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Your Essential End-of-Year Financial Checklist

Published on October 23, 2023

John Hagensen

Smart investors make their savviest moves in the fourth quarter, and it’s not too late for you to act. Join John as he shares key insights and tips on tax planning, budgeting, investment strategies and more to ensure you’re covered when it comes to end-of-year financial strategies.

Episode Notes:

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

John Hagensen: Welcome to the Rethink Your Money podcast presented by Creative Planning. I’m John Hagensen, and ahead on today’s show, your end-of-year must checklist, an interview with Creative Planning President Peter Mallouk, as well as why retirement may not look much like what you had envisioned. Now, join me as I help you rethink your money. I’m a person that loves checklists. Are you one of those people, or do you just like to wing it? These lists, they make me feel weirdly warm and fuzzy inside. In fact, it actually bothers me an illogical amount if there are any lingering things on my checklist that I’m waiting on from someone or I can’t fully complete. I know, pray for me. It’s weird.

But I know other people that are even worse than me. And as the end of the year approaches, in addition to taking me up on that opportunity to meet with us, it’s a good idea for you to evaluate your financial situation and determine how well you’ve progressed toward your goals over the last 12 months and whether you need to adjust coming into the new year. And I have a beautiful eight bullet point checklist, and if you’re type A, you’re loving this, that I will go through. And I will also post this list to the radio page of our website for you to review if you would like. The number one thing on your fall must checklist is to assess your tax strategy. What does this include? What gains have you realized? What is your current projected tax bracket?

How much do you have in current deductions? What charitable giving have you already done, and what opportunities are there for you to still do prior to the end of the year? Essentially, what’s happened this year that’s maybe different than previous years or the same? And what actions have you taken the first 10 months of the year that can now inform these last couple? Number two, explore tax loss harvesting possibilities. Do you have losses that are unrealized inside of your positions? Well, in 2022, both stocks and bonds did poorly. Small cap stocks are still down 14% off their highs. Long bonds are down 13 from their highs. Now, I had someone I met with a couple of weeks ago that said, “John, I don’t understand tax loss harvesting. It seems like a terrible idea to sell a position that’s down in value. I like waiting until I get back even before I sell anything.”

Well, the reality is I’m not suggesting that you sell at the bottom of the market and sit on the sidelines. You sell your position. You book the losses, and you buy a similar investment but not the same investment so that you’re able to stay, for all intents and purposes, invested. And if you really like that specific investment itself, wait 31 days and go buy it again. Those losses in the future can then be used to offset future gains. Number three, confirm your required minimum distribution status. The fourth item on your fall must checklist is to fine-tune your portfolio balance if needed. The S&P 500 is up 15% year to date. The aggregate bond index is down still a little over 1%. Small-cap value’s down 4%. And so, you may need to simply rebalance the portfolio to get your asset allocation back in line with your time horizons, your risk tolerance, and your goals. But it may be more dramatic than that.

I met with someone recently who needed very little from their portfolio, but it had been advised to be 70% in bonds by their advisor because things don’t look good in the market. I’m sorry, but this person had earned 2.8% since inception. The broad stock market since this person had been with the advisor is up over a 130%. They were barely up 20. The best thing that would’ve ever happened to this person is that they never met this advisor. Know it sounds harsh, but it’s just brutal. So fine-tuning your portfolio balance, if needed, might mean tearing it down to the studs and rebuilding the portfolio in a worst-case scenario. In a best-case scenario, it may be some peripheral adjustments on the edges, like a simple rebalance. Number five, validate the currency of your will, your trust if you have one, your beneficiary designations, and your powers of attorney. The final three items on your fall must checklist.

Start with ensuring that your asset allocation is in sync with your goals. Number seven, delve into Roth conversion prospects. We are in the lowest tax environment we’ve seen in 50 years. These rates sunset at the end of 2025. We have over $30 trillion of national debt. Not many people are expecting tax rates to decrease over the next 20 or 30 years. And so an important question to be asking yourself is, does it make sense to pay some of those taxes today at historically low rates to fill up brackets that are really attractive compared to what they will likely be down the road, and then get those monies growing in a Roth IRA that if a few basic rules are followed are never taxed ever again. Oh, and pass to the next generation tax-exempt as well. And with over 100 CPAs here at Creative Planning, this is a calculation that we can run for you. The conversion is irrevocable and, if done incorrectly, can push you into much higher tax brackets and have some adverse consequences.

