Taxes

How Potential Higher Inflation and Taxes Impact Your Retirement Strategy

July 29, 2021 by Hans Blake, CFA, CPA

Reading Time: < 1 minute On today’s Intelligent Money Minute, we continue our conversation with Morningstar’s director of personal finance, Christine Benz on how potential higher inflation and taxes impact your retirement strategy. Christine believes we should be mindful of potential inflation and high taxes. A key point she makes is not waiting to implement tax-saving strategies. During this episode, she explains the value of tax-deferred accounts. Tax-deferred accounts blended with other financial vehicles could be beneficial to your financial strategy. At Intelligent Investing, one of our unique factors is that we strive to minimize fees and that includes government fees. There are many planning opportunities, especially in the sweet spot years between retirement from an employer and when you start social security benefits. We love organizing our clients’ financial junk drawers, and we’d love to organize yours. To learn more about Intelligent Investing or to become our next intelligent investor, please visit investedwithyou.com. Schedule a short discovery call or meeting We’ll be interviewing Christine on several podcasts regarding retirement strategies, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Christine Benz Bio

Christine Benz is Morningstar’s director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. She holds a bachelor’s degree in political science and Russian/East European studies from the University of Illinois. Christine lives in the Chicago suburbs with her husband, Greg. She is an avid cook, a political junkie, and a long-suffering Chicago Cubs fan. Follow Christine on Twitter.

President Biden’s Capital Gains Tax Planning

April 30, 2021 by Hans Blake, CFA, CPA

In Biden’s first congressional address, President Biden called for massive government spending including $2.3 trillion in infrastructure and $1.8 trillion in family and education programs. Of course, tax hikes follow significant federal spending. During this Intelligent Money Moment, we break down the facts and impact of this new proposal while offering some practical planning ideas in response.

Facts

Currently, ordinary income such as wages or business profits is taxed at a top rate of around 41% and capital gains have a top rate of around 24% when you factor in potential payroll or investment taxes.
This week, President Biden will meet with Congress to outline a plan to help pay for several social programs
Details of the plan are being worked out, but the plan could cost more than $1T with funding for child care, paid leave, universal pre-kindergarten education and tuition-free community college.

Impact

The plan may alter a tax provision that lets investors avoid capital-gains taxes on appreciated assets if they hold them until they die. Mr. Biden’s plan is to have gains on appreciated assets be taxed at the date of death (regardless of whether they are actually sold).
The plan could increase the top capital gains rates on taxable investors at the top of the income scale.
Republicans argue that stock prices and investments could suffer, especially as these changes could come atop corporate tax increases President Biden has proposed to pay for infrastructure spending.
With a 50-50 Senate and closely divided House, moderate democrats may have a significant say in the tax proposals.

Planning Ideas

If you are a high-net-worth individual in the top tax bracket or approaching, the recent news may impact you the most, and likely to provide tax planning strategies to perhaps spread out some of your long-term-capital gains in years when your low-earning years before Social Security benefits kick in.
If you have a taxable account (revocable trust, or large taxable brokerage account), you may want to consider a gifting strategy depending on your current tax bracket and time horizon and other factors.
As a CPA, tax efficiency has been a bedrock of Intelligent Investing and historically has been one of the biggest levers of value creation.
If you’d like to learn more, please visit investedwithyou.com and click on the “Get Started” button to become the next Intelligent Investor.

The Four Biggest Financial Problems a HENRY Faces

January 28, 2021 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

First of all, nobody likes to be labeled, and there are always exceptions to the rule, but HENRY is an acronym that stands for High Earner Not Rich Yet (coined by Fortune in 2003). HENRYs are young doctors, lawyers, engineers, or other top-earning professionals who have a high salary but don’t have time to manage investments. They are in the process or have finished paying off student loans and are beginning to accumulate a nest egg. They may have a young family and are becoming an expert in their professional field. Essentially HENRYs are young professionals who have a high salary but don’t have time to manage investments.

A couple of quick stats: Many HENRYs are Millennials who like control and technology, and make up the largest generation. They have the highest number of billionaires and are digital do-it-yourselfers. 25% aren’t sure how their retirement savings are invested, and 80% are concerned Social Security won’t be there for them when they retire.

People make money in many ways, but often don’t know what to do with it after they’ve made it. Some of the biggest financial problems a HENRY faces: The 4 Ds

The 4 Ds- Debt, Direction, Discipline, and Digital Dangers

First, they have insurmountable Debt–

The Federal Reserve estimates that Americans owe more than $1.7 trillion in student loans. In addition to student loans, HENRYs face ridiculous rents, or are living with their parents, as they have a hard time saving up enough for a down payment on a home. In addition, they can’t afford enough insurance for a health or disability event.

Second, they lack Direction–

63% of Americans are living paycheck to paycheck, and if faced with a $500 emergency, 8 out of 10 couldn’t cover the cost. As a result, HENRYs haven’t created an Emergency Fund, a Budget, or retirement plan.

Third, they lack Discipline–

They often are unsure where to get sound financial advice and they are too busy developing their own career. They don’t have time, nor the accountability they need to keep them on the right path.
Instead of talking about their latest hot stocks at the water cooler as in prior generations, they are in Reddit chatrooms or Social media feeds convincing each other they know more about a company’s stock than anyone. This overconfidence bias will eventually get them into trouble.

