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Hey everyone, stock market craziness aside, I hope the end of the year is wrapping up nicely for you. First and foremost, I wanted to just quickly thank everybody for all of your time and support this year.
With your help and feedback, the podcast continues to grow, which to us means good financial information is getting in the hands of more and more people. And that's our primary goal. There's so much bad information out there that we want to do our part to reach a larger audience and cut through a lot of the noise to give you the right answers. So we appreciate you taking this journey with us. We've had a lot of fun this year, and I just wanted to take a moment to just say thank you.
Second, this will be our last podcast until January 22nd. We have some awesome things up our sleeve and we want to take...
the next few weeks to enjoy some time with, with friends and family, of course. Um, but also to work on a few of these improvements that we're, we're making to this podcast. So, uh, you won't hear from us again until the 22nd of January, which is a Tuesday. Uh, don't miss us too much. Enjoy the holidays, enjoy the start to your year. And then, uh, we will be kicking off strong on Tuesday, January 22nd. So stay tuned.
Okay, before I share my super easy year-end planning checklist, the top three things that I think you should just make sure you check on before the year wraps up, I just wanted to share a tweet that I saw actually not that long ago today. The tweet was from Jim O'Shaughnessy, who is the CIO of O'Shaughnessy Asset Management.
He's written numerous books. Some say he's a legend in our industry, but Jim's awesome. And he's really taken to Twitter this year. And I saw a tweet today, given the recent market volatility, I thought I'd just share it. I really appreciated his approach and something that I may consider doing myself here. So Jim says, right now, take a deep breath, sit down and write about how you feel about what's happening in the market.
Be freeform, be honest. If you have a pit in your stomach, write about it. If you feel jittery, write about it. If you think this is the next financial crisis, write about it. If you feel like selling everything and going to cash, note that too.
Write about every worry, frustration, and uncertainty you are currently experiencing. Then put a date on it and put it away. Chances are very good that when you read it again 12 to 18 months from now, you will be shocked you felt this way. Your brain will do somersaults to try and convince you that you really didn't feel everything that you wrote because things will have calmed down.
Corrections and bear markets, which we're definitely in correction territory today. We're not quite in bear market territory, but he says corrections and bear markets are a feature, not a bug of the stock market. Without them, there would be no equity risk premium, meaning we wouldn't earn as much as we do by investing in the stock market over long periods of time.
He goes on to finish and says,
So I thought it was just a really interesting, different way to approach the market volatility. I doubt all of you are going to pull out pens and paper and start to write things down, but I don't know. It probably isn't the worst exercise in the world to go through. It's better to do that than act on your emotions and go and change your whole portfolio just because things feel a little uncomfortable right now. So with that, I mentioned that I'm going to share with you three things
super easy year-end planning things that you can do today in less than an hour and just feel like you can just tie a bow on everything before the year ends. And it might seem really simple, but I'll share a couple little things in there that hopefully are new to you. So the first one is,
is review your beneficiaries and just hang on with me for a second. Cause I know it just sounds like this canned, uh, advice, go review your beneficiaries. That's what every financial advisor in the world tells you. But, um, a couple of things here. Uh, I can't tell you how important this is. Number one, uh, we do this every single year with our clients and we always, always, always find things that need to be updated or changed or something's missing or, uh,
someone feels differently today than they did a year ago. So number one is this is really, really, really important. So you might be surprised when you go to check your beneficiaries and go, oh, shoot, like,
Something's definitely changed here. I want to change something. So with that out of the way, if your beneficiaries look correct, remember you can set a primary beneficiary and contingent beneficiaries. You can have as many as you want. You could have 10 primary beneficiaries and you could have 10 contingent beneficiaries. Contingent meaning if your primaries are no longer around, then it goes to this new set of beneficiaries.
So if those are correct or if you make them correct, the next thing that you want to think about is this thing called persterpes or per capita. And this is how your beneficiaries will be treated if something were to happen to you. So I'll try to keep it really simple, but this is an option that you have when you list out your beneficiaries. You have to choose persterpes or per capita.
So per stirpes, let's just pretend that you have two kids, a son and a daughter, and you want no matter what your daughters share and your sons share to stay within their family.
