One For The Money

This episode of the One for the Money podcast is a little different than previous episodes, as it’s more of a “buyer beware” when buying life insurance. Life insurance is a valuable part of any financial plan, but I’ve seen too many individuals fall for the tricks of some insurance salesmen. Listen to the end when I share strategies on some of the best ways to buy life insurance, which some agents may not want you to know.

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• My journey to becoming a CFP [01:19]
• The wrong life insurance [02:53]
• Permanent life insurance [05:55]
• The fastest way for agents to make money [08:35]
• Factors in life insurance [11:30]
• Avoiding expensive life insurance [16:02]
• One of the best ways to purchase life insurance [18:01]

I became a certified financial planner to have the greatest impact for my clients. This career has married personal finance and education, two things I love. Sadly, my career didn’t start that way. Due to my naivety, I joined a financial services firm that claimed to put financial planning at the forefront of what they did. However, the reality was that they primarily pushed expensive insurance that the overwhelming majority of people don’t need. 

In my defense, the job wasn’t anything like what I was promised in the interviews with the firm. I had interviewed with a few certified financial planners who spoke of the merits of being fiduciaries, but apparently, this was in name only. In fact, they did not do comprehensive financial planning, nor were they fiduciaries. Their primary efforts were to sell expensive insurance. I share this so you know I have first-hand knowledge of how some financial services industries operate.

Many people don’t have life insurance at all, and those who do often have policies that are way too expensive because they fell for the tricks of insurance salespeople. This insurance is called Index Universal Life(IUL), whole life and similar permanent life insurance policies. Legally, life insurance cannot be sold as an investment, but there are far too many instances where an IUL is portrayed as an investment. Often IULs are sold as a way to avoid stock market losses and receive stock market-like returns. 

The illustrations used to demonstrate the policy often don’t share the majority of expenses associated with these policies, some of which include significant commissions. More importantly, these representatives don’t determine if these policies are in the individual’s best interest. Permanent insurance is introduced as the only solution. I know this because of my training at the original firm on how to schedule appointments and use emotionally manipulative sales techniques. But that firm didn’t train on how to determine if the clients had sufficient retirement savings or whether they had an adequate emergency fund. The focus was to sell the most expensive insurance.

Needless to say, the agency and I parted ways. I’ve since learned that, with rare exception, term life insurance is usually all that is needed. It typically costs less than indexed universal life, variable universal, or whole life policies that are incredibly expensive and may not meet clients' goals. An IUL policy could potentially erode over 80% of your wealth compared to investing directly in an index fund. 

Various insurance companies offer better-priced policies for specific individuals. Some offer better terms for people with diabetes, while others are only better for younger people. A person could apply for one company and receive the highest health rating but receive a lower rating at another company. These variables result in a significant difference in monthly premiums for the same benefits. Consequently, obtaining quotes from multiple companies is beneficial. 

Choosing an independent licensed agent who can provide quotes from multiple companies would help find the best option as opposed to a captive agent who would only offer a quote from the company they represent. If you’re still interested in buying whole life insurance, there are a few things to consider. You need to have no consumer debt besides a mortgage, be on track for retirement, and have an adequate emergency fund in place. After all those things, if you still have extra money, there is a more cost-effective way to buy whole life insurance. That’s to purchase a convertible term policy with the same company. These types of term policies allow you to convert to a whole life policy later, and the commission paid to the agents is much lower. Therefore more of your money would build up in the policy.

• Is Whole Life Insurance a Good Investment? - NerdWallet
• The Statistic Whole Life Salesmen Don’t Want You To Know
• Is IUL a Scam? Yes.
• Jeremy Schneider - Founder - Personal Finance Club

• https://BetterPlanningBetterLife.com 
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In this episode of the One for the Money podcast, I share a personal, financially painful experience that can serve as an example of why you should stay invested. Considering the stock market of late, this is quite a timely topic. Listen to the end when I share a strategy you can use some stock market losses in a non-retirement account to ultimately reduce your taxes.

