Jimmy J. Williams, CPA/PFS, CFP® | Live a Life By Design

Change Your Philosophy About Money and Change Your Life

Posted on December 18, 2020December 18, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the greatest powers of wealth is your philosophy toward money. This year has been a challenge to many of us and you may have not met your savings goal or some other type of goal. However, our philosophy of life doesn’t change whichever way the wind blows economically or otherwise.

Think about your deepest convictions about life – personal, professional, marital, charitable, etc. Most likely these deeply rooted philosophical beliefs came from someone in your family or a close friend or an author of a book you read. My beliefs about money came to me early in life from my parents and, surprisingly perhaps, Jim Rohn and Zig Ziglar. Philosophy is what keeps you grounded during times like this that we are currently experiencing.

One of the greatest habits you can foster is the creation and continuance of your philosophy of money. Too many of us are chasing wealth and overlooking diamonds on the way. What I am referring to is the fact that money doesn’t define us in life but rather it affords us the opportunities we receive and the freedoms to enjoy them. Let’s analyze the thoughts of the billionaires of the United States, a very small group, and attempt to understand their philosophy about wealth. Wealthy individuals view money in long-term time horizons. There are no “get rich quick” schemes to lasting wealth. By diligently and consistently working toward their goals for success every day, the billionaires of our country amass great fortunes that last far beyond their lifetimes.

Another philosophy upheld by billionaires is their optimistic attitude. Do you believe that positive people attract opportunities? It certainly does! By maintaining an attitude of positivity and optimism, the people you meet during your day will notice your demeanor and reward you with a smile or kind gesture in return. This is another means of billionaires discovering the next great investment that will continue to grow their wealth.

The philosophy of “pay yourself first” is evidenced by the lifestyles of the ultra-rich. This approach to life is to invest your money toward your long-term goals first and then use the remainder for your current lifestyle. The key to balancing this philosophy is to clearly articulate and write down your goals. By focusing on the bigger future, you will not frivolously waste your resources today. One method you can demonstrate this philosophy is your current retirement account. Instead of instant gratification for a new vehicle or boat, be deliberate about funding your future and save for the asset you desire. To illustrate the opposite of this philosophy, many people will utilize debt to purchase their “toys” and when retirement or an emergency arises, they are ill prepared and sink further into debt.

Lastly, money is nothing more than a ticket to freedom. Your choices that are availed to you through your preparedness for life are considerable. Think about your freedom of choosing a place to live, the freedom to choose the type of car you drive, the freedom to support the charity you believe is making a difference, etc. These freedoms are critical to the state of happiness you enjoy in life.

During my speeches across the United States, I often state, “Money has never purchased happiness but it can lease joy on a long-term basis”. I am amazed this statement continues to confuse people by its simple inference. It’s Christmas and time to think about your goals for 2021. Give some thought to changing your philosophy about money and life. The rewards you will gain are impactful and world-changing. If you wish to learn more about goal setting and other philosophical approaches to life and money, go to www.compasscapitalmgt.com.

Wishing each of you a wonderful Christmas and a Happy New Year!

Note: The “Invest in Yourself” column will not be published for the next two weeks. We will resume publication the week of January 4, 2021.)

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Last-Minute Strategies To Lower Your Taxes

Posted on December 11, 2020December 11, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

It’s that time of year when the sand has almost passed to the bottom of the hourglass. Most individual taxpayers are calendar-year filers which means that many opportunities to reduce your 2020 income tax bill will lapse after midnight on December 31, 2020. To help you achieve your goal of paying the least amount of income tax as possible, you may want to consider some simple, yet effective strategies

Taxes for personal property and real estate may be deducted on your individual income tax return if you elect to itemize for 2020. If you own property, you will have received a notice of taxes due on the property from the previous assessment by the County Assessor’s Office. You may wish to pay the full amount of taxes every other year to “bunch” up the deduction allowing you to accumulate deductible expenses in excess of the standard deduction.