For instance, maybe your son has some kids and you want to make sure that your son's 50% share, if he wasn't in the picture, that his share would go on to his kids. That's per stirpes. If instead you had it set up per capita, if your son wasn't in the picture, his kids would miss out on that 50% and instead that whole 50% would just go to your daughter instead.
So if you want to make sure it stays in the family line, you want to make sure that your kids and their kids and their kids receive this inheritance. You want to make sure that you check per stirpes. But if you don't care about your kids as kids and all you want to focus on is just your primary beneficiaries, if beneficiary A isn't around, everything will go to beneficiary B.
then you can choose per capita. And that's what per capita will do. It will not go to the next generation. The second reason I think, or maybe I think this is the third reason I think reviewing your beneficiaries is so critical is I think it's just a good opportunity to sit around the table with your spouse, have a glass of wine and just talk about your beneficiaries and make sure it still lines up with what your intention is.
when you wrote them down. So I think it's just a really good excuse to open that line of communication. It might lead to other discussions about money and finances and other things that need to happen. But this is just a really easy one, like, hey, honey, I mean, this is a really morbid conversation, but if we're not in the picture, what do we want to happen? And do our beneficiaries reflect that?
that super easy conversation well the most part it's usually a pretty easy conversation to be had but if things get more complicated or start to feel more complicated or you're not really quite sure what to do and
an estate attorney is going to be someone you're going to want to talk to. So maybe that's on your list for January to reach out to your estate attorney or find a new one to help you update those beneficiaries or maybe just help you talk through them. Sometimes it's helpful to hire an attorney just to help guide that conversation and help you come to that conclusion as to how everything should be listed. Because remember...
Sometimes it's not a person that's a beneficiary. It could be a trust or it could be a combination of a trust and a person or multiple people. So if things aren't that cut and dry, cut and dry might be if I'm not here, give it to my spouse. If my spouse isn't here, split it between my three kids per stirpes. That could be just a really simple situation. But if things are more complicated, please find an estate attorney.
All right, number two on our super easy year-end planning checklist. Again, seems pretty basic, but it's so important. Confirm that your required minimum distributions have been made or will be made before the end of the year. And this year, the end of the year is December 28th, which is a Friday. So you don't have until the 31st. You have until the 28th.
And if you're 31 years old and you're, and you're listening to this podcast, um, this is still something for you to think about because you may have what's called an inherited IRA. Uh, maybe somebody left you an IRA that they passed away and you inherited their IRA. Um, you are required in many cases to be taking that person's required minimum distribution. So just because you're 30 years old and you're not retired doesn't mean, uh, this doesn't pertain to you. Um,
So make sure if you have an inherited IRA that those RMDs or required minimum distributions have been met. The penalty is massive, so it's not worth messing around here. It's not worth just saying, oh, I think I'm all set. Really take a look. Just double check before the end of the year and make sure those are all taken care of. All right. Lastly, and then I'm going to let you guys go for the year.
Review your portfolio, but not for tax loss harvesting, which everybody likes to talk about this time of the year. But I'm going to ask you to review your portfolio instead from a risk perspective. So tax loss harvesting is its own conversation topic.
Um, we'll do a whole episode on that in the future. Uh, talk to your advisor or Google around to make sure that you're all set in the tax loss harvesting department. Um, it, it might mean less than you think. I wouldn't overthink tax loss harvesting either. It really, really, really applies to you or it doesn't. Sometimes it's sold as this, uh, you know, fancy value add, uh, academic research, um, doesn't always agree with that. So, um, I wouldn't,
you know, spend too much time on it. I would rather you review your portfolio today, right now, especially given the volatility from a risk perspective. And I know John isn't here right now. He hasn't been with us for a few episodes, but he will be back. I promise. But John has a saying that I love and maybe he stole it from somebody else, but he says,
Don't let the tax tail wag the investment dog. I hope I got that right. But essentially, don't make investment decisions based on taxes.
And the reason for that is sometimes people have a lot of embedded gains, right? They have this pile of investments that have grown over a long period of time. And there's this massive capital gains there. And they're afraid to sell because they might get hit with a big tax bill. That's letting the tax tail wag the investment dog. You're letting the tax consequence drive your investment decision. And we don't like to approach it from that angle.
