With the new year fast approaching, it’s time to purge, cleanse, and refocus on what’s important. The same goes for your finances. Take this time of year to simplify finances, rebalance your portfolio if necessary, and revisit your long-term financial plan. Are you on track to accomplish your goals? Here’s a great list to get you started.
Don’t forget to do a little housekeeping and verify security measures, update passwords, and order your free credit report. If you were involved in the Equifax security breach, make sure you took all necessary steps to secure your personal information.
Organizing the minutia and creating financial clarity for yourself will provide peace of mind to enjoy 2018 and beyond. Happy New Year!
Still looking for the perfect give for your favorite investor? The Coffeehouse Investor book provides a wealth of advice on investing in a tax-efficient manner, the importance of creating a financial plan, and how to get on with your life while ignoring Wall Street. Bill’s quick wit and simple strategies are perfect for the beginning investor or the “expert” who continues to try and beat the market.
Besides sharing a wealth of knowledge on investing and the markets, Bill includes stories about summiting mountains, growing up on a wheat farm on the Washington Palouse, and his infamous pumpkin pie recipe to savor your taste buds.
Give the gift of common sense investing this year, you won’t regret it.
With the year-end approaching, it is always wise to consider a few tax planning opportunities. Some of these strategies may be affected by upcoming potential tax changes with the current administration. However, the basic tenants of tax planning still apply no matter what happens. These include:
Regardless of what tax bracket you are in, it generally is beneficial to reduce your income or defer to another year. This may be especially true if tax rates go down next year. Some strategies to consider include:
- Delaying or deferring income to another year if it is possible and prudent. You will want to talk with your CPA to make sure this is a viable option in your situation.
- If you are 70 ½ or older, you can contribute up to $100,000 directly from your IRA to a qualified charity. This avoids taxation of the income on the distribution and is the most tax efficient way to fund charitable assets from IRA funds.
MAXIMIZE YOUR DEDUCTIONS:
- Maximize charitable contributions. Also, consider gifting long-term appreciated stock or mutual funds to a charity. You avoid the capital gains on the stock and receive a deduction against your ordinary income.
- Sell stocks or mutual funds that are in a loss position. You can offset the loss against other capital gains or capital gain dividends. Any losses in excess of capital gains are deductible against your ordinary income up to $3,000.
- Maximize your retirement contributions. The maximum 401(k) deferral is $18,000, or $24,000 if you are 50 years old or older. If you own a business, consider all retirement plan options since some can provide greater contributions than others.
- Maximize your Health Savings Account (HSA) contributions. The individual contribution rate is $3,400 and the family contribution rate is $6,750 for 2017.
- Keep track of your additional sales tax on home additions and car purchases. If you have made large ticket purchases during the year, you may be able to get an additional deduction on your tax return.
OTHER PLANNING OPPORTUNITIES:
These strategies don’t necessarily result in a deduction, but they do provide tax-free or tax-deferred savings options.
- Maximize IRA contributions. Even if the contributions aren’t deductible, the growth would be tax-deferred.
- Consider a backdoor Roth IRA. If your income is too high to directly fund a Roth IRA, you still may be able to contribute through a backdoor Roth IRA.
- Fund your child’s Roth IRA. If they have earned income, you can fund a Roth IRA up to their earned income or $5,500, whichever is less. This is a great way to save money on a tax-free basis and start your children on a long-term investment plan.
With any investment plan, having a long-term financial plan that encompasses a tax-efficient approach is the best method. Sticking to that financial plan is then your next best move.
Securing adequate Medicare coverage can be a challenge. Here are three tips to consider in securing a cost-effective plan for you.
As health expenses rise, paying attention to your health as you age is more important than ever. Review “Keep your body tuned up and your mind tuned in.” Simple stuff, to be sure, but aging well means addressing the basics of eating, sleeping, socializing, exercising, as Tara Parker Pope points out in this thought-filled article.