Income taxes paid to state and local governments are included in your itemized deductions. If you are self-employed, or receive income from sources that do not withhold taxes for you, you may be required to remit income taxes on a quarterly voucher. Typically, your fourth and final state income payment for 2020 is due on January 15, 2021. However, you may elect to remit payments in December to the state and local governments and claim the expense in 2020. The Tax Cuts and Jobs Act of 2017 limited the amount of state and local income taxes for deduction to $10,000.

Charitable contributions to qualified charities will increase your itemized deductions for 2020. Consider those charities that you typically support and be generous this year. As long as the charity is a qualified exempt organization and you remit payment before December 31, you should be allowed to include the deduction on your return. Don’t forget that you should request a receipt to document your charitable intent and the receipt of the payment by the organization.

Have you thought about cleaning out your closet or gifting your old car to a worthwhile charity? Good news! You may qualify for an in-kind donation. Additional rules and requirements must be followed to document the deduction but you will have helped a great cause and your closet or garage may look better, too.

Another easy method of lowering your tax bill is to defer any income that is possible. If you are self-employed, you may delay your billing for services until January, 2021 and, thereby, deferring payment to be earned income until the next tax year.

Remember in 2020 that personal exemptions are no longer allowed. Instead, a much larger standard deduction is availed to individuals and married filing joint taxpayers of $12,400 and $24,800, respectively. If you are a single parent with a child in your household, you may qualify for a little larger standard deduction of $18,650.

The key to tax reduction is to be proactive. Don’t procrastinate on this important task. By spending a few minutes planning, you may significantly reduce your tax bill for 2020. One statement we share with our clients is that “you should always seek to pay the least amount of income tax you legally owe”.

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Gifts, Charitable Donations and Taxes

Posted on December 7, 2020December 7, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

It is the time of year that we think of others. By “others” I am referring to our favorite charities, loved ones and the IRS. Sounds interesting to place the IRS in the same sentence as charities and love ones, doesn’t it? I offer that this particular government agency should always be a part of any discussion for gifts and donations.

Many people confuse the requirements that qualify charitable donations for deductibility purposes. A particular section of the Internal Revenue Code specifies the types of recipients (donees) that qualify for charitable deduction. Typically, a contribution to your local church may qualify for a charitable deduction in the year it was given. This means that you can generally contribute to your church’s building fund or other designated use funds for your church and claim the contribution on your individual income tax return for the year. Substantiation should be received from the charitable organization, in written form, that discloses the date of receipt of the gift, the amount received as a gift (unless it is other than a check or cash which would require the donor to assign a reasonable fair market value), the name and address of the charitable organization and a statement as to no services or goods given to the donor for the donation.

Unique for most taxpayers, that do not itemize deductions on their individual returns, the tax law changes signed by President Trump in March, 2020, allows for a deduction of $300 of charitable deductions for cash contributions to qualified charities. This deduction is claimed “above the line” which will lower the adjusted gross income of the filer resulting in lowered taxes owed. Highly recommend everyone to take advantage of this opportunity to help qualified charities during this difficult pandemic.

You may not realize but your Christmas gifts to loved ones actually fall within the requirements for reporting purposes to the IRS. You guessed it – gift taxes may apply! Talk about Scrooge, right? Consequently, the IRS wishes to know of any transfers of property for less than full value to another party to determine the amount of gift given to the party. Good news is that the IRS doesn’t require that you report the clothing, toys or other gifts given to your children if the total given for the year is less than $15,000 per donee for 2020.

If you add up all of your gifts to Cousin Eddie, a reference to one of my favorite Christmas movies, and the amount is greater than $15,000 for 2020, you will need to consult with your tax advisor as to the filing of a gift tax return by April 15, 2021. Although a gift tax return may need to be filed, you will, generally, not remit any tax due to a unified gift and estate tax exemption of $11,580,000 per person. So, be generous this year!