Fourth, They face Digital Dangers–

We live in a digital world that is instantaneous. HENRYs prefer paying by digital wallets, and are comfortable throwing money at cryptocurrencies like Bitcoin. They like the recent high returns of Bitcoin, and they think they are a long way off from retirement so they can afford to take some risks. They remember their parents complaining about the 2008 housing crisis which was the result of bankers and brokers playing fast and loose with “safe investments like stocks and houses.”
We are now seeing a repeat of those behavioral mistakes. By eliminating transaction fees, HENRYs are on the Robinhood app convinced that their stock, Bitcoin, or options purchases can only go up.
In the short run, they may be right as they gamble, but in the long-run, the house always wins.
Sometimes HENRYs fool themselves into thinking they can just “Google” their financial or investment questions. Unfortunately, it’s not that easy. Market conditions and economic forecasts change constantly. Technology can beat humans at computations, but I also believe it is best to receive wisdom from a human who understands investor behavior and who leverages integrated technologies.

Cryptocurrency & How It Works

January 27, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on cryptocurrency and how it works. During this episode, Matt pulls back the curtain and sheds light on the nuances of cryptocurrency. According to Matt, cryptocurrency is the first native way that money can move over the internet. For example, if you go online today and pay your internet bill, it could take multiple days for that money to transfer. Contrast that with a Bitcoin transaction. Matt gives an example of a billion-dollar transaction that settled in less than 10 minutes with a fee of .0007%. There are many misconceptions regarding cryptocurrency. Simply put, it’s a new rail for the modern transfer of money.

I recently read a quote, “Knowledge acquired by reason will dispel ignorance and thus destroy the greatest evil—fear.” As Matt points out, when you hear of something new, it is best to do some research in order to gain knowledge and a better understanding. We think the same holds true of cryptocurrency, blockchain, and alternative asset classes. Just because something is new, doesn’t make it wrong. At the same time, just because it is new, doesn’t mean it’s better. To learn more about our philosophies, go to our philosophy page.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes, and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.

The Dangers of Commission-Free ETF Trading

January 14, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on the dangers of commission-free ETF trading. Recently, custodians have been offering commission-free trading on ETFs, but many believe this can encourage misbehaving. Matt lays out the big picture in regards to the market and the opportunity. During this episode, he highlights the benefit and the behavioral risk of commission-free trading. The benefit is that those paying commissions will experience a leveling of the playing field. On the flip side, the behavioral risk is resisting the temptation to trade more frequently. Just because you can trade something doesn’t mean you should.

The adage, “There’s no free lunch” continues to ring true today. Custodians will make money somehow, and it is important for you to understand that. Investors should be grateful for the recent drop in commissions, but there is a behavioral risk that is attached to commission-free trading. You can learn more about these dangers and the need for having an investor behavioral coach by visiting our philosophy page.

Matt Hougan Bio

Lessons Learned From The ETF Flash Crash

December 2, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on lessons learned from the ETF flash crash. You’re right to realize that ETFs have different risks than mutual funds. Unlike mutual funds, ETFs trade like stocks so like all equities that day, ETFs traded down during the Flash Crash. There are ways to protect against those sharp downturns by avoiding sleeping limit orders which is true for stocks at ETFs. Once again, Matt Hougan reiterates that ETFs can have a lot of unique advantages compared to mutual funds, but it still requires sensible practices.

There will always be trade-offs in life, and the same thing is true when it comes to trading, risk, and your financial plans. At Intelligent Investing, we have the ability to show you your financial plan and let you choose some of the trade-offs to see how it impacts your plan. For example, what if you were to retire a few years early, what if you wanted to increase your spending in retirement, or perhaps you want to leave a larger bequest as a lasting legacy. We have the ability to show you how changing each of these factors will impact your financial plan’s success rate, and we’d be happy to have a coffee or call to discuss this in detail.

Matt Hougan Bio

Reasons Mutual Funds May Make Sense in Your Portfolio

November 11, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on whether mutual funds make sense in your portfolio. Despite being the Chairman of Inside ETFs, Matt Hougan still believes mutual funds have great value in portfolios. For example, mutual funds can be great investments in the retirement space. His reasoning is due to the fact that tax efficiency isn’t as important during retirement and more privacy than ETFs. The inherent transparency of ETFs presents multiple trade-offs like less liquidity and the risk of daily disclosing of one’s portfolio. Some non-transparent ETFs exist, but they are relatively new.

At Intelligent Investing, we currently use mutual funds and ETFs in our portfolios. Since we are independent, we are able to build our own portfolios which drives out a lot of costs. One of our unique factors is to minimize fees, especially portfolio costs. To learn more about our firm and philosophies, visit here and consider scheduling a complimentary coffee or meeting.

Matt Hougan Bio

The Creation and Redemption Process of ETFs

October 21, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on what ETFs are and how the ETF creation and redemption process works. ETFs have a unique creation and redemption process that differs from mutual funds. An ETF publishes a list of all the securities it wants to own at specified desired weights. A group of authorized participants will go into the market and buy all the desired stocks the ETF has listed at the desired weight. The beauty of this from an ETF perspective is that it essentially sits still with effective little effort and still receives the desired outcome. According to Matt, It’s an efficient batch process with potentially less risk.

Matt said you don’t need to know how wifi works, as long as it works. However, you may be the “engineering” type who likes to dig into how things work. At Intelligent Investing we work with engineers and other executives and professionals who take time to understand our philosophy and processes. We’d love to let you open up the hood so we can show you exactly how our Intelligent Investing engine runs and how we’ve integrated over 30 technologies into the firm. To learn more, go here to schedule a complimentary call or meeting. We are excited to be interviewing Matt Hougan, and we have several more episodes where we explore the ins and outs of ETFs, bitcoin, and blockchain, so be sure to subscribe to our podcasts to hear all the interviews.