And my eighth and final item on your fall must checklist is to reassess your financial goals and your aspirations. You are a human, living life on this planet, which means the only thing constant is change. I don’t have the same goals that I had five years ago. I certainly don’t have the same goals that I had 15 years ago, and my guess is you don’t either. Is your financial plan dynamic, or is it static? Is it based upon a set of facts and figures and assumptions, mental life that’s different today? When’s the last time you’ve had a second opinion on your plan to ensure that it aligns with not only today’s laws but where you sit currently in life? If you’re not sure where to turn, visit creativeplanning.com/radio now to speak with a local wealth manager to have your plan built or reviewed. Why not give your wealth a second [inaudible 00:06:28]?

Today, my special guest is someone whom I consider to be on the Wealth Management Mount Rushmore. Creative Planning President Peter Mallouk has been named the number one financial advisor in America three times by Barron’s in 2013, ’14 and ’15. In 2017 and ’18, he was named by Worth magazine to their Power 100 list of the most powerful men and women in global finance. Peter graduated from the University of Kansas with four majors, including degrees in business administration and economics. He went on to earn a law degree and an MBA also from the University of Kansas. Peter is the recipient of the University of Kansas School of Business Distinguished Alumni Award. Peter Mallouk, thank you for joining me here on Rethink Your Money.

Peter Mallouk:  Hey, it’s good to be with you, John.

John Hagensen: Today, I’d like to discuss with you how we, as humans, interact with our money. As someone who I consider to have probably met with as many individual investors as any other financial advisor, what’s been your experience? How do we combat fear and greed and the other emotions that tend to lead us, at a minimum, toward added stress and, at the worst, disastrous financial outcomes?

Peter: I think very few people have a healthy relationship with money, and there’s a lot of research around this that really comes out of the household that you grew up in. Some of us grew up in households where there was a scarcity. There might even be food insecurity in a lot of households, or you had the general things, but your parents worried about money and talked about money in a very concerning way a lot of the times. Money’s the number two thing married couples fight about, I think, the number one things for a completely different podcast that neither of us will be on. But I mean, it’s a really important topic that impacts people.

The other end of the spectrum, some people grew up in households with just this great abundance, and there were no budgeting, no controls, no nothing. And so you find some people have a hard time saving because of that. Some people are able to save, but they’re unable to spend because they know what it’s like to not have money. I mean, the only people I’ve ever heard ever say money doesn’t matter are people that have it because it provides-

John: Interesting.

Peter: … some basic levels of security, and if you’ve been in that situation where you don’t have the basic level of security, you, of course, know that to some degree it matters. It impacts your ability to live and to take care of the people you love and so on. And so you watch that play out. You look at some really successful people. Part of the way they get there is they delay gratification, and they do the same good habit over and over again. I mean, if you look at super successful people, it’s none of this life hacks where you just take a shortcut. It’s that you persistently do something right over and over and over again.

And one of those things is you see that somebody who’s got 500,000 or 5 million or whatever it is, they were good at putting part of their money away in their 401 K every week or every two weeks. They’re putting money away every month in their investment account, and then they got there. And so then you say, “Hey, good, great job. Now you’re retired. Let’s go enjoy that money.” And you’re going, “Wait a second. My whole life have been delaying putting this away, putting this away, and now you want me, with no income coming in anymore, you want me to start taking money out of this pile.”

It is probably the number one retirement conversation I have is convincing people that that money is there to serve them and to take it out and to enjoy themselves. So it’s a really interesting deal because the vast majority of Americans do not have $100,000 saved. They have a pending crisis coming with their retirement, and they’re not on the right track. That’s the overwhelming majority. The minority, most of them, have a hard time spending that money that they’ve saved up, and really finding that healthy balance is a very difficult needle to thread.

John: Yeah, it really is. The scoreboard for them has always been watching that number get larger, and so even if they say, “I’m good with the check to the morgue balancing, my kids are doing better than me,” or whatever, you know we’ll hear clients say. You say, “Well, then go take the vacation that you two just talked to me about in the [inaudible 00:10:18]. Whoa, no.” The wife says, “Well, maybe we could even fly first class or something.” That the husband about falls out of his chair. “Why would we do that?”

It’s like, “Well, because you’ve saved your entire life the last 40 years to be able to, it doesn’t mean you have to, but you do have the ability to.” I think of an example of one of my most conservative, frugal clients who had a lot of money and, unfortunately, they passed away, and when they passed away, their kids were inheriting it. And I’m telling you, by the second meeting, there was a 7 Series BMW pulling up to our office from the kids. And I’m thinking-

Peter: Oh, yeah.