Individuals are typically calendar-year taxpayers. This means that you lose some opportunities to lower your 2020 income taxes after December 31, 2020. It is critical that you review your current tax deductions for 2020 and accumulate those needed receipts to provide your tax preparer. Be proactive this year and contact your tax preparer now to book your appointment for receiving tax preparation services.

Lastly, remember those that have suffered during the pandemic. Families in our community may have little to enjoy the basic living needs of life much less Christmas with their loved ones. Disregard the IRS for a moment and let’s focus on our community. Reach out to families that may need a hand up, not a hand out, this Christmas Season. Put some joy in your life by giving to those in need.

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Do You Qualify For A Penalty-Free Distribution From Your IRA?

Posted on November 20, 2020November 20, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Many people possess an Individual Retirement Account (IRA) or employer plan that holds assets for their future financial security. Due to the substantial economic impact caused by the coronavirus, the IRS provided relief to individuals in the form of more liberalized distribution options for these types of accounts.

However, the misunderstanding of many citizens is that anyone under the age 59½ can take a distribution from their IRA without incurring the typical 10% additional tax (or penalty) for premature withdrawals. This misunderstanding could cost you a significant amount of money, including additional penalty and interest, if you fail to pay the correct amount of tax on the distribution.

To qualify for relief from the premature distribution penalty, you must be a “qualified” individual as defined in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020. A qualified individual is one that has met one of the following criteria:

You have been diagnosed with COVID-19 or SARS-CoV-2 by a test approved by the Centers for Disease Control and Prevention (CDC);
Your spouse or dependent is diagnosed with one of the above viruses;
You suffered adverse financial consequences as a result of being quarantined, furloughed, laid off or had work hours substantially reduced due to the pandemic;
You have been unable to work caused by a lack of childcare due to the pandemic; or
You suffered adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to the pandemic.

As an individual with evidence of one of the criteria applying to your situation, and the proof would be required of you, the 10% additional tax on early distribution would not apply. However, federal and state income taxes would apply in this instance. Relief is provided by the IRS in the payment of the income tax due on the distribution by reporting one-third of the income on your individual return over a three-year period beginning with 2020 or the year you receive your distribution. For example, if you requested and received a $12,000 distribution from your IRA, you may include $4,000 of the distribution in each of the next three tax returns filed beginning with your 2020 return. Of course, if you wish to report the entire distribution in the year of receipt, you may do so and pay the total amount of tax due.

Lastly, what happens if you decide to return or repay the distribution to your account? Additional relief is provided in this instance. If you have reported one-third of the distribution on your tax return for 2020 and 2021 but decide to return the funds to your IRA in 2022, you may file an amended income tax return for 2020 and 2021 to receive your refund of taxes paid in these years associated with the pandemic relief. The repayment of the funds would be treated as if they were repaid in a direct trustee-to-trustee transfer and no federal income tax would be due on the distribution.

In most cases, the perception of relief is far different than its actual purpose. Too many people hoped that a carte blanche relief approach would be offered and anyone, for any reason, could take a penalty-free distribution and that would be the end of the matter. Our tax code is not an area of law that is easily amended or comprehensive enough in its nature that revenue generation may be left out of the analysis.

Tax law is not simple to understand. To help your family and you make sense of these complex laws and regulations, seek out the advice of a CERTIFIED FINANCIAL PLANNER™ professional for an analysis and planning meeting to reduce your tax burden. Judge Learned Hand remarked, “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that platform which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Now, that alone should help you enjoy a Happy Thanksgiving!

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Choosing the Proper Benchmark

Posted on November 13, 2020November 13, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

What a difference a week makes in the stock market! I thought we were in a pandemic. The lessons to learn from the current economic cycle are: 1) Markets don’t function with emotional bias based on the current state of the population; and 2) You shouldn’t try to time the markets based on “one-off” instances of change in the governance of our country.

Too many offerings of unfiltered and unverified reporting of market trends, expected apocalyptic tax changes and, overall chaos, fail to consider the market makers and buyers of large numbers of trading shares who do not make decisions based on a whim. You should approach your long-term investing strategy in the same manner. Make sound decisions based on facts and evidence while clearly focusing on your future needs.

