20 years, but they’ve been out of the workforce for the last 20 years. Their experience doesn’t matter. I mean, great, you’re organized. You can answer the phones. Do you know how to use Excel? Have you ever heard of Salesforce? Think about these sentences that would make no sense if you shared them with someone 20 years ago. Like my hypothetical admin, it’s in the cloud with the rest of my data. They’re walking outside the office looking up into the sky.

“Where is it? Hold on. I’m just going to take a picture with my phone real quick. Can you hang on a second? I’m playing Angry Birds. Let’s take a selfie. Yelp says to try the gluten-free bison burger with kale and quinoa.” Can you imagine? Is anything you just said English? What is that? Make sure to delete all your cookies and I’ll just Venmo you for that Uber. Dean Williams had a great quote where he said, expertise is great, but it has a bad side effect. It tends to create the inability to accept new ideas.

You see, past experience can often make us overconfident and unfortunately sometimes we’re confident about things that are no longer true. In fact, Henry Ford refused to let employees document ideas that didn’t work because he felt like it would discourage people from trying those things again. Even if now new technology’s improved, that would change its potential for success. It’s not always the idea. It might be the timing of the idea. Pets.com, a notorious failure. Now we’ve got chewy.com, a massive business with a ton of success. The idea was fine.

There wasn’t the technological infrastructure to support pets.com. At the time. Chartered financial analyst, Michael Batnick wrote on this topic, and I think he put it perfectly. When he said the best investors of all time are human beings just like you and me. It doesn’t matter whether you’re managing your own 401K, a taxable account or a billion dollar hedge fund. It’s really hard. It doesn’t even matter if you’re buying and holding or you’re stock picking. Whatever you’re doing, it is supremely difficult not just to beat the market, but even to keep up with it.

People that have the money to invest in the first place, it’s generally because they were successful in other walks of life. The irony of all of this is that if you just buy a global equity index fund and do literally nothing for the next 40 years, you’re probably going to beat the smartest people out there. And one of the reasons why is because they are so smart and there’s so many of them. Their intelligence cancels out. It’s like LeBron James playing LeBron James every single night. There’s not a sustainable edge there. And remember, the past is just one example of what could have been.

We haven’t seen all the examples and potential outcomes in the market. Things are random and that’s why the stock market is not similar to a physics experiment. There are too many variables to control for all of them. You can have someone sitting at NASA and put a satellite within a hundred feet of where they want it. It’s not the market. But just remember at the time, none of what happened was obvious to anyone. So having experienced one big event doesn’t necessarily prepare you for the next big event.

Here’s a few examples and takeaways for you with your money. Consider these last 11 rate hikes that have happened since 2022. Well, for most investors, the idea of extreme rate hikes and high inflation was nothing more than theoretical. It was an abstract idea that maybe could happen. Because for the previous 30 years, there was an environment of progressively decreasing interest rates. You went from over 10% mortgages in the 1980s all the way down to 0% interest rates before they started climbing.

What did that mean for someone owning bonds? Well, for most investors, their experience was, I buy a bond rates, over time decreased. So I’m pretty happy with the interest rate that I’m receiving. And if I ever want to unload my bond, I can fetch a pretty nice premium because the prevailing rates on a similar bond are a lot lower because rates have been going down. Great time to be a bond investor. 30 years of experience in history, none of which applied to what we’ve seen over the last two years.

And because of that, a lot of very experienced bond investors lost 30 and 40% of their principle by owning long-term bonds. That on paper had significant principal risk in a rising interest rate environment, but it was one that even with decades of experience had never come to fruition. People who had invested since 2009 had seen very little downward volatility in the stock market until the fastest bear market in history happened during COVID in early 2020. It was over a decade of experience that 2018 went down a little bit.

There were three rate hikes. I’ve seen volatility. No, but because of that, leading up to 2020, a lot of investors had too much risk exposure than they were either capable of taking from a financial planning perspective or comfortable taking from a risk tolerance standpoint because they had never really experienced what was about to happen during the pandemic, even though they weren’t a spring chicken when it came to their investment history. How about tax strategies? The majority of American dollars earmarked for retirement are saved in retirement accounts.

Now, that might not sound surprising. You receive a company match in a 401K in most cases. You receive tax deferral, so it makes you feel good about reducing your taxes in the current year and it comes right out of your paycheck. So of course that’s the case. But the problem is that coming out of World War II, the top tax bracket for 40 years was never less than 70%. At one point during World War II, it was over 90%.