John: “… Man, your dad drove a 22-year-old Ford Ranger up to our office with all this money.”

Peter: Oh, yeah. I’ve had clients that would never have thought about a first-class seat. Their kids are on a first-class seat the next week. They would never get the nice room on the cruise ship. Their kids have no doubt about it. I had kids that were doing a huge addition to their house, I mean, within weeks.

And for people that say, “Hey, I’m okay with it. They’re my kids.” I say, “Okay, well, just think about your son-in-law, and they can’t wait to spend your money too.” And usually, that gets them a little more interested in spending some of their own money.

John: Yeah, they probably chuckle a little bit thinking that through. “Yeah, Pete’s probably… Peter’s probably right on that one.” I’ve seen greed certainly cause problems with investors. But the more powerful emotion, in my opinion, that I’ve seen cause great destruction is fear. Because if this money represents 40 years of hard work and all of our financial security and everything that we want to do, and you’re invested in things that we live in an uncertain world, it’s nothing guaranteed out there.

How do you think an investor can overcome fear to not, first off, make bad decisions by selling at the bottom or something to that effect. But also not stroke out, stressed out, and losing sleep every night because they’re worried about what the next thing is going to happen in the economy or the market. What do you think the anecdote to that is?

Peter: A big part of it’s education and making investments that are needs-based instead of market-based. So instead of saying, “I’m going to buy this stock or that stock.” Say, “How much money do I need, and when do I need it?” But a good advisor does with their clients is, “Well, here’s everything you have today. Here’s how much money you need. Here’s when you’re going to need it. Maybe you’re going to spend this much a year for the first 10 years of retirement. Then more or less because you’re traveling or health or whatever.” And then saying, “Okay, with the money I have, how should it be invested that has the highest probability of making those outcomes happen?” And then, you educate yourself on the right strategy.

Avoid market timing, avoid somebody that’s going to try to time their way through the market with stock picking, and instead own a broadly diversified portfolio where the odds shift to your favor that the outcome you want is going to happen. If you can make it about you and your needs and not about the market, that’s the first major, major step is really having a solid financial plan. It’s not going to take six months to create. A good advisor can get one done in a few hours for you, but the idea is to have a plan and then back into the investments. It makes it a lot easier to get through tough markets.

John: As you said that you were saying, “Look at your plan.” It made me think of how often I see comparisons trip people up, and maybe they reach for more risk because they want to keep up with someone else. How do you think we can avoid not playing our game, basically, but looking around at others? I mean, I have a theory that social media is a huge contributor to this. Seeing everybody else’s-

Peter: Oh.

John: … highlight reels and-

John: …whether it’s realistic or not, but what do you think we can do to focus on our objectives, and are we on track to achieve our goals?

Peter:   This is almost a philosophical question. But social media has really, really contributed to this. “My friends are doing this, or my siblings are doing that, and I need to do that.” And the way I think about it personally is I want to be happy, and happy for me means I’m content. Everyone around me is happy, my wife, my kids, my parents, and so on. And what do I need to do to make that happen? Well, we have to have time together. We have to have some vacations. We have a place we want to live in, whatever, and then I really focus on that.

And then, is my portfolio is my money management in a way to have the highest probability that I can make all those things happen. Now, if somebody else wants to drive a better car, which would be almost everybody drives a better car than me, or wants to have different goals or going better vacations or whatever, I’m not comparing the car or the vacations. I’m just comparing, am I content? And so making it about myself. There is no other way to win that game because somebody always has a better car. Someone’s always got a bigger boat.

John: Yep.

Peter: I’ve got billionaire clients. Many of them are not satisfied because it’s comparison. It doesn’t matter where you are, there’s someone to compare to. If you can’t get out of the comparison game, you’re going to lose. If you’re going to compare, compare the things that matter, which are-

John: Sure.

Peter: … are you happy and are you content? If you tie your happiness to somebody else, there’s always going to be another somebody else. You’re going to move from one circle to another. You’re never going to get there.

John: Yeah. I’m speaking with three-time Barron’s Financial Advisor of the Year, Creative Planning President Peter Mallouk. As we continue on with this theme about how we interact with our money, there’s been a big question. I think it’s been out there for a long time, but I feel like it’s gaining steam the last year or two as to whether money actually makes us happier. Does more money correlate to more happiness? What do you think about that?

Peter: I’ll first share what the research says. The research used to say up to a certain point, up to 100,000 or so. It used to be 80,000, and after COVID with inflation, now it’s 100,000. But up to 100,000 makes a very big difference, and the logic was, yeah, are you going to be happier if you’ve got a roof over your head and a car you can drive and put food on the table for the family and have a little bit of room to breathe? Of course. If you’re choosing between those things, of course, you get a little heavier. Now, once those needs are met, the research said no.