A lot of times, you know, let's take San Diego, for example, a lot of Qualcomm employees, they have Qualcomm stock. I mean, some of these employees have millions of dollars in Qualcomm stock and they're afraid to liquidate or they don't want to liquidate because they're going to pay a big tax consequence.
But when you look at it from a risk perspective, I mean, they are super highly concentrated in one single stock position. You know, not only do they not have any bonds associated with it or other asset classes, but they have one single position and they're hesitant to sell because they're going to pay some taxes. Like that just, that just doesn't make sense for us, makes sense to us. So
Look at your, you may not be in that situation exactly, but look at your portfolio and maybe you're 80% stocks and 20% bonds. And you've been that way for a long time and you've made some money and you're not, you're finding yourself not wanting to rebalance or sell anything because you don't want to pay taxes. We had a few people tell us this, like, Hey, we're so close to the end of the year here. Maybe can we just hold off until January to make this change?
Um, that way we can push the taxes into next year. Well, look what's happened between, you know, uh, just a few weeks ago and today, I mean, the market was down again, big today. So, you know, we could have a major crash in between now and the end of the year. And if you were making a tax decision, uh, or making an investment decision based on taxes, gosh, that, that could hurt, you know, uh,
you know, an extra $5,000 tax bill or $10,000 tax bill might look, you know, pretty nice compared to the $50,000 loss or $100,000 loss in the short term that you experienced because of the market. So,
don't hold off on making a really important investment decision because of taxes. Really look at this from a risk perspective. Now, right now, with the market where it's at is the perfect time to figure out, am I in the right portfolio or not? Because if we keep, if the market keeps going down, you need to hold this portfolio. You don't want to be making these changes while the market's going down. It's the worst possible thing you can do. So I'll
I'll just say it because there's this analogy I like to draw with real estate. It's like, imagine if you own this million-dollar home, and you bought this home for a million dollars, and the economy goes through a tough time, and that million-dollar home is now worth $500,000.
you know, how many people are going to go and hire a realtor then in there to put their house up for sale and sell this house that just went from a million dollars to $500,000. It's, it's not going to happen. Most people would say, okay, you know what? Uh, we're going through a tough time right now. Economically. Um, we're going to, we're going to,
make some other changes in our life. We're going to make our mortgage payments. We're going to hunker down. We're going to make this thing work. And when that house gets back from 500,000 to a million, then we'll reevaluate our situation and decide if we want to sell this house or keep it, you know, build a long-term plan from there. Well,
right now, perhaps, you know, maybe we're at this top, you know, where that house is worth a million dollars. And now is when you want to make that decision regarding your portfolio to say, Hey, if we, if we go down far from here, am I comfortable holding on to this portfolio, this asset? Because the last thing you want to do is put this portfolio up for sale when it dropped significantly in value. It's the worst, worst possible thing you could do. It is so, so hard to recover from. So,
Yes, the market is already down this year. It's not the most ideal time to start making changes, but I feel like we're early enough to where if you're just not comfortable and you know you're not comfortable and maybe you've been letting taxes wag the investment dog, maybe now is the time to say, you know what, I just know I'm taking too much risk. I've got to take risk off the table now.
Find a portfolio mix that works for you Maybe you're 80/20 and you need to get down to a 50/50 and pay some taxes who cares If that makes sense for you do it and then hold that portfolio through thick and thin again We don't want to keep making changes to the to the the overall asset allocation we want to find a balance that works and something that we can hold on to so
Those are your three super easy year-end planning things to check on. Review your beneficiaries, confirm your RMDs. Even if you're 31 years old, it may still apply. And then review your portfolio, not for taxes and tax loss harvesting, which everyone loves to talk about, but for risk. Really look at it from the risk perspective. So I hope that was helpful for you. Hopefully you just caught something new that you hadn't heard before.
Once again, thanks for all your support this year. If you have anything, any ideas, if you just want to say thank you, say hello, shoot us an email at podcast at staywealthysindiego.com. And we look forward to talking to you again on Tuesday, January 22nd, 2019. This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.