Critical Thinking Required

For LBW Book Club, the team read Annie Duke’s “Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts” recently.  A couple of concepts really stood out, and impacted our daily planning decisions greatly.  First, think about your best decision for the past year, and then think about your worst decision… Ready?  I bet you didn’t think about the best and worst “decision”, but the best and worst “outcome/result”.  The resulting bias is everywhere.  Just because you have a positive outcome (you came home safely), doesn’t mean you made a good decision (you decided to drive while drunk), and certainly doesn’t mean you should repeat that decision over and over.  Secondly, the concept of backcasting and premortem: this is a planning method that starts with defining a desirable (or failed) future and then working backward to identify policies and programs that will connect that specified future to the present.  Oh man, isn’t this why we do financial planning precisely?!  Third, the power of group thinking and decision pod.  Don’t just talk to people that you know will confirm your belief, but have a decision pod with different knowledge, cultural background, and skill sets, to review your decision from different angles.  Again, don’t discuss the result, but talk about the decision: how did we get here?  Overall, we recommend this book to anyone who strives to make better decisions in life!

Estate planning is a crucial part of overall financial planning.  And yet, people often dismiss it because, well, no one wants to face their mortality.  In addition, death and money are two very difficult and awkward topics among most families.  But, if you are a long-term thinker, and especially if you have first-generation wealth, we can’t stress enough the importance of estate planning.  To start, think about the following questions: what are your assets & liabilities?  Who’s going to receive what?  Who do you want to protect?  Share your thoughts with loved ones.  Some of the basic estate planning documents are: last will and testament, living will, POA for finance and health, burial instructions, trust, etc.  Dan added one more thing: what about your digital assets?  Consider that as well, especially for younger generations.  Estate planning is not just for the “old and rich”.  You should start thinking about it; the sooner, the better.  It will not only help you preserve your legacy but also prevent your loved ones from suffering difficult decisions when they are mourning the loss of you.

Clients ask us about socially responsible investing, or ESG funds (a mutual fund, index fund, or ETF that is constructed using environmental, social, and governance criteria to inform its asset mix) all the time.  We love the concept very much.  As a matter of fact, before this concept became trendy on TikTok, our portfolio manager Nathaniel always believed that two of the most crucial factors that need to be checked before any investment are the company management's integrity and talent; and whether its employees are happy with their jobs.  However, we also firmly believe that as an investment strategy, this concept is not practical.  What is "socially responsible"?  The answer varies greatly from person to person due to their personal beliefs and political views.  Should we exclude a great performing company that has happy employees, and donates millions of dollars every year to underserved communities, but produces a product (e.g. cigarettes, alcohol, etc.) that goes against your personal values?  If socially responsible investing is not practical, then what should we do?  Dan and Tim's suggestion: go local.  Eat local, buy local, and help to build your local community!  It's much more precise and more executable.

Currently, there is $1.75 trillion in total student loan debt, including federal and private loans.  55% of students from public four-year institutions, and 57% of students from private nonprofit four-year institutions took on educational debt.  At the current pace, “outstanding student loan debt could top $3 trillion by 2035,” according to one expert.  It's not just young graduates - many people carry their educational debt well into middle-age, and even retirement: 2.4 million borrowers aged 62 or older owe $98 billion in student loans.  That’s why we want to talk about student loans: they have become an increasingly important issue in most people’s overall financial picture.  Tim and Dan discussed the history of student loans, the types of loans, the Public Service Loan Forgiveness, and what it means from a financial planning perspective.  As always, talk to us or your financial advisor if you are interested in learning how this may impact you. 

We get this question a lot from our high-income young clients - especially the ones who work in the creative industry: should I start an LLC, S Corp, or C Corp for my side business/1099 contract?  In this episode, Nathaniel and Tim discussed the following questions: When does it make sense to set up a business entity?  What types of structures are there?  What are the first steps in determining the type of entity you should set up?  What is the difference between entity structure and taxation of the business?  Overall, understanding what are you trying to achieve is crucial.  Is this a lifestyle business or an enterprise entity that you want to grow and maybe raise funds from outside investors someday?  Are you thinking long-term, perhaps even generational?  Talk to us, or your own advisors if you wish to learn more about this topic.