Well, if we’re still thinking along those terms from our experience and our understanding of market history and specifically in this case, tax rate history, then deferring money while you’re earning higher income during your working years and planning to pay tax on those distributions once in retirement with theoretically less income would seem wise. But fast-forward to today. Since the Trump tax reform went into effect, in 2018, our top tax rate is 37% and the 24% tax bracket, if you are married extends north of $350,000 of income.

So if you’re married filing jointly and you even make 250 grand, which is a lot of money, you’re definitely in the top quintile of Americans with that sort of income. You’re in a 24% tax bracket. Even during the Bush tax cut years, the 25% bracket started at $76,000. Yet often even far above the match that we’re receiving, we’re dumping money into deferred accounts, asking the IRS for permission to pay tax on that income later. You see, you’re not eliminating tax by contributing to a 401K or an IRA. You are simply just as the word says, deferring.

So while we learn from history, it is important that we acknowledge so much of the future won’t resemble history. And our current financial decisions should reflect the circumstances you sit in today. Well, it’s time to rethink some common wisdom together, and I’m going to start with the belief that the point to invest in international stocks is to improve returns. It’s not to increase returns. It’s to reduce risk. And it significantly reduces risk even though we have a home team bias and we’re Americans and we’re the 800 pound gorilla.

And American stocks make up half of all market capitalization across the globe, which is kind of remarkable, if you think about it. 330 million Americans out of however many people now are on the planet, 8 billion. Yet our stocks make up half the market. But that means if you are being pragmatic, and I’m not suggesting this from a portfolio construction standpoint, you’d have half your money in international stocks and about half your money in US stocks, but I think this may surprise you.

It’s not just us as Americans because our stocks are many of the most popular and well-known companies in the world. Everybody does this. Canadians, their stock market makes up 2.9% of the global index weight, yet average Canadian has 59% of their portfolio in Canadian stocks. Would you ever see an American with 60% of their portfolio in Canadian stocks? Of course not be like, you’re insane. Why are you doing that? “Because I think it’s going to get me way better returns, and I love Whistler. Awesome. Montreal, great city.”

You’re not putting 60% of your portfolio there. How about the UK? 4% of the global index weight, yet their average investor has 26.3% of their portfolio allocated to their stocks. And here are two more examples. Japanese investors allocate 55% of their portfolio to Japanese stocks while it accounts for 6% of the global index weight. And here’s the country with the biggest discrepancy. Australia. Australian stocks don’t even make up 2% of the global index weight, yet their investor holdings in that home country are 66.5% of the portfolio.

If you zoom out over the last 40 years, you will find that United States stocks have slightly outperformed international, not by much, but a little bit. But you have periods of time like the last decade, from 2000 to the end of 2009 when US stock market was down about 1% per year for a 10-year stretch. But if you were diversified internationally, but depending upon the exact allocation, your overall portfolio still earned over 5% per year. And so by owning international stocks, you are eliminating the risk of something terrible happening inside the United States.

And you’re also smoothing out the variance and volatility of those returns. Our next piece of common wisdom is that the market’s best days occur during up markets. It’s logical to assume that fantastic days within the market tend to cluster within bull markets, isn’t it? But actually, many of the best days occurred during periods of high volatility. And this is why market timing is so difficult. From 1995 until today, if you look at the 30 best days in the market, six of them happened in a several week period in March of 2020, right during the pandemic.

Certainly times were not great in a lot of different aspects of our lives, and yet 20% of the best market days over the last nearly 30 years happened during that period. Basically, the lesson for you is if you plan to go in and out of the market, you’re going to miss many of the best days. Using the S&P 500 as our proxy. During the tech crash, five of the best days occurred, going up 5.7%, 5.45, 4.8, and 4.7 during the whole dotcom bubble bursting catastrophe. 11 of the best 30 market days occurred during the financial crisis in 2008 and 2009, way before the bottom in October of 2008.

There was a day where the market was up 11.6% and then a couple of weeks later, it was up 10.8% in one day. And I already mentioned COVID, which only leaves six of the best 30 market days of the last 30 years occurring outside of the tech crash, the financial crisis, and the COVID pandemic. Think about that for a moment. If you’re someone who keeps money on the sideline with the belief that you are going to anticipate the best times to invest. Good luck achieving that eight to 12% return the market’s produced for over a hundred years. If you miss days that are up 8%, 10%, 7%, 6%.