• Unprecedented events [01:13]
• Locking in losses [03:42]
• Delusions in timing the markets [08:25]
• Aligning investment plans with goals [12:10]
• Tax-loss harvesting [13:35]

The last few years have offered more than enough unprecedented events, the stock market included. With the pandemic shutting the world down, we had the fastest bear market in history. In 2020 that took only sixteen days to happen, and then the market dropped further. A short time later, the stock market rocketed higher with the fastest fifty-day rally in history. In 2021 the stock market had more remarkable growth. However, the stock market in 2022 began the year with the worst start in half a century.

Seeing the value of your nest egg decrease can be incredibly disheartening. Sadly, far too many people succumb to these emotions and sell their investments. In fact, a study found that close to a third of investors over the age of 65 sold all of their stocks during the Coronavirus meltdown. Because they sold their investments, they missed out on these significant rallies to the upside, locking in their losses.

Many believe we are due for a recession, and they’ll be right eventually. There’s no way to know when it will occur or to what magnitude, let alone its impact on the stock market. What we do know is that succumbing to these fears is detrimental to building wealth and early retirement. For those nearing retirement, we will conservatively invest in the next few years. For those seven or more years from retirement, now is the time to keep buying periodically and not sell stocks. Selling leads to realized losses and missed out gains.

I know from personal experience the pain of selling an investment when I shouldn’t have. Years ago, I purchased stock in a company that was exploding in popularity. However, during the 2008 financial crisis, these stocks dropped 50%. I was scared to lose more, so I foolishly sold, guaranteeing my losses. The painful part of this story is that these stocks have since increased by over 7,500%. While I did use the proceeds of my sale to invest in some companies that worked out well for me, emotional selling was a huge mistake. I’ve learned a lot since then and invest much differently now, but my sad story illustrates the mistake of selling that many investors have made.

Tax-loss harvesting is a strategy that involves selling an asset or security at a net loss. The investor uses the proceeds to purchase a similar investment, maintaining the portfolio’s overall balance. The investor can continue to gain while paying fewer taxes. Essential to keep in mind is that the IRS has a rule that says you can’t just buy a substantially identical investment within thirty days, so you’ll have to wait.

What do you do if you have more than the maximum of $3,000 in losses? The good news is that you can use these losses to offset the ordinary income tax. The losses can carry over for the next two years to offset income taxes. Tax-loss harvesting can only be used in non-retirement accounts, and you can see the power of that strategy to offset taxes.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

• Close to One-Third of Investors Over 65 Moved to Cash
• Three Money Mistakes to Avoid in a Bear Market - WSJ
• J. P Morgan - Guide to Retirement
• J. P Morgan - Guide to the Markets
• Tax-Loss Harvesting Definition

• https://BetterPlanningBetterLife.com 
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How much does the news influence your financial decisions? This episode of the One for the Money podcast focuses on the optimism we can have in the market, even through disheartening times. The world has changed dramatically over the years, yet time and time again, investments have proven themselves. Listen through the end when I share tips regarding credit scores.

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• Negativity sells the news [01:20]
• Progress over the years [02:41]
• Investing proves itself again and again [06:40]
• Credit score and financial plans [10:40]

This year has brought a lot of market volatility, creating fear in investors’ hearts. With a war in Europe, inflation at levels we haven’t seen in over 40 years, a pandemic still lingering in parts of the world, and political and civil strife, there’s an overall theme of negativity in the news. It’s essential to remember that media companies are businesses, and negative news attracts more attention, creating more revenue. While the media may have a financially compelling reason to focus on negative things or things that generate fear, it’s important not to let that shape our perspective of the general trajectory of humanity, which is undoubtedly positive. 

The photo on my website shows my great-grandparents, both clad in fur coats. My great-grandpa John was born in the United States and emigrated to Canada in 1894. My great-grandma Margaret was born in Germany, immigrating first to Wisconsin. She later emigrated to Canada, having answered my great grandpa John’s advertisement in a newspaper for a wife. Great Grandpa John was a rancher and settled near the town of Mountain View, where he built his home. While that was a stunning place to live, cattle ranching is a hard way to make a living, especially through the brutal Canadian winters. 

