Bill blog 2-15In my column this month, I remind readers to get their fair share of the market and then move on. When your energy is focused on one specific hot stock, you miss the whole point of passive investing as discussed in my book, The Coffeehouse Investor. You miss out on the things you should be focused on – getting on with your life.

Published 20 years ago, the Coffeehouse principles still ring true.

“When you accept that your common stock portfolio will do no better or worse than the broad indices tracked, you are putting the pursuit of performance in its place.”


Retirement

When we meet with clients who are approaching retirement, we always discuss the next chapter. Ensuring a client is financially prepared for retirement is one thing, but what’s often ignored is the mental preparation required for retirement. It can be an alarming adjustment when the working life abruptly stops.

Have you penciled out how you intend to spend your time and energy during retirement? Take this quiz to give you some insight on where your attention should be directed.

As you carefully build long-term financial plans, you need to consider your own personal retirement plans. Hopefully, these plans encourage you to continue growing and pursuing dreams, even after the day job ends.


A few important takeaways from the new tax bill signed into law include:

  • With the increase in the standard deduction ($12,000 for individuals and $24,000 for married filing joint), the limitation on the deduction for real estate and state income taxes ($10,000 per year), and the elimination of certain miscellaneous itemized deductions, fewer people will itemize, and instead choose to take the standard deduction.
  • Individuals with little or no mortgage interest will most likely take the standard deduction unless they have substantial charitable contributions or medical expenses.
  • Going forward, if individuals don’t generally itemize and they wish to maximize the deduction for charitable contributions, it may make sense to bundle dome1several years of contributions into one year or fund a donor-advised fund.
  • If you are over age 70 ½, it becomes even more beneficial to make charitable contributions directly to your charity from your IRA. These contributions, which are limited to $100,000 per year, are not reflected in your income and also satisfy the required minimum distribution (RMD) requirement.
  • You can now distribute up to $10,000 per year from a 529 education plan for K-12 expenses. This should be considered in your long-term education plan, if applicable. In addition, this could be another way for grandparents to help save and pay for their grandchildren’s education.
  • (Applicable to Washington) Though the Federal Estate Tax exemption has been doubled, it is still important to remember that Washington State’s estate tax has an exemption of $2,193,000 (2018) per person. Even if you are under the federal exemption, estate planning is still important if you are in the range of the Washington State estate tax.

Working with a tax professional or financial advisor can help you work through many of these new details. If you want to invest in a more tax-efficient manner or build your long-term financial plan, let’s connect.


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:

REDUCE OR DELAY INCOME:money plant

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:

  1. 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.
  2. 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:

  1. 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.
  2. 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.
  3. 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.
  4. Maximize your Health Savings Account (HSA) contributions. The individual contribution rate is $3,400 and the family contribution rate is $6,750 for 2017.
  5. 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.

  1. Maximize IRA contributions. Even if the contributions aren’t deductible, the growth would be tax-deferred.
  2. 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.
  3. 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.

Pie recipe2


BS blog 10-11

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.


BS blogIn 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?


CH - Einstein quote
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.


Happiness

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.

 


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The Coffeehouse Investor

How to Build Wealth, Ignore Wall Street & Get On With Your life by Bill Schultheis

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