And as I just mentioned, those are often happening where there’s no way as a market timer, you’re getting off the sideline. Well, it’s time for listener questions and to read those, one of my producers, Lauren, as always, is here. Hey Lauren, who do we have up first?

Lauren Newman: This week I’ll start with Elena from Durham, North Carolina. She wrote into us saying, “Hello. I’ve been running a small business as a sole proprietor for the past few years. I’ve been wondering if it makes sense to incorporate as an LLC instead. Can you help me understand the benefits and drawbacks of making this switch, especially in terms of protecting my personal assets and taxes?”

John: Well, Elena, it is a great question and I would absolutely advise that you look into incorporating as an LLC. It’s not that expensive. We here at Creative Planning can help with that and many other law firms. And if you wanted to do it quicker and you felt comfortable with it, you can knock that out online as well. But there’s several benefits for small businesses to incorporate. Number one is the limited liability, exactly what’s in the name. It provides you protections as, what’s called a member, in this limited liability company.

In a sole prop like you are right now, you personally and the business are considered one and the same from a legal perspective. So the business incurs debts or faces legal issues, you are going to be pulled into those. Could be your home or savings, all of that could be at risk. It will also help separate your business and personal finances. You can have different bank accounts that are owned one by the LLC and then your personal ones. From a credibility standpoint, I think it adds a layer of professionalism to a small business.

It provides for a lot of flexible management and tax flexibility. In fact, probably the second-biggest benefit to the LLC outside of the liability protection is that by default, they’re pass through entities. And if you decide to file an S-Corp election, and I know I’m going into the weeds here a little bit. You’re able to take distributions of profits as a shareholder rather than wages as an employee of the business. And that will help you avoid paying FICA taxes, social security, and Medicare on a portion of your income.

Now, just be mindful that by voluntarily decreasing your wages, it can have a negative impact on qualifying for mortgages or other types of loans. And obviously when you get to social security age, your income benefit will be lower because you didn’t pay as much into the system, but there can be some tax advantages and certainly flexibility to the LLC. And lastly, if business continuity is a priority, you’d want to incorporate as an LLC.

And you asked about drawbacks, I mean really the only drawback is a little bit of cost for the legal documentation, but that’s minimal. If this is a business that you plan on having for a long period of time and you expect to potentially grow, I would highly advise you consider incorporating. All right, Lauren, who’s next?

Lauren: I have Luke from Pasadena, Texas. He says, “I’m 59 years old and my spouse is significantly younger, late thirties. I’m curious about implications of our age difference on our financial planning. How should we approach retirement, investments and estate planning given our age gap? And are there any potential challenges we should be aware of?”

John: Well, Luke, this is a good question and there are absolutely some considerations that you will want to be aware of. Some of them are intuitive and fairly obvious, some may be a little bit less so. But to list a few of the challenges and how you can navigate those, I’d start with staggered retirement dates. This is both financial and personal. If you wanted to retire simultaneously, even if you were to retire at 80, your wife would be 60, assuming that you’re about 20 years apart. Where if you want to retire at 65, I don’t know the rest of your financial situation, but she’s only going to be 45.

Does she want to retire at 45? Does she enjoy her job? Do you want to have a retirement where you’re doing a lot of things on your own while she’s working 40 hours a week? I mean, these are a lot of the big considerations that again, are not just financial. From a financial perspective, there can be significant advantages if you do choose to stagger your retirement dates and your wife works an extra decade or two longer than you. For example, she may be able to maintain an employer sponsored health plan until both of you are eligible for Medicare.

And any earned income that she has will reduce your need as a couple to draw down retirement assets that potentially you’ve saved, which would therefore preserve your overall nest egg. Timing social security is another big consideration. In many cases, Luke, if you are older and have the higher potential benefit, you’d want to defer potentially until 70. Acknowledging that that survivor benefit could be of a lot of value to your spouse in the event that she outlives you by say, 25 years with a 20-year age gap in women’s life expectancy being about five years longer than us as men.

Another consideration is the investment allocation. If you’re 80 and she’s 60, you’re probably not going to want to invest as a household for an 80-year old’s time horizon, but rather 30 or 40 years based upon your wife’s age. From a life insurance perspective, many people in their seventies or eighties, they don’t need life insurance anymore. You might need to keep yours because if you’re 75 and your wife’s still only 55, there may be value in that. If you have pensions, the amount’s going to be greatly reduced if you take a joint and survivor payout option because they’re going to look at how young your wife is.