My great-grandparents didn’t have indoor plumbing for most of their lives, let alone toilet paper or a way to order it to be delivered just hours later. What would they say about self-driving cars or about the feats of architecture, medicine, agricultural productivity, airplanes, and space travel that could all be enjoyed by their great-grandson? All of this progress occurred in the last 100 years, and the pace of that progress and positive change is only moving faster. If this is the progress of the previous 100 years, what do the next 100 years hold?

A review of history shows that there have always been reasons why investing is scary, but that investing has repeatedly proved itself. Some may argue that this time is different, but they are joining a long line of people who said the same thing and were proved wrong. Regardless of what happens, people will still work, earn a living, and spend their money on goods and services. Investing in well-run companies that provide those goods and services is one of the best ways to grow your wealth. 

Credit scores can be a critical part of a financial plan, especially when purchasing a home. However, most people don’t know how their credit score is determined. Thirty-five percent of a credit score is derived from payment history, and thirty percent is derived from the amount owed. The next fifteen percent is derived from the length of credit history, ten percent is new credit, and the final ten percent is the type of credit owed. A credit score over 800 is deemed exceptional, and the higher a credit score is, the lower interest rates are in the terms offered.

Three companies provide credit scores to lenders: TransUnion, Equifax, and Experian. The first tip I recommend is freezing credit with all three companies, which will prevent someone from opening new credit in your name. The second tip is regarding credit history. Fifty percent of credit score is based on credit history. Before canceling a credit card, consider how it can shorten credit history, negatively affecting a credit score. Before dropping off an old credit card, it’s also important to ensure that annual fees aren’t being paid on that card. 

• Moore's Law and Intel Innovation
• Major Wars and Conflicts of the 20th Century
• PolitiFact | Did we really reduce extreme poverty by half in 30 years?
• How are FICO Scores Calculated? | myFICO

• https://BetterPlanningBetterLife.com 
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This episode of the One for the Money podcast is part two of this month’s series on the cost of college and how to pay for it. In the last episode, I talked about the rising cost of college and student loans. This time, I will share information about the 529 college savings account. Listen to learn some strategies to make the most of your money investing in your loved one’s college expenses.

• What is a 529 account? [03:13]
• Creating a legacy of education [05:20]
• Navigating college funding [10:00]
• Determining what your family can afford [12:18]
• Prioritizing retirement [16:21]

A 529 account is a phenomenal investment vehicle to help pay for college. These investments are made with after-tax money, so taxes don’t have to be paid again when the money is used for qualifying college expenses. These qualifying expenses include tuition, fees, books, computers, and even room and board. While the general strategy of a 529 seems straightforward, there’s much more than meets the eye regarding what you can do with them. 

One of the most powerful wealth transfer vehicles available to the American public is the 529. Any relative, friend, stranger, or even yourself can be named on the account as a beneficiary. While most people invest in a 529 for children, you can also use these for yourself. If one of your goals in retirement is to go back to school, you can start saving now to have tax-free funds to help offset that cost.

We all want our kids to graduate from college so that they have a better chance of higher-paying jobs and are less likely to be unemployed. So we must be careful how we go about paying for college. Please know that as a parent, you should only contribute to your kid’s college savings after you have an established emergency fund, no high-interest debt, and you are on track for retirement. Of course, your kids would love for you to pay for their college. Still, they’re less enthusiastic about parents moving in who weren’t retirement ready! Additionally, it seems kids study a bit harder when they know they’re paying for a portion of their education. 

There are many factors to consider when it comes to navigating college funding. While a 529 is a tremendous help, it’s only part of the financial strategy. One of the first things to consider is which college is affordable. As I mentioned in the last episode, colleges will charge you based on what they believe you can afford. Colleges look at parents’ and students’ assets and income to determine what you will be able to pay for college. So it’s essential to understand what colleges think you can afford. 

Similarly, families need to determine how much they can realistically afford. Far too many people don’t look at the calculations available to them. The college application process itself can take the majority of a family’s attention, and understandably so. Unfortunately, too many achieve their college dream by graduating from a particular university, only to end up having a student loan nightmare as a result. They’re saddled with student loan debt and can’t begin saving for retirement, so they miss out on years of compound growth. This conversation needs to happen long before your children receive an acceptance letter. It’s much more challenging to have this conversation after they’ve been accepted, particularly if the school is one they want to attend.