Now, there’s new research that says, “For some people, even well-adjusted people over 100,000, the new money does still increase happiness.” Not as much. It’s more incremental. But because they tend to have a purpose that can be fulfilled through money, maybe they’re very charitably inclined. I know you do a lot of incredible things. And so if somebody like you has more money, you can start to impact more people. How can that not be more fulfilling? So I think that for some people, a minority, it makes a difference after you get the basics covered.

John: Money doesn’t change you, but it reveals you. Somebody that’s generous might be more generous, or somebody that’s greedy is going to be more greedy, right?

Peter: Yeah, I describe it it’s like when the person gets drunk. If they’re a really fun-loving person, okay, that’s great. Enjoy your time with them. And if they’re a jerk, it’s coming out. It’s going to magnify it.

John: I believe that happiness is often found through simplicity, and here at Creative Planning, we have an offering that is as robust and comprehensive, in my opinion, as any other firm in America. 75 attorneys, 100 plus CPAs, business services, audit, institutional. We’re a trust company. And on one hand, we’re hopefully helping clients achieve better financial outcomes as a result of those services and the coordination of those services. But on the other hand, and maybe even more impactful, we’re helping our clients simplify their financial lives.

One of the great ironies that I’ve seen is that as people become more successful, they often don’t think less about their money, which we would assume to be the case. Now they’re talking to more professionals and have more complexity, and in the end, it’s not really winning. Once someone is at a point where their plan works, Peter, and they’re not going to run out of money, barring a big mistake, how can they best simplify their situation and fight the urge that we all are susceptible to toward more complexity?

Peter: Yeah, I think that you can find complexity fast. Next thing you know, you’re a general contractor overseeing all these people becomes your full-time job, or you’re not doing it, and it creates anxiety because you don’t really know what’s happening. And even if you’re on top of it, if you’re married, the person that dies first is always the one that’s on top of it and interested in it, and then the spouse has to deal with all these people. The premise of Creative was that money is money and that growing money, protecting money, and transferring money that’s the same advice. It’s like you get great medical care. There are different specialists at that same place that are going to impact you if they’re communicating properly with each other with a quarterback.

And so the idea here is, “Hey, we’re going to do financial planning to have an overall idea of your values, your goals, what you believe in, what you want to accomplish, and then we’re going to do whatever it takes to grow the money, which involves a lot of different investments and investment strategies, but we’re also going to help you protect the money. Somebody slips on your sidewalk and sues you, we’re looking at that, and we’re protecting you. If you are in the hospital and somebody needs to make decisions for you, we will have done your healthcare power of attorney. We want to keep your capital gains taxes and income taxes and estate taxes as low as possible” because it’s not just what you earn. As you know, John, it’s what you keep, right.

John: Mm-hmm.

Peter: So we want to control those taxes. Tax advice is important. And then we want to be there for people at the worst of times. [inaudible 00:18:42] incapacity or death, they need that financial power of attorney. They need that will. They need that trust. They need somebody to walk them through it. Well, these are very different disciplines. It’s planning. It’s investments. It’s tax. It’s legal. So we’re doing all of that in one place. I think we were the first firm in the country to do that with any scale whatsoever, and the marketplace really responded to it because it makes for better money management.

If you just want your money managed, it helps if the advisor understands is your trust revocable or not. How an IRA should be managed different than a taxable account. The tax implications matter a great deal should you convert your IRA and so on, and then the estate planning can matter as well. And so, from a money manager perspective, it makes for a better money manager. I think that from a wealth management perspective, it’s infinitely better because now we’re controlling what you actually get to keep and how we’re transferring it and so on. That was a new concept when we started it, and today, I believe most would agree we’re the leader in that space. I think the market responded to it because there was a great need there. I remember when we created it, I thought of my dad.

He’s an internist, and my mom was a teacher, and they were both immigrants, and my brother’s a screenwriter, and the other one’s in sports marketing, and they’re all incredibly talented. My wife’s a consultant. None of them like this stuff. None of them are super interested in it. And so the idea was how do we make it where someone like that who’s smart but not into this can really get informed very quickly. And then when they’ve got decisions throughout their life that involve money that show up, someone’s got the context to answer it correctly and quickly for them. I’m very proud of what we’ve built here because I think that it makes a difference in the lives of the client beyond just hopefully do it a little bit better with the portfolio.