How do you know if your portfolio is performing well? One method we recommend is the use of a proxy benchmark. There are many indices to choose from, but the proper application is to utilize a benchmark that meets your ideal portfolio allocation. If you are investing your retirement savings in a 60/40 equity to bonds allocation, you will not want to use the Standard & Poor’s 500 Index (S&P 500) as the lone index. Instead you may wish to use a blended index that provides for consideration of bond performance in the same percentage as your portfolio.

Let us explore how benchmarks are constructed so that you will understand their application to your planning process. For example, the S&P 500 Index is a market-capitalization weighted index of the 500 largest U.S. publicly traded companies. This means that the companies within the index are weighted based on their market capitalization and shares traded. Another common benchmark is the Dow Jones Industrial Average (DJIA) which is a price-weighted index. To understand how the DJIA is weighted, think about the individual share prices of the thirty (30) companies included in the index and the higher priced stocks receive a greater share, or weight, of the allocation to the index. By using daily share prices, the index seeks to account for stock splits, dividends paid or corporate divestitures (spinoffs) in its performance reporting.

When reviewing the performance of an asset class such as bonds, within your portfolio, consider a broad-based benchmark such as the Barclays U.S. Aggregate Bond Index (Barclays Agg). This benchmark index includes the entire universe of domestic, investment-grade, fixed-income securities traded in the United States. As a broad index including government securities, mortgage-backed securities, asset-backed securities, and corporate securities, it serves as an appropriate comparison to well-diversified bond portfolios.

There is a great deal of expertise, time and knowledge required to invest in markets. If you are concerned about the performance of your retirement assets, seek out a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™ professional. You may be glad you did. See you on the golf course!

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The Habit of Saving

Posted on November 5, 2020November 5, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most difficult habits to instill is saving. In this time we are living, too many of us want to experience a lifestyle that our current income cannot maintain while saving for our future. Before we realize it, our future is the present and we are in a bind. Forced working past the age of retirement that you would have desired to initiate your travel plans and other activities will not make you happy.

While reflecting on my younger days, I remember a couple of lessons learned about saving for the future. My goals were not lofty as a child except for the area of sports equipment. With limited means, my siblings and I purchased our own sports equipment if we wanted something beyond my parents’ budgeted funds for sports. This is where my saving habit came into existence. One of the most important lessons you can learn early in life is the habit of saving. Every child should be taught this valuable habit before graduating grade school.

During my childhood, I saved depending upon the item needed in life. For example, I needed a new baseball glove because George Brett of the Kansas City Royals said so and he was a Hall of Fame Player. (Well it wasn’t only that fact but I also liked the Wilson A2000 glove and how it looked on my left hand.). My parents took me to the sporting goods store and we looked at the gloves. There it was on the rack in front of me – the baseball equipment that would make me a Golden Glove Award winner!

I was smiling ear-to-ear until the salesman told me the price of the glove, $125. Ouch! I had saved $35 and thought it would get me a glove used by the great third baseman, George Brett. Lesson #1: The investment required for worthwhile items may cost more than you originally thought.

So, I went to work saving the remaining funds needed to buy the glove. To insure that the glove would not be sold when I returned, the salesman placed the glove in layaway for me. For the next several weeks, I would bring a payment to the store to be applied to the glove. After six weeks, I was in the store and smiling with a Cheshire Cat grin. I could take my glove home today!

This is where I learned my Lesson #2: Things don’t make you a better ball player, practice does. My new glove was my pride and joy. My abilities to play 3^rd base did not immediately improve and I will a little disappointed with myself.

The moral of this story is that you may want to examine why you want something and allow time to pass before you buy on an impulse. Saving for your future should be a habit that we develop early in life. You will find that you are less stressed in life, prepared for inconvenient hardships that arise and are more prepared to take advantage of future opportunities. The great investor, Warren Buffett, began his savings habit while a little boy. This habit helped him become one of the wealthiest people in the world. I am not saying we will all be as rich as Warren Buffett but I am saying you may enjoy a pretty good lifestyle.

