June, 2021 | Live a Life By Design

The Secret To Investment Success

Posted on June 25, 2021June 25, 2021 by Jimmy J. Williams, CPA/PFS, CFP®

The most negative action to reaching your goals in investing your retirement assets is emotion. Markets, by their very nature, expand and contract in every cycle. Why is it important to state the obvious? When humans invest, two emotions play a part. For example, when the market indexes are setting new records for growth, investors tend to become greedy. As soon as the expansion has cycled down and contraction in the economy is prevalent, fear becomes the emotion of the day.

To control your emotions while investing for your future, it is critical that you understand three factors about the process. First, if you are investing for your retirement, you must acknowledge the process is a long-term perspective. The assets you accumulate in life must sustain for at least thirty to forty years in retirement. With this mindset, you establish a personal investment policy that helps you capture market gains with a minimal amount of risk that you are willing to accept.

By focusing on the term of your income needs in retirement, you can weather the, somewhat volatile, market cycles without excess worry. Let’s face it, everybody worries about something, right? When you initiate your savings plan during your career, the accumulation phase consists of thirty to forty years as well. What this means is that the same approach to investing for your retirement will serve you well in retirement!

The second negative to reaching investment success is continually changing your investments based on returns. There have been many occasions in which an investor has irreparably harmed their success for retirement by simply trading their account excessively. For example, we developed a plan for accumulating a client’s retirement assets. Based on the age of the person, his risk tolerance and projected cash flow needs in retirement, he only had to follow through on the plan. However, he allowed emotion to overtake him when a colleague appeared in his office one day and remarked about the excessively high returns, he was experiencing in his employer’s retirement plan.

Our client decided the well-planned approach founded in logic was not meeting his needs because the markets would yield a much higher return. This is the emotion of greed taking control of the investment process. Within a year, the market cycle collapsed, and his portfolio had fallen by 50%. Imagine the next meeting we held with him and provided a comparison of his current allocation and results to that of the original allocation for his future. He was devastated and an emotional wreck!

The story does have a silver lining. We worked with him to formulate a plan that would place him back on track but required he work three years longer than he originally planned. Allowing your mind to host greed and fear has consequences. The probability of his lifetime plan for retirement being a success is very good.

Of the three negatives that can cause significant harm to your investment success is a concentration of investments. Diversification of risks within a portfolio helps you weather the market cycles by eliminating, or attempting to reduce, the impact of significant market volatility. In recent years, daily market swings have become the rule not the exception. Early in my career, I recall substantial swings in the S&P 500 Index would only be 10 or 15 points. In our current economic conditions, it is not uncommon to see fluctuations of 30 to 40 points in the index.

To allow yourself the highest probability of success in your investments, it is critical that you avoid emotions serving as guiding force, stick with your plan for saving and consistency will help you achieve your goals and diversify your portfolio to capture opportunities for reasonable returns in the long-term. A few small errors in investing can give rise to very large costs in your future savings. Seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional to help you establish a long-term plan that will give you confidence and clarity about your future. Until then, I’ll see you on the jogging trail!

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Can the IRS Do That?

Posted on June 17, 2021 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most powerful data collectors in the United States is an agency named the Internal Revenue Service (or as often referred to as the “IRS”). As an agency under the U.S. Treasury, the IRS has tremendous power to collect data and assets of the citizens and expatriates of our country.

To help combat unreported income, the IRS requires banks, financial institutions and other organizations, to report cash transactions of more than $10,000 to the agency. This report is titled a “Currency Transaction Report” or CTR which is tracked by taxpayer to compare with the person’s tax filing for the year. Many industries continue to utilize currency and coins as a means of transacting business. For example, car washes, vending machine operators, dry cleaners, restaurants, etc. allow their customers to utilize cash as a means of payment.

Recently, the U.S. Secretary of the Treasury, Janet Yellen, proposed the limit on tracking cash transactions be lowered to $600 per transaction. This would be a significant imposition on the financial institutions reporting the activity as well as an intrusion into the privacy of most, if not all, U.S citizens.

Consequently, a CTR may be reported if you had a series of cash transactions with your financial institution in which the total was at least $10,000. For example, let’s assume you deposited $7,500 of a larger sum of moneys, in cash in your checking account on Monday at 10:00 A.M. You retained additional sums of cash for groceries, clothing and other necessities of life. However, later that evening you realize you do not need the full amount of the remaining cash and deposit $2,500 of excess cash in your checking account on Tuesday at 10:00 A.M. This series of cash transactions would be collapsed and reported as a CTR to the IRS due to the total reaching $10,000 within a short period of time.

Another industry that is not a financial institution but is required to report cash transactions is gaming. Let us assume you are the lucky winner of a slot machine payout of $10,000. The casino management is required to collect your personal information and report the winnings to the IRS. This can occur if you are cashing in your tokens, purchasing or redeeming chips, acceptance of wager winnings, etc.

Once you file your annual tax return, the IRS computer system compares the income reported on your return to that referred to the agency by payers (i.e., employers, casinos, banks, investment custodians, etc.). If the income reported on your return is greater than the amounts referred to the IRS, most likely your return will be approved and processed without delay. However, lets assume you inadvertently failed to report a small information return in the amount of $100. The IRS will perform its comparison and send you a letter asking for explanation. Should you be unable to explain the discrepancy with adequate documentation, you will be sent a bill for the computed balance you owe the federal government.