John: Absolutely would agree 100% on that. In your last response, you mentioned the word planning multiple times. [inaudible 00:20:22] obviously, it’s the ethos of our company. It’s in the name Creative Planning, but I don’t think it can be overemphasized. If you want peace of mind with your money and you want to avoid big mistakes, it’s what I talk about each and every week on the show. You have to have a true, documented, written, dynamic financial plan. So find a great financial advisor who can help you with that.

And if you’re not sure where to turn, request to meet with a local advisor today by visiting creativeplanning.com/radio, investments, taxes, estate planning, retirement risk management, speak with one of our advisors like Peter or myself by visiting creativeplanning.com/radio. Why not give your wealth a second look? Well, Peter, every time we speak, I learn something new. You have an incredible knack for distilling complex financial topics into digestible wisdom. Thank you for joining me here on Rethink Your Money.

Peter: Thanks for having me, John.

John: I want to share two stories with you. One of a client and one relates to me personally. Now, this client was one of my favorites really I’ve ever worked with from a personality standpoint, positive outlook on life. Just a great guy. But his wife begged him, “Let’s travel more. Take your foot off the gas pedal. Let’s slow down.” And I’m sitting there telling him, “Your plan works. You’ve got an enormous surplus.” He said, “No, we’ll do all of those things, honey, once we’re retired. I’ll have more time. I’m still enjoying what I’m doing,” which nothing wrong with that. But then his wife passed away unexpectedly, and multiple times, he has expressed regret to me that he wasn’t more willing to use their money to make memories while she was alive as she was pleading with him to do. [inaudible 00:22:11] stacking more money, and he was continuing to work more for what?

Now, we can find a lot of joy and fulfillment in our job. So I’m not saying he needed to retire, but he was pushing off experiences and memories with his spouse because the assumption was, and I think we all are guilty of this at times, we have plenty of runway in the future where we’ll do all these things, but we don’t. None of our next days are guaranteed. And I, at times, personally can approach my situation similarly. “Oh, we’ll do that when the kids get older. Life will slow down a little bit. Well, in the next season of life, then we’ll be able to do some of those things.” And I have to brag on my wife, Brittany. She is amazing [inaudible 00:22:53]. She reminds me regularly, “John, the days are long, but the years are short. We are going to miss these days, believe it or not.”

Because there are evenings where we sit down on the couch when the last kid’s in bed take a big long sigh, look at each other, and go, “Wow, this is chaos, and I am exhausted.” But it’s a beautiful chaos. And I have met with enough people whose kids are out of the house, and they say, “Do not wish this season away because it’s one of the best you’ll ever experience.” Sure, it’s crazy. You’ll miss the crazy. And that is why during COVID, we made this radical choice, especially for my personality, type A, everything planned out, to move our entire family for one year to the island of Maui. I flew back and forth for work, and the rest of the time met with my team and clients on Zoom. The kids enrolled in a new school made new friends, and as Bill Perkins puts it, “We have memory dividends as a family to reflect on with gratitude and joy for the rest of our lives.”

It was one of the best decisions I could have ever made. My initial flinch, of course, was how in the world are we going to do this with jobs and a life and a million kids? How are we going to move to the middle of the North Pacific? But I’m so thankful we did. And that’s why the common wisdom that life gets easier once you retire that that’s the pot of gold at the end of the rainbow that you should be aspiring toward, and every goal should be around retirement. Now, life doesn’t get easier when you retire. Certain things do, and other things don’t. It’s just a different season. So I want to encourage you, and I’m reminding myself as well that while it’s great to prepare financially for retirement, don’t put your life on hold until retirement. Make the memories today. And I’ve personally met with thousands of retirees, and that’s not anecdotal.

Literally, I’ve met with thousands of retirees, and I’ve learned many things through those conversations. I want to share four tips to help you prepare for retirement. In no particular order. Number one, budget ahead of time. I had a client whose financial plan worked great for the expenses that we had estimated that they had shared would be their expenses in retirement. They got into retirement. I don’t know if they were just burning money in the backyard or what, but they were blowing through their accounts. They realized that, “On Wednesday, when I used to work at noon, we’re going to In-N-Out Burger and then heading over for a movie.” And as a result, I encourage everyone nearing retirement, especially within the last year or two of working to test drive your strategy. Fellow managing director here at Creative Planning, Scott Schuster, has a fantastic and practical way to accomplish this.