• The Cost of College and How to Pay for It - Part 1, Ep #15
• FAFSA® Application | Federal Student Aid

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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June is the graduation season, so the episodes airing this month will focus on the cost of college and how best to pay for it. This episode of the One for the Money podcast focuses on your ability to pay for the college education of your loved ones effectively. Listen until the end when I share a great resource to help you further understand the expense of college and additional options on how to pay for it.

• The magnitude of student loans [02:14]
• College costs more now than ever [05:22]
• Be careful with your choice of college [08:25]
• Understanding the cost of college [12:52]

My wife and I can’t believe how quickly time has passed. Our oldest son is going into high school this fall, our middle son is going into middle school, and our youngest is starting the second grade. Sooner than we realize, my wife and I will begin working on their applications to college, which is a daunting project. If the college application process isn’t complicated enough, paying for college is an equally important and complex matter. 

Our focus on the costs of college has increased for a good reason. The current level of student loan debt in the United States is $1.7 trillion. In fact, student loan debt is the second-highest consumer debt category behind only mortgage debt and is higher than both credit card debt and auto loans. These debts have a chance of leading to a future of financial crisis. The forgiveness of student loan debt may feature in the midterm elections. The government has already deferred interest, which has cost America over $100 billion.

The cost of student loans has increased at twice the rate of inflation since 1983. The usual suspect is good government intentions to make schools more affordable. Despite the good intentions, these student loan programs caused a significant rise in tuition because the supply and demand mechanism became broken. Typically, prices are relatively held in check because consumers can’t afford steep increases. However, when people can borrow more and more money, tuition increases, and the federal government guarantees these loans.

There’s a fabulous resource to help you further understand the cost of college and how to pay for it. College Planning Essentials is a resource provided by JP Morgan with a tremendous amount of relevant data. This tool provides the starting salaries achieved from certain degrees, with computer science having the highest starting salary, followed by engineers. It would seem that the STEM programs are great for future earning potential. This resource also provides intriguing facts about athletic scholarships and what they cover, which isn’t as much as you might think.

College Planning Essentials also provides a breakdown of expected family contribution. That’s a formula that colleges use to determine how much they will charge you. Unfortunately, the sticker price at a college isn’t the same for all families and instead is based on expected contributions. The resource compares various college saving vehicles, the benefit of 529s, and a host of other information. Check it out to learn more about the expense of college and how you can make well-informed decisions about those costs.

Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

• Student Loan Debt Statistics In 2020: A Record $1.6 Trillion
• Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs
• Bureaucrats And Buildings: The Case For Why College Is So Expensive
• Student Loan Truth Telling - WSJ
• Everyday Millionaires
• College Planning Essentials | JP Morgan
• Holding Colleges Accountable

• https://BetterPlanningBetterLife.com 
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Many people struggle with finances, and it’s heartbreaking to see. In this episode of the One for the Money podcast, I share my personal experience with what happens when there is no financial plan. Financial literacy and education are critical life skills that can benefit us all. Listen in, and at the end, I’ll share a tip regarding calculating your net worth and why you’d want to do that.

• The power of financial planning [01:07]
• Financial family dirt [02:44]
• Good things through good planning [04:01]
• The effect of not having a plan [07:15]
• Better life through better planning [08:01]
• Determining your net worth [09:45]

Financial planning is powerful. However, when it is absent, huge problems occur. I’ve experienced this reality in some unfortunate events in my own family. Many of my own family needlessly struggle because they failed to plan financially. My family and others didn’t plan financially because they didn’t know what to do or where to start. Because of that, I’m a huge advocate for financial literacy and education. I started a blog and podcast to provide this information from my perspective.

How much wealth a person accumulates is not an index by which we measure success. However, planning done right can provide a life of less stress, more choices, and better experiences, regardless of income. Marriages are stronger, retirement is better, and you can visit more of this beautiful world. Life turns out way better when you have a plan.

My mission is for people to have a better life through better planning. Through my podcast and blog, you’ll learn how to plan better so you can live better. The financial world can be confusing, but I hope to make it much more understandable. That’s a significant reason many people don’t plan financially very well. Fortunately, there are many ways today to learn what one can do to prepare better. 