If you need help finding a strategy for saving that creates your bigger future, seek out a CERTIFIED FINANCIAL PLANNER professional. This is one habit that will serve you well in life. See you on the golf course!

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The One Secret to Retiring Successfully

Posted on October 16, 2020October 16, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

We are asked many questions about the strategies to retirement and enjoyment of life. This article will reveal the secret success criteria that many of our clients have implemented over the past 20 years to change their lives. Let’s think about the word “retirement” for a moment. Too often the word has negative connotations to individuals who are ill prepared for the next phase of life. Others see the word as an opportunity to begin a new hobby, career or volunteer service life. What is your understanding of the word “retirement”?

Most of our challenges in life give us opportunities to exercise our philosophy toward the pending decision. There are many inclinations to a decision and the result you choose may have life-altering consequences. Wouldn’t you want to tip the scales of success in your favor on this type of decision? Of course! If you were to find a method of decision-making that supported greater probabilities of success, you would use that method for all decisions.

Sadly, immediate wisdom is not bestowed on us humans. No, we learn by the old-fashioned method of trial and error. However, if you were to seek out someone to assist in your resolution process that had experience and specialized training in the area of retirement planning, you could attribute that person’s wisdom as your own.

The one secret to retiring successfully is to change your philosophy of life. I know this sounds like an indomitable task, but it does not have to be. For example, there are, at least, two options for every decision in life – positive and negative. You could think like some people that hate to pay income taxes. However, when I frame it in the context of what their income had brought them in terms of life, family, charity and other aspects of their choosing, they quickly see the difference in philosophy I hold toward paying taxes. Am I saying you should throw a party because you pay a significant amount of taxes to the government? Sure, if you want. Hey, this is America! Do what you wish with you own time, talent and treasure.

Your philosophy toward investing for your future requires that you look through the lenses of potential and desire. Do not retire to simply quit working. This philosophy will produce poor long-term results. Instead think of the contributions you could make to your community, church or other civic groups that require your expertise to continue supporting constituents.

We use the term “reFIREment” to describe the next phase of your life. To us this is a new beginning with excitement and vigor. By changing your philosophy toward retirement, you will find yourself changing your investment philosophy. Think about the joys and/or challenges you wish to, or may, experience after your career. If you desire to travel, relocate to another state, start another career – all have funding needs that must be addressed during your work life. By defining your ultimate purpose in life, through a sound philosophy, you will be empowered to fund your retirement in a manner that allows you to accomplish a more rewarding life. Your outlook for the future will be much brighter and more positive when you have a plan that focuses on something other than “not working”.

Seek out help if you are unclear on how to define your future in monetary or philosophical terms that give you the greatest opportunity for success. A retirement specialist can serve many roles for your family. The best resources you will receive from a Certified Financial Planner™ professional are independent, tailored planning and honest feedback on the best approaches to reach your goals. You have far more to contribute to the world. Do not stop giving just because your work life has converted to your beach life. See you on the golf course!

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The Importance of Year-End Tax Planning

Posted on October 9, 2020October 9, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

This is an optimal time to review your potential income tax liability for 2020. Most individual filers under U.S. jurisdiction are calendar-year, cash-basis taxpayers. This means that many of the options to lower your tax liability for 2020 are eliminated simply by the passage of the year. Just like Cinderella in the historic Disney movie of the same name, your world immediately changes for tax filing purposes at the stroke of midnight on December 31 each year.

A few simple strategies you should consider before the end of the year are presented in this article. First, review your withholding on your year-to-date pay stub to determine if adequate amounts have been withheld. This is a simple fix if you need additional withholding before the end of the year. Provide your employer or Human Resource Department a new Form W-4 to reflect your additional or less withholdings. Also, consider that you may experience a refund for federal taxes and owe a balance for state taxes. To mitigate this issue, provide your employer with a Form W-4 specific to each tax agency. This would be accomplished by conspicuously marking one of the Forms W-4 with “Oklahoma Only” or the name of your appropriate state at the bottom of the form below your signature.