Put whatever cushion you desire to have in your checking account. Put all the rest in savings. Maybe that’s 25 grand. For some people, that cushion needs to be 10. For some people they want 100, whatever it’s, and then direct the monthly amount you intend to pull from your portfolio into that checking account for a 12-month period and then spend as normal. At the end of the 12 months, if your buffer was, let’s say, 100 grand. Do you have around 100 grand? “Okay, yeah. We’re spending about the 6,000 a month that we’re planning for in retirement.” That budget’s pretty accurate. Do you have 61,000? Because if you do, you’re spending a lot more than 6,000 a month, and we need to recalibrate the plan, either because you’re going to spend that much or you’re going to have to reign back into spending. Or maybe there’s another scenario where you end up with 120 grand. “Man, we’re barely spending over 4,000 a month.”

That will need to come from the portfolio. Because once you retire, you do not want to be surprised that the assumptions you have made are wildly incorrect. So again, number one, budget ahead of time. Number two, account for inflation. Now, believe it or not, prior to us seeing the highest levels of inflation in decades, a lot of people forgot inflation was really a thing. It’s like the boiling frog syndrome. It’s so subtle that we don’t even feel it until we’re the proverbial frog dead in the pan. But historically speaking, every 20 to 25 years, your money has to double just to keep up with inflation. Number three, plan to adjust your strategy. The retirement plan that you have built, even by us here at Creative Planning, and I think we do a fantastic and thorough job, will be completely wrong. I know you’re thinking to yourself, “What are you talking about, John?”

Well, it’s based upon assumptions of the next 40 years of your life that are absolutely not going to happen. Planning is a journey. It’s an ongoing process. It’s not a one-time action. Now, is building a financial plan important? Of course, it is. You’ve got to start somewhere, but acknowledge when you make the plan, it’s based on current tax laws, current estate laws, the current interest rate environment, and maybe even more importantly, the way you feel about things today. Your goals. Your objectives. Your concerns. Your life, which is certainly going to change over the coming years and decades. When is the last time your plan was reviewed? Are you confident that you’ve made all the financial moves that can be made and that your financial plan is airtight without holes? If you’re not, meet with a wealth manager here at Creative Planning that’s not looking to sell you something.

There’s no obligation to become a client, but rather, we will provide you a clear and an understandable breakdown of exactly where you stand with your money. Visit creativeplanning.com/radio right now to schedule your visit. Why not give your wealth a second look? So my first three tips to prepare for retirement are to budget ahead of time, account for inflation, adjust your strategy, and my fourth and final may be the most important for your life, plan for your time. In fact, this week, I had someone who wanted to retire early, said, “I want to retire at 55 years old,” but last year, switched jobs and had about five months off between jobs. He told me he went skiing a ton, had happy hours with his friends, and by the five months, he was bored to death. He miss work. He couldn’t believe it, but that is far more common than you might realize.

So I suggest we rethink this idea that life gets easier once you retire. My second piece of common wisdom to examine together is that concentration is the fastest way to build wealth. Now, I do not entirely disagree with this. Most of the wealthiest people on earth have made concentrated bets that have worked out, primarily in building businesses. Not a lot of people have made concentrated bets in the public stock market, and that’s how they hit it big. Do you know anyone who’s made 150000% because they bought Apple when it first went public? They put like 100 grand in it, and now it’s worth 50 or $60 million, and that’s how they obtain their wealth. It’s probably more appropriate to say that concentration is the fastest way to lose wealth when it comes to investing in public markets. Our Chief Market Strategist, Charlie Bilello, wrote an article on this.

Consider the drawdowns associated with being concentrated just since 2000 with a few of these stocks that are household names. Let’s continue on with Apple. In 2003, it was down 82%. And actually early 2023, just this year, it was down 31%. Google was down 45% earlier this year. Tesla down 74% early in 2023. NVIDIA, it’s the early winner with AI advancements. Do you realize that during the.com bubble when it burst, NVIDIA was down 93%? And it was down 64% from previous highs as recently as one year ago. I mean, you’ve got to have a lot of conviction and a lot of intestinal fortitude to have a stock that goes down 93%, and you shrug and say, “Well, I think if I hold another 20, 25 years, it’s going to take off due to artificial intelligence.” You’re not thinking that.

So most people, once it’s down 50% of the 93%, sell. They never benefit from NVIDIA’s current price. I think I’ve made my point. The idea that by you concentrating in a handful of stocks, you’ll achieve superior returns. Good luck. I wish you the best trying to time when to get in and out of those stocks and to understand when one of those stocks goes down 75%, whether to hold onto it because it will eventually become Apple or whether you should sell it because it’s Washington Mutual. We absolutely need to rethink the common wisdom that by concentrating, yeah, that’s the fastest way to building wealth. No, it’s not. Well, it’s time for listener questions, and as always, one of my producers, Lauren, is here to read those. Thank you, Lauren, for being here. Who do we have first?