Many financial planning professionals can provide excellent guidance. As I mentioned, I’m a huge advocate of financial literacy education. Each summer, I conduct a webinar on the financial fundamentals of building wealth, which I teach to high school graduates and college students. I also teach a financial literacy class in the community for those who need it most. Charles Schwab conducted a survey that proved that those who plan have better outcomes. The survey also showed that having a written financial plan leads to better money behaviors.

Part of putting together a financial plan is calculating net worth. My clients are often surprised regarding their net worth. That surprise is primarily positive because people had no idea they had that much net worth. This knowledge changes my conversation with clients because we can discuss things like early retirement or other goals they want to achieve. 

It’s necessary to have a gauge and understand where you currently stand financially. With a net worth worksheet, you can figure this out. After calculating your total assets, you’ll assemble all of your debts. It’s important to look at the interest rates on debts to ensure that you’re trending more positively and that your net worth grows with time. Calculating your net worth helps you know what actions you need to take to reach your goals.

• Investopedia
• Financial Planning is Personal — BetterPlanning.BetterLife.
• 5 Ways Financial Planning Can Help | Charles Schwab
• Net Worth Worksheet - Morningstar

• https://BetterPlanningBetterLife.com 
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In today’s episode, I’ll be sharing thoughts from a personal finance book that I read last summer. Morgan Housel, a former columnist at The Motley Fool in the Wall Street Journal, wrote the book entitled The Psychology of Money. In it, he shares the idea that intelligence isn’t what makes someone good with money; behaviors are what play the most significant role. Listen to learn what these behaviors are and how you can benefit from them.

• Intelligence vs. behavior [01:13]
• Investment bias [05:41]
• What is happiness? [08:26]
• Lessons from a gerontologist [09:39]
• Lifestyle and budgeting [12:01]

In 2020 Morgan Housel wrote a book called The Psychology of Money. The book’s premise is that doing well with money has little to do with how smart you are and a lot to do with how you behave. If a genius loses control of his emotions, that can create a financial disaster. The opposite is also true. Ordinary people without financial education can become wealthy if they have a handful of behavioral skills. Someone who makes a lot of money can be poorer than the man sweeping floors. The difference comes down to lifestyles and how they utilize what they have.

Health and money are two things that impact everyone. Despite this similarity, we’ve seen a divergence in the outcomes. While health has improved for centuries and made remarkable advancements in improving people’s lives, financial advances haven’t. The extensive research hasn’t made us better investors or savers because money is far too emotional. A consumer finance survey found out that people’s lifetime investment decisions are heavily anchored to their experiences in their generation, especially experiences in early adulthood. 

If inflation was high, people invested less in bonds throughout their lifetime. If the stock market was strong, they invested more in stocks. That was true for me because I started investing in the late 90s at the start of the dot-com era. I still invest heavily in stocks, albeit differently than I did then. Before, I purchased single stocks hoping they’d outperform. Now I use evidence-based research and invest in broadly diversified portfolios. 

People strive to get a couple of percent higher returns. Meanwhile, what they could benefit from is reducing lifestyle bloat. The tip here is to review expenses regularly to see if they make sense. According to a recent study, adults in the US spend nearly $1,500 a month on non-essential items. That’s roughly $18,000 a year on things we probably don’t need. That’s a lot of money, considering how much Americans are letting their savings and other crucial goals fall by the wayside.

The same study found that 58% of people believed that there were important things they were unable to afford, including retirement savings and life insurance. There’s nothing wrong with enjoying a few luxuries here and there to make life enjoyable. But unfortunately, Americans are spending a small fortune on things that take away their opportunity to save for the future or protect their families with life insurance. The good news is that examining our budgets and reducing waste will help us prioritize those important things for our families and us.

• The Psychology of Money: Timeless lessons on wealth, greed, and happiness
• When it Comes to Early Retirement - Start with Why, Ep #1
• Meaning & Purpose in Retirement, Ep #6
• The Average American Spends Almost $18,000 a Year on Nonessentials | The Motley Fool

• https://BetterPlanningBetterLife.com 
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How much of your retirement will be available to spend? Most Americans aren’t aware of the ticking tax time bomb in their retirement accounts. In this episode of the One for the Money podcast, I share ways you can get the most out of your retirement investments. Listen to learn strategies to overcome the uncertainty of future taxes.