Another area of planning that is simple, yet considerably effective, is your deferral to your retirement plan, Health Savings Account or IRC Section 125 “Cafeteria Plan” to lower your current federal and Oklahoma taxable incomes for withholding purposes. Remember, most plans provide a matching component for your employer-retirement account that aids in the growth of your retirement assets without consideration of market activity.

If you are utilizing a cafeteria plan for pre-tax qualified medical expenses, consider making an appointment with your medical providers to determine if you could schedule any procedures before the end of the year to mitigate the need for paying more deductible after the start of a new year. Many families have met, or are close to meeting, their insurance deductible by this time of year. Don’t allow this opportunity to pass if you are needing a medical procedure. Be proactive and seek out your medical providers’ attention to complete the procedure prior to December 31. The keys to success is to complete the procedure and the billing date of the procedure is properly noted in 2020.

Personal strategies such as increasing your tax deductible charitable donations may help you reduce your current year tax liabilities. Review your current level of itemized deductions and see if you can “bunch” your deductions every other year to allow you to itemize when you can exceed the standard deduction. By itemizing your deductions you may save additional state income taxes, depending upon your particular state’s law.

If you are wishing to reduce your estate by making inter vivos gifts to heirs, consider completing the gifts prior to yearend. You can gift each heir or donee $15,000 without the requirement of filing an annual gift tax return (Form 709). This is good news for both the donor and the donee. The donor will reduce their gross estate by the amount of the gift, provided the person lives for three years beyond the date of the gift, and the recipient owes no tax on the receipt of the gift. This is a win/win!

What happens if someone gifts you $1,000,000? Do you owe taxes on the gift? No! Isn’t the U.S. Tax Code a beautiful thing? As a recipient of a gift, of any size, where the intent of the donor was to transfer property or cash to you, without the requirement for reciprocal value or services, you will not owe income tax on the gift. I know what you’re thinking. You may have found a reason to eat Thanksgiving Dinner with your estranged, but rich, Uncle Charlie to discuss this important strategy for lowering his estate. Enjoy the giblet gravy!

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What is Risk?

Posted on October 2, 2020October 2, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

So many people that I meet seek a panacea for their retirement assets. It is one of those facts of life that if anything yields a return, it also inherently contains risk. Let’s explore what risks are applicable in our everyday lives.

Market risk is most common among individuals that meet with us. People will look for a “happy median” and mitigate as much risk as possible while retaining enough risk to allow their investments to earn a targeted rate of annual return. How do you mitigate risk in the market? You have heard this word many times in this column but it is worthy to mention it again – diversification.

The distorted belief of market risk is that it is the overall risk of the market. However, we should look at the various types of risk contained in this general category of risk. For example, market risk can be further defined as currency risk, equity risk or interest rate risk depending on the type of investment you are considering. Should you wish to invest in a security that is issued from a foreign company, you may be subject to potential risks in the difference between the U.S. Dollar and the currency of the domicile country of the target investment. Again, there are measures to mitigate this risk. When we use the term “mitigate” you must understand that it does not mean the risk is eliminated, merely lessened or mollified.

Interest rate risk should be heeded when purchasing debt or bond instruments. Remember, the interest rate of a bond has a direct impact on the value of the holding. For example, bond market prices drop when interest rates rise and vice-versa. The longer the bond term to maturity will also be a consideration when looking at risk exposure.

Equity risk is the presence of risk when you invest in stocks or equity instrument shares and the value of the shares may decrease. This is the most prevalent of risks to investors. Every session the markets are open, and trading is occurring, is a day that equity risk is present.