Lauren Newman: Hi John. So today, we’ve got our first email. It’s from Karen in Denver, Colorado. She says, “I have 500,000 invested with one financial advisor and another 750,000 with a different advisor. I’d like to hear their advice to compare, and I don’t want to put all my eggs in one basket. Is it okay to have two advisors? Is it dishonest or a problem if I split my money between them, or should I just pick one?”

John: Okay, I love this question. It’s a fantastic question. I have to answer this regularly from prospective clients. So let me break this down for you, Karen. Having multiple advisors, I think, made a lot of sense when people were working with brokers and money managers. So, in those situations, it was perfectly acceptable to have multiple professionals if you believe that their diverse perspectives and strategies were helpful, and it maybe provided some diversification because what they were suggesting might’ve been completely different. One person’s selling non-traded real estate investment trusts, and another person’s selling you individual bonds, and another person’s selling you individual stocks, and somebody else is doing small caps.

And yeah, if you work with one advisor, you’re going to have a whole portfolio of non-traded real estate because that’s what that broker would sell. It was logical in that scenario to assume that having one broker was riskier than having multiple because it did feel like all your eggs, as you put it, were in one basket. However, when it comes to wealth managers, you only want one. Let’s first define, though, what a wealth manager is. Like us here at Creative Planning, we sit on the same side of the table as our clients as a fiduciary, and we provide the financial planning and we look at your taxes and estate planning and risk management, and then we provide guidance on selecting multiple money managers in multiple asset categories with various investment strategies across the entire landscape of options that fit your goals as the client.

What are your concerns? What are your time horizons? What is your overall situation? And so, by having multiple wealth managers, you don’t have anyone seeing the entire picture. And as a result, you end up having overlap of your holdings because both wealth managers are utilizing similar money managers or similar investment strategies, and one wealth manager didn’t know what the other wealth manager was doing because they’re not in the same office. They don’t work together. They’re likely competitors. So they’re not talking on a regular basis about your plan with one another. You end up with tax inefficiencies. I see this all the time. One advisor says, “Let’s do a Roth conversion to fill up this tax bracket.”

Meanwhile, the other wealth manager is selling off a bunch of capital gains, pushing you into a higher bracket. And, all of a sudden, now your Medicare part B&D is means tested, and you’re paying higher premiums, and everybody’s pointing the finger at the other person. “I don’t know why this happened or how this happened.” You also don’t benefit on a breakpoint of fees. By fragmenting your money, you’re going to have less with each wealth manager whose fees are typically reduced by the more money you have invested with that firm. And probably the worst part about it, you have no centralized strategy, and you then are required to try to quarterback and play a game of telephone between… In most cases, because a lot of firms aren’t tax practices and law firms like us at Creative Planning, you’re not only quarterbacking with your CPA and your estate attorney, but now you’re even trying to coordinate between your different wealth managers what’s going on.

In short, you absolutely want diversification of your investments. You want diversification with your tax strategies, but you can achieve that with one wealth manager, and I highly recommend you do so. So I appreciate that question, Karen. I would think long and hard about the two wealth managers and which one is better because they’re not equal. One’s better than the other. One offers more value and more services relative to their fees, and I’d fire the one who’s worse and let the better of the two advisors truly do their job with efficiency and quarterback your entire plan. Because if that’s a good advisor, it doesn’t increase your risk at all. All right, Lauren, how about our last question for today?

Lauren: So I’ve got Hugh from Scottsdale, Arizona, and he writes, “I’ve had a long-term care policy for several years now, but recently, the premiums have increased quite a bit in the last couple of years. I’m wondering if it is still wise to keep this policy or if there are better strategies available.”

John: Well, Hugh, there’s a lot of nuance surrounding long-term care planning. There are many different opinions that vary wildly, even amongst smart people that I respect. And there really isn’t an exact right or wrong answer to your question, but let’s look at the lay of the land here for a moment. In 2021, the average requested premium rate increased 78%, while the average approved premium rate increased was 37%. All that to say, you were not alone in seeing these rate increases. The vast majority of companies and policies have massively increased rates. If you’re wondering why morbidity rates.