• The ticking time bomb [01:04]
• Roth conversions [05:48]
• The benefits of being tax diversified [09:09]
• Reasons not to consider Roth conversions [10:38]
• The importance of rebalancing [11:54]

The vast majority of retirement accounts held by Americans are in the form of traditional IRAs and 401. Contributions to these accounts are pre-tax, meaning that future politicians will determine the amount left to spend in retirement. So, in a sense, these retirement accounts are co-owned with Uncle Sam. 

While we can’t predict what taxes will be, I can think of 30 trillion reasons why taxes could be raised. The U.S. Debt Clock online has interesting information highlighting U.S. debt ratios, the largest budget items, and other fascinating census type data. These references to the deficit and taxes aren’t an endorsement or criticism of any political party. The reality is that these factors affect everyone, and we need to prepare as best we can.

Taxes can go in one of three directions: lower, higher, or stay the same. In 2022, taxes are at historic lows, so many don’t believe there’s a risk of lowering taxes. Meanwhile, deficit spending has never been higher. Therefore, you will want to be proactive in your approach to when you pay income taxes.

We can approach the unknown of future tax rates by becoming as tax diversified as possible. Otherwise, tax rates may determine your lifestyle in retirement because of the amount you’ll have remaining to spend. Americans have two options. They can either hope that taxes will be lower in the future, or they can implement strategies via a plan to become tax diversified. 

Roth conversions can be the most powerful way to reduce future taxes when the conditions are right. They work just as they sound by converting portions of not yet taxed accounts to an already taxed account, also known as a Roth. There are no income limitations on these conversions. Remember that income taxes will be paid in the year of conversion, so Roth conversions make the most sense in years where your income is lower. Because of the many factors involved, I recommend you speak with a certified financial planner and a CPA about this before trying it out on your own.

Rebalancing is when adjustments are made to investments to bring them back to specific ratios. This adjustment is made when part of your investments do better than others, causing the ratio of your portfolio to change. Rebalancing would sell a percentage of an investment and reinvest that to achieve the intended ratios. 

Many of my clients rebalance investments quarterly. This strategy was beneficial during the so-called COVID correction. The stock market had hit a low in March, just before rebalancing. This dip meant we sold investments and reinvested them into the stock market at much lower prices. While we were fortunate in the timing, it doesn’t lessen the positive impact rebalancing had on the rest of the year.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

• US Debt Clock
• Ed Slott, CPA - Professor of Practice - The American College of Financial Services | LinkedIn
• Increase Individual Income Tax Rates | Congressional Budget Office
• The Ticking Tax Time Bomb in Your Retirement Account — Better Planning. Better Life.

• https://BetterPlanningBetterLife.com 
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The case of the seven million missing American children is a story of how tax planning shouldn’t be done. In this episode, I cover that story and share ways we should be tax planning. You may be surprised at the order in which this planning should be done. Listen to learn more about that, and at the end of the episode, I’ll share a general tip about tax planning.

• A sad story of “missing” children [01:10]
• Legal strategies to reduce tax liability [03:03]
• Why HSAs are important in retirement [05:51]
• IRA contributions [07:43]
• A proactive tax approach [09:45]

One spring day in the late 1980s, over seven million American children went “missing.” The day was April 15th, the deadline for Americans to file taxes. The year was 1987, and it was the first year the IRS required tax filers to include the Social Security number (SSN) for any claimed dependents. In 1986, when taxpayers only had to provide the children’s names, 77 million dependents were listed on tax returns. But, in 1987, when SSNs were required, only 70 million dependents were listed.

Taxpayers in 1986 received an exemption of $1,900 per claimed dependent. That’s $1,900 for each child that would be subtracted from any taxes owed. However, when the new requirements were implemented, 7 million children “disappeared,” resulting in an extra $2.8 billion in additional taxes paid to the treasury.