We are huge fans of compounding here at the Coffeehouse – it’s the gift that keeps on giving. During Thanksgiving, we discuss the best part of the “investment pie” and the advantages of holding your investments over the long haul.
Individuals who spend time selling stocks and mutual funds that go up in price are missing out on the largest piece of the money pie because they don’t give their investments a chance to sit there and do what they supposed to do – compound. There are two great examples in the Coffeehouse book on the power of reinvesting dividends over time. In the first example, 60% of the profit increase is due to compounding! Why would you ignore a piece of the pie like that?
Speaking of pie, we also enjoy eating a great pie. We want to share Bill’s pumpkin pie recipe from the book, enjoy! From our family to yours, Happy Thanksgiving.
In his latest column, Bill Schultheis challenges investors to focus not on sectors and stocks but rather, on personal inflation rates, asset allocations, and saving and spending. He reminds readers that focusing on financial planning decisions that can be controlled, will actually determine whether financial goals are reached in the end.
In my latest column, I discuss the popularity of index funds and the advantages these funds can bring to a portfolio. If you follow the Coffeehouse Investor or believe in its three principles of investing, none of this is new to you. However, the theory isn’t just about index funds. I elaborate in my column, “…index funds are not some magical investing tool that will make your life any easier in addressing the important components of your financial plan. Heck, I could invest in a low-cost, low-turnover, actively managed fund and basically expect the same results as an index fund over the next 20 years.
The elusive, magical investing tool can only be found in you, in your ability to sock away enough money to reach your retirement goal, in your ability to live within your means throughout retirement, and in your capacity to stay committed to your investments during the next bear market when financial pundits are predicting an end to the world.”
I started this Coffeehouse journey over 20 years ago to make a difference in investors’ lives. Coffeehouse Investors recognize that their portfolios are not measuring sticks for self-worth, but simply a resource that accentuates who they already are in relation to their families, friends, co-workers and communities.
Have you found your magic investing tool yet?
We spend most of our lives saving money. Like a squirrel storing acorns, we devote our working career to saving money in buckets with silly names like 401K, 403b, Roth, and IRA. We become so good at saving that when the time comes to start spending these buckets of money, we freeze. This Wall Street Journal article depicts what we see frequently when we meet with clients for the first time.
As an investor, you have to reverse your thinking and allow yourself permission to start spending. However, without a solid financial roadmap that leads you to the end of life, knowing how much to spend and a proper withdrawal rate can become difficult to discern.
Build out your financial plan to the very end, employ professional expertise if necessary, and enjoy your retirement. You have earned it.
There is an entire chapter devoted to compounding in THE COFFEEHOUSE INVESTOR book. We talk A LOT about this simple fantastic perk to saving money. However millions of investors miss out on this concept because they do not allow their investments a chance to sit and compound.
In the book, a $10,000 investment is given as an example of what can happen when you let your investments compound over a 20-year period… a $386,140.00 gain! This $10,000 investment is a large-scale example but let’s simplify this down to our everyday life choices. Vanguard breaks down a cup of coffee and what can happen if you miss out on compounding frivolous expenses over a 30-year period.
The point is not to focus on the daily minutiae but rather, see the big picture of investing as a whole. Don’t miss out on simple concepts like compounding.
When we sit down with folks to discuss investment strategies and financial plans, we don’t analyze Monte Carlo methods or evaluate standard deviations. We ask questions about their lives, their families, and goals for the future. What activities do they enjoy doing, what kind of legacy do they want to leave behind, what are their current financial concerns? We focus on people and their everyday lives.
Jonathan Clements shares a list of his greatest pleasures and derives one common denominator – a person doesn’t need to be wealthy to enjoy these things. We tend to agree. The Coffeehouse Investor book is full of enjoyable experiences including hiking, camping, and baking pies. Our day-to-day routines should be full of small joys, that over the course of a lifetime, create self-fulfillment and happiness.
What is on your greatest pleasures list? Do you know? If you don’t, it’s time to create your own list and start living a life full of joy and leave the Monte Carlos behind.