I mean, people are just living way longer. Insurance underwriters overestimated policy lapses in the recent low-interest rate environment that’s now in our rearview mirror. So fundamentally, there are a lot of things working against the insurance companies for how they design these policies. And in the fine print, just like yours, Hugh, it says we can increase premiums to ensure these policies remain viable and that we’re solvent. So let’s look a bit at the averages. At age 65, you have a 70% chance of needing some type of long-term care service. Men for 2.2 years and women on average for 3.7 years. Of the 70% who need it, 20% of those people will need care for longer than five years.

That’s where you can really start seeing it erode the rest of your portfolio. The average cost per care nationwide for a home health aid is about 60 grand a year, in an assisted living facility about 50,000 a year, and a private room in a nursing home about 110,000 per year. And so the largest unknown isn’t so much, “Will I need long-term care?” Because about 70% of people will need some sort of care. It’s really, “How long will I need this long-term care?” And if it’s an extended period of time, how is that going to impact your standard of living? But it’s also worth noting that these costs… Let’s use the example of 60 grand for home healthcare.

It’s not an additional $60,000 on your budget because once in that sort of situation, you don’t spend as much on travel and entertainment. So due to those lifestyle changes, you likely won’t feel it as substantially as the total dollar amount appears at first. But if you’ve achieved financial independence, and I don’t know anything else about your situation. But you prefer the comfort of keeping your long-term care policy in place, it’s important to understand the factors of the policy that impact these annual premiums to help you determine whether you want to keep it as is or maybe begin the process of slowly stepping out of the policy, maximum daily benefit. That’s the amount of healthcare costs your policy will pay each day.

What’s the lifetime maximum benefit? If you need long-term care for many years, how much will it pay out in total? Most have a cap. Is there an inflation rider? Does that daily maximum benefit increase each year? Does it increase in a compound nature or simple, or do you have no cost of living adjustment increases? And lastly, what’s the elimination period? That’s the waiting period once you need long-term care before you can begin receiving benefits from the policy. It may be as short as zero. Right when you need it and qualify, you receive the benefits. Many, though, are 90, 180, or even 365 days that you have to cover it yourself before this long-term care policy that you paid a bunch of money into will even start working for your benefit.

If you’re someone listening to this and you’re thinking for yourself like, “I’ve thought about long-term care. What should I be doing? I don’t really want to get in the situation that Hugh’s in, where my premiums are being increased, but I’ve already paid a lot into it. Now I think I may need to keep it.” Here are some of the questions I think you should be thinking through. Do you intend to age in your home and have home healthcare if you need it, or would you prefer the environment of continuing care at a community where there’s various levels of support and you’re around other people? There’s sort of a social aspect in many cases to living within one of those communities. It may make sense for you to have a traditional long-term care policy as Hugh has.

It might make sense to opt for more of a hybrid policy where you have a death benefit that pays out if you don’t need any long-term care. Once you need long-term care, it starts eating into that death benefit until, eventually, it erodes most all of it. Those have pros and cons, certainly are not perfect, or you can self-fund, which many choose to do now. But essentially, you take all the premiums you would’ve been paying into a policy. If you want to sleeve them into a specific account that you nickname Long-Term Care Account, invest it for some growth and use that down the road in the event you need long-term care. To determine which option is right for you, you need a detailed, documented, dynamic financial plan. Well, I read an interesting article talking about writing your own obituary in advance.

I know it sounds a little bit morbid, creepy, and weird. What are you talking about? Well, the idea of this reverse obituary is to write down what you want your obituary to say and more importantly then figure out how to live up to it. Now, yours will be different from mine, and that’ll be different from our spouses or our kids, but I suspect most of us would want our obituary to say you were respected. You were admired. You were helpful. You were a good parent. You were a good spouse. You’re a caring friend. You were an asset to your community. You made a contribution to your industry. You’re wise, your funny, smart. [inaudible 00:41:22] to pay attention to what I didn’t list there. Virtually no one in this exercise would think about their obituary mentioning how much horsepower their car has or how many square feet their home is, or how much they spend on jewelry and clothes.

It’s kind of a sobering thought. You look at how much time we spend on things that, at the end of the day, don’t matter, but it’s easy to get distracted, isn’t it? My encouragement for you is to live your life with this in mind. Spend your time and energy and your money and use those resources to augment the aspects of your life that will, in fact, actually matter once you’re gone. It’s really easy to get caught up in the material and in the temporal. I’m so guilty of this. It’s embarrassing sometimes to even think about. But what a worthwhile pursuit to emphasize the lasting while we still have time to write our own obituary. And remember, we are the wealthiest society in the history of planet Earth. Let’s make our money matter.

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

Disclaimer: The 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 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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