Claiming imaginary children isn’t the best idea for saving on taxes and is unwise. However, there are legal strategies to reduce lifetime tax liability in 2022 and beyond. One of the aspects I focus on with clients is tax mitigation. Paying less in taxes requires a proactive approach. All tax mitigation strategies should be verified with a tax professional and a certified financial planner. Why both? Because tax professionals often only look at the past, financial planners will also look at the present and future. 

These strategies assume that there isn’t high-interest consumer debt, like credit cards, that needs to be paid off first, and an emergency fund has been established. The first priority to mitigate taxes is participating in a company 401k type retirement account. Company matches are always pre-tax, but they are low risk, and double your money to a certain percentage (subject to individual plan vesting and matching percentage guidelines). Another step to consider is contributing to a health-saving account. These accounts are the only ones that are triple tax-free.

We have to have a plan when it comes to taxes. Most Americans save for retirement in what are called traditional retirement accounts. We choose to be taxed during retirement when the funds are withdrawn from these accounts. Many people look at their 401k or IRA balances and believe that money is all theirs to spend. However, that money is partly the government’s. Since taxes are owed on these funds, how much is taken by the government will ultimately depend on planning. In the next episode, I’ll be going over what is often called the ticking tax time bomb and a strategy, called a Roth conversion, that could reduce your taxes.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

• 7 Million Missing Children
• The IRS' Case of Missing Children - Los Angeles Times

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One of the most frequent questions I receive is asking when the best time to invest is. In this episode, I answer that question by reviewing a strategy that may help ease your entry into the market. In the Tips, Tricks, and Strategies section, I go over mutual fund expense ratios and explain why you might be paying a lot more than you realize. Listen to learn how to reduce those expenses.

• When to invest [01:17]
• S&P 500 [02:28]
• Dollar-cost averaging [04:03]
• Investing a larger sum [07:04]
• Mutual fund expense ratios [12:16]
• Active vs. passive management [15:19]

The stock market can seem like a roller coaster. People often ask me, “Is now a good time to invest?” The simple answer is that it’s always a good time to invest long-term. With stock market history as a guide, more than likely, you’ll be glad to have invested today. You may even wish you’d invested more. Despite this, many are still hesitant to invest because they fear the market will drop as soon as they invest. No one wants to buy high, only to see investments go down. 

The trouble is that it’s impossible to predict what the market will do. While a look at stock market history can serve as a potential guide, a qualifier should always be added that past performance is no guarantee of future returns.

The S&P 500 is the average return of 500 of the largest publicly-traded companies in the United States. It’s not an exact investment proxy since good investment practice has one invested portion internationally. However, the U.S. economy is the largest in the world, so it should be a decent proxy. Looking at the data since 1937 can show the probability of positive returns after specific periods of time. That data shows that an investment has a 63% probability of being higher than it began after one month. After one year, the probability of investments being higher is 77%. After ten years, that probability increases to 97.3%.

It’s no surprise that longer-term investments have a greater probability of being more. Despite this historical data, some are still nervous about investing. But, there is a strategy that can help those who might still be hesitant. Dollar-cost averaging is a strategy in which investments are made in the stock market at regular intervals. With dollar-cost averaging, investments are made regardless of whether the stock market is high or low. The benefit of this strategy is that it helps remove the emotion from investing. 

According to research, around 66% of the time, investments will earn a higher return by investing a large amount of money in a lump sum than if the dollar-cost averaging approach was used. The reason for that is relatively simple. The market generally moves higher, and by investing a lump sum, more of your money would increase when the market moves higher.

When should dollar-cost averaging be utilized for large sums? Some worry about the 34% of the time when they would have less, which makes sense considering the principle of loss aversion. People prefer avoiding losses to acquiring equivalent gains. So what’s a person to do? Since the most crucial aspect of building wealth is investments, dollar-cost averaging can provide many the confidence to invest. For many clients with this strategy, I recommend investing half as a lump sum and dollar-cost averaging the remainder over the subsequent six to twelve months.

• S&P 500 Historical Data - See page 6 for 1937 data
• Black Monday
• Lump sum pays more than gradual investment - Deseret News
• How to invest a lump sum of money | Vanguard

• https://BetterPlanningBetterLife.com 
• Connect with Jonny on LinkedIn

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