And recognize that if they have to pay it over her lifetime, there’s a high likelihood there will be decades more of payments. So does it make sense, again, to carry more life insurance and take a sole payout that’s much higher? Or if you don’t have life insurance or you can’t qualify for life insurance, maybe you in fact do elect a smaller benefit that will continue on until the second one of you passes away. And then my last consideration would be around estate planning. This can be more complex with a big age gap.

Again, Luke, I don’t know anything else about your situation, but if you’d like to discuss this more with a local advisor, visit creativeplanning.com/radio now and we’ll look at your entire financial plan or build you one if you don’t currently have one. And through that process, we’ll answer specific to your situation, questions around your retirement dates, your social security strategies, how you should be invested, life insurance, pension elections, as well as your tax and estate planning. Again, that’s creativeplanning.com/radio, if you’d like to speak with us.

And to get your questions answered, do what Elena and Luke did, email radio@creativeplanning.com. Whether you’re looking to give money to an individual or a charity that you care about, I want to ask you a question. Why not give it now? Why not give with a warm hand rather than a cold one? See, in recent years, philanthropy has been undergoing a bit of a quiet revolution, spurred by a younger generation that’s strategically giving away assets, not at death, but while they’re still very much alive.

And part of the reason for this is because many donors are realizing they want to do more than just give money. They want to be a part of seeing that donations impact maximized and maybe even using their own talents and time and gifting to support that monetary gift by volunteering. But did you know that between 80 and 90% of all wealth transfers here in America occur after death? Almost everything received happens when mom and dad or grandma and grandpa pass away, not while they’re alive.

And it’s important to discuss this because there are 10,000 baby boomers retiring every day between now and the end of this decade. The first boomer was born in 1946, meaning that person’s fast approaching 80 years old. And it is a little morbid to think about, but boomers are going to continue to pass away over the coming decades. And according to fortune, that wealth transfer from the boomers is going to be about $73 trillion to individuals and another $12 trillion, I’m talking with a T, trillion going to charity. Well, how much are you expecting to receive?

If you’re getting anything at all, you happen to be the one out of about every 10 Americans who will receive anything. And Ben Carlson had a great chart on this, which shows that most of the money inherited happens after 56 years old. And while it’s fantastic, you’re getting money that you didn’t earn just by being the child or a friend or a sibling of someone who had extra money. Receiving it once they’ve passed at 70 years old or 75 years old or 60 years old, may not be as helpful as receiving it at 40 or 45 or 30.

And so of that 10% of Americans who actually receive money, it won’t surprise you based upon wealth and equality that the top 10% own something like 90% of the stock market, and that similar dynamic is at play when it comes to inheritances. Where households in the top 5% of the income distribution receive an inheritance that’s four to 12 times larger than those in the bottom 80%. And again, this is of all people who receive anything, there’s still that much disparity. If you have parents or grandparents in the top 5% of all income earners, the median inheritance is over $700,000.

And that is typically received at an average age between 66 and 75 years old. And this is why wealth can be so sticky from generation to generation. But the much more important takeaway for you and I though, I believe, is that if you are someone who plans to die with some money, like your financial plan works. And by the way, this assumes that you have a great financial plan because if you don’t have a great financial plan and you’re not confident that you won’t run out of money, you’re not going to give away anything while you’re alive.

No matter how great the organization is or how much you love your kid or your grandkid, you’re not giving them money if you think that you’ll end up living in their basement asking them for money because you’ve run out. So it all starts with a great financial plan. And if you don’t know what that calculation is or what that projection is, go speak with a certified financial planner. If you’re not sure where to turn, you can talk with us here at Creative Planning. We look at these retirement surpluses, it’s a standard part of your financial plan.

And then begin dreaming and strategizing about how you can help people and organizations today. Because your 30-year-old child who’s got two kids trying to grow their career, trying to buy their first home, this is when they need it, not when they’re 72 years old. And so I encourage you support those you plan to support sooner rather than later because we are the wealthiest society in the history of planet Earth. And I want to encourage you, make your money matter today.

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 4245 billion in assets as of July 1st, 2023. John Hagensen works for Creative Planning and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning 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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