Concentration risk may be a new term for many people. This type of risk is explained within its name – concentration. Executives of publicly-traded companies are given shares of the company stock for incentives of compensation. Presumably the executives’ efforts to create profit, increase market share, etc. will cause the stock share price to increase which, in turn, will give the executives greater earnings from the ultimate sale of the stock. Risk is inherent in this type of compensation when the executive is ready to retire and their portfolio consists of the employer’s stock for more than half of the total value of their account. Tax ramifications and other considerations should be analyzed to determine the least costly method of diversifying the portfolio to reduce concentration risk.

Liquidity risk is a significant issue when holding shares or bonds that you can’t sell for a profit when you wish to sell. You may be required to sell your positions for a loss to meet a cash flow need of your family.

One of my favorite quotes by Will Rogers, which seems very appropriate in an article on investment risks, is “I’m not so much interested in the return ON my money as I am the return OF my money.” Oklahoma’s Favorite Son was always reliable for a good turn of the word.

The types of risk listed above do not fully explain all risks an individual may encounter. However, with the acceptance of a certain level of risk, mitigating the presence of risk by utilizing diversification and other measures, you may feel more comfortable and confident about your future. One method of determining the current level of risk in your portfolio is to request a complimentary analysis or “stress test” from a Certified Financial Planner™ professional. I recommend that you consider a balance between risk and return not simply the elimination of all risk. By eliminating all risk, you may not achieve your goal of exceeding inflation with your investments. See you on the golf course!

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Why Did I Do That?

Posted on September 25, 2020September 25, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Humans are a curious bunch, aren’t we? Our brains work in one mode – survival. The programming of our brain is based on the strategies of fight, flight or freeze. Perhaps you have noticed these strategies at work when you find yourself in a dark alley, alone and facing a group of suspicious characters. Or, more often than not, you find yourself facing these strategies when investing your hard-earned money for the future.

Let’s examine one scenario that I have witnessed far too often when people are planning for their future. Having no particular knowledge of markets, money supply, economics or fiscal policy, and armed with only a social media account full of other lemmings (pardon the characterization) that are in the same situation as you, jumping out of the markets because of a perceived correction coming. Misery truly loves company!

The better approach would be to apply a method of managing your assets in a proven strategy that considers risk and the role it plays in our overall economy. Rebalancing your account to manage the level of risk to that you are glad to accept knowing that return on investment can only occur when risk is accepted. For example, you may have heard we are holding a presidential election in the United States in a few weeks. Many people are hypothesizing the end of the economy due to this quadrennial event. What if you approached this event with a calm mind and an eye for a long-term approach to your investments? Great! You would be one of those investors who believe a short-term market decline does not derail decades of savings.

What I am referring to in the above scenarios is called behavioral finance or, in laymen’s terms, why smart people make dumb investment decisions. I am not calling you names again but wanted to be very honest in how this has been applied by individuals who ultimately regret their short-term poor judgment. One of my favorite quotes describing the secret behind the success of the famed investor, Warren Buffett, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Many investors are much smarter in their approach to lifetime income and savings by understanding the function of the markets in our country. If others are fearful and selling their investments, the wise investor may wish to buy during the downturn of the economy knowing that the prices will possibly be lower due to the oversupply of sellers.

If you are not retiring within a few months of the election, or even if you are, think about rebalancing your portfolio to an acceptable level of risk. Understanding that bond markets function inversely to equity markets, the strategically allocated portfolio will possibly suffer less volatility than a portfolio consisting of positions to chase returns. The person who utilizes a long-term approach to investing for her future with a sound strategy of diversified investments will be served better than those attempting to time markets and reap larger returns than that provided by the efficient movement of the economy.

Don’t make mistakes using short-term thinking when dealing with your lifetime income assets. Consider a consultation with a Certified Financial Planner^™ professional to obtain a second opinion of the risk and strategic allocation of your assets. You may live with a little less stress about your future. Be confident. Be opportunistic when others are fearful. Look to the future. Live your life by your own design not the same mindset as the lemmings running for the cliff. See you on the golf course!