With the storage of tremendous and sensitive personal data, the IRS must safeguard its information collected on the citizens. Privacy is paramount for the IRS. However, this charge of privacy of citizens’ personal data was breached last week. A disgruntled employee of the IRS unlawfully disclosed to the world the income tax returns of Jeff Bezos, Warren Buffett and other uber-wealthy citizens. One of the most sacred filings of a person is their income tax return. This annual filing requires disclosure of some of the most private information, which would equip someone with the tools necessary to steal your identity and ruin your credit.

The best method of protecting your privacy is to review your credit report periodically. Do not provide your Social Security Number, date of birth or other identity information to individuals on the phone. Many scams are carried out on unsuspecting individuals and the scammers win handsomely! The IRS or Social Security Administration will not call you to demand money without sending a letter to you before they call. Do not fall for scams that insist your grandchild is going to be placed in jail if you do not send money for his/her bail to the scammer on the phone. Do not laugh, this happened, and many elderly citizens lost significant monies.

Filing tax returns, and paying the least amount that you lawfully owe, is a responsibility of citizens of the United States. If you have questions about someone seeking your personal information, err on the side of caution. Seek out a CERTIFIED FINANCIAL PLANNER™ and Certified Public Accountant to help guide you through the maze of tax compliance. See you on the golf course!

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Timeline To Retirement

Posted on June 10, 2021June 10, 2021 by Jimmy J. Williams, CPA/PFS, CFP®

When making lifetime decisions it is critical that adequate time and consideration be given to the issue. Life has a way of paying us dividends based on the planning for events that we wish to occur. By reading this article, you will be more prepared to reach your desired results in life.

First, think about the desired outcome you seek. If you decide to retire, at some point in the future, it is integral to the level of success of this goal to plan accordingly. By initiating this process of systematic saving in your 20’s, the probability of success is higher than if you wait until you are age 60 to begin.

We highly recommend that anyone planning to retire, in the next five years, give significant thought and planning to the design of this period of life. For example, will you travel, buy a second home, make substantial gifts to grandchildren or charity? These are worthy endeavors. However, to reach your goal you must plan for these expenditures.

Second, review your lifestyle needs. Oh, I didn’t define the difference between a need and a want. These two types of lifestyle goals are very different. Our brains are wired for gratification. I call this the “monkey” brain. We can’t seem to keep this “brain” focused on the important tasks in life because we are battling an insatiable hunger for fun and immediate responses. So many people have been trapped in poorly experienced retirements because of this phenomenon.

To plan for long-term results that provide for your needs and wants, you must engage your “sage” brain which is the thought process that makes humans unique from animals. Your “sage” brain says, “When I start my first job, I will save 10% of my net earnings for my future.” The battle starts and “monkey” brain sees every toy that you have ever wished for and couldn’t afford. “Don’t worry about the future, live for today,” says “monkey” brain. You must be focused in the early years of life to create a future that is substantial.

Lastly, start today planning for your future. If you wish to live a life by design, it takes planning and soul searching. Retirement is a phase of life than can be tremendously enjoyable when planned accordingly. Seek out a CERTIFIED FINANCIAL PLANNER^® to help you create your dream for the future. You will be glad you did!

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Millennial Perspective: Steps to Protect Your Financial Health

Posted on June 3, 2021June 3, 2021 by Ashley Stieb

Way, way back at the beginning of the Common Era, Epictetus offered some advice that remains relevant today:

“It’s not what happens to you, but how you react to it that matters.”

In 2020, a lot changed – and Millennials are reacting. We’re adapting to pandemic conditions, hoping for economic improvement, positioning for financial market uncertainty, and coping with a lot of stress from the unknown.

One way to address stress is to take positive action by conducting a year-end review of your financial plan. That may not sound like it will reduce your stress but taking control of something you can control may really help. You’ll be able to start the next year with confidence, knowing exactly what you need to do to protect your financial health today and tomorrow.

These three steps can help you get started

1. Assess your work and income situation

Coronavirus has rapidly changed the business landscape. Some companies are at a standstill while others are busier than ever. Last year, Gartner Research reported:

“Dramatic changes in customer demand are putting organizations under huge stress: Sharp declines in demand present serious financial challenges to many businesses, while those facing demand surges and resource shortage risk disappointing and disengaging customers.”

Think about your industry and your company. Will coronavirus have a short- or longer-term impact? How could your income be affected? If it could be affected, are there steps you need take to reduce income risk? What are they?

2. Review your spending and expenses

There is never a bad time to review spending and expenses. This allows you to make sure your spending plan is working for you and is ready for the future. If your income will be significantly different in the near future, your spending plan may change.

Typically, a spending plan keeps spending and saving aligned with income. If your income will be lower in the future, you may need to reduce the amount you spend and save. If your income increases, you may be able to increase the amount you spend and save.

If you cannot find a way to align income and spending, talking to a CERTIFIED FINANCIAL PLANNER™ may be a helpful option. They should be able to review your spending and expenses from a professional standpoint to help you set the best course of action.

3. Evaluate your financial plans

It’s important to review your current financial plan to see whether and how progress toward your financial goals will be affected by changes in spending and saving. Sometimes, looking at current spending and saving decisions through the lens of your financial goals can help you decide how to modify your plans.

For instance, when income falls, some people choose to save less, knowing it will push their financial goals further into the future. Others decide to spend less so they stay on track to reach their goals. Often, people decide on a combination of reduced spending and reduced saving. The choices you make will depend on your circumstances.

2020, and 2021 so far, have been years for the record books, often in unwelcome ways. The way you react to what has happened may significantly affect your financial health and well-being over the short-term and your ability to reach your financial goals over the long-term. Do not be afraid to seek help from a CERTIFIED FINANCIAL PLANNER™ to better understand what your financial health looks like.