The recent 2021 Social Security Trustees report finds that in 2034, retirees will start receiving a reduced benefit (78%) if Congress doesn’t fix funding issues for the social program.  That sound scary and urgent.  What then?  In this episode, Caroline and Tim discussed the following questions: What do we think Social Security will look like in the future?  At what age or milestone in life should one take Social Security?  What does that conversation look like?  What are some reasons to take it earlier vs. later?  How does that impact your investment?  Can one take it while still working?  How is the benefit calculated?  Taking Social Security is not just what makes sense mathematically, but also in terms of lifestyle.  Like Tim said, the value of happiness matters just as much as the value of dollars!

In this episode, the trio discussed Series I Savings Bonds (“I Bonds”).  We have had so many conversations with clients about it recently due to the high inflation.  I Bonds are a type of U.S. savings bond designed to protect the value of your cash from inflation. With inflation hitting four-decade highs of 8.6% in May, investors are more interested in something that is higher than the inflation rate, but still relatively riskless, and this fits the bill.  The initial interest rate on new I Bonds is now 9.62% annualized, and that rate readjusts every six months.  And you can only purchase up to $10,000 in I Bonds each calendar year.  Tim discussed the pros and cons of this product.   If you are interested in I Bonds, please talk to your financial advisor to see how it could fit into your overall financial picture.

Horizon Kinetics is one of the mutual funds that follow the value investing strategy.  In this episode, we invited one of its Co-Portfolio Managers James Davolos.  James first explained how he entered value investing: everyone can read a list and see what the cheapest stock price is.  But why it’s cheap, and how does that apply to your portfolio?  That’s the million-dollar question.  James then talked about inflation, and how to invest in inflationary periods.  Dan asked James about the downside of passive investing (aka indexing), and James said it so well: the problem with indexing is that for the past decade, millions, if not billions of dollars got thrown into the same pot.  Using the S&P 500 as an example: Apple, Microsoft, Amazon, Meta, and Alphabet constitute 23% of the index, and the tech sector overall was 29% of the index by the end of 2021.  And yet, energy, one of the most important things in our daily life – especially during inflationary periods – only constitute less than 5% of the index.  James also discussed crypto, and Kinetics’s largest investment: Texas Pacific Land (TPL), and why it’s a great investment during inflation.  Overall, if you are interested in investing, and want to learn more about value investing, you will enjoy this episode.

We invited Joe Austin and Lloyd Hussey from The William Warren Group to talk about investing in self-storage units.  Compared with general real estate, self-storage has light capital expenditures and is relatively easy to operate.  More importantly, the month-to-month short leases enable landlords to adjust prices quickly and thus perform better during inflationary periods.  In addition, demand for storage units is usually caused by life events, not economic reasons, making it a recession-resilient investment.  Lloyd and Joe then talked about the potential pros and cons of this investment, and how the pandemic shaped the industry.  Overall, self-storage is low volatility, produces steady cash flow, has a long history of capital appreciation, and yet is still kind of "under the radar".   If you are interested in real estate investments, but worry about the current housing market, and don't want to be bothered with the "hello landlord, the bathroom pipe just busted" call, self-storage may be a candidate for you!

Meet our newest member: Caroline Kahl.  She's a modern Wisconsin girl through and through.  She loves fishing, riding a boat on the lake, gardening, and her darling boy: a yellow lab named "Dash".  Caroline wanted to be a teacher growing up and had worked as a part-time tutor for first and seventh graders.  After exploring more career possibilities in college, she changed her major to Personal Finance.  She was born to be a planner.  Why?  A) she's a natural educator, and if you truly do your job right, a big part of the financial planner's job is actually educating their clients;  B) she's an organizer.  Take a look at her office space, and yes, we know that she will excel in this position.  In this interview, Caroline discussed her school life, her advice for college students, her mentors in life, and her LBW experience thus far.  Do you know what she picked for her "last meal"?  The answer will crack you up!  We are so excited to have you join our team - welcome aboard!