My Uncle Bob

In October of 1987 the Dow Jones Index was trading around 2,500.  My uncle Bob decided to trust me with his $100,000 investment.  By the time Halloween was rolling around, the only thing spooky was his account as I had managed to turn his balance into just shy of $69,000!  That account bounced around until after Christmas (needless to say I didn’t receive a Christmas present that year!).

tempsnip4

To my surprise, he stuck with our original investment plan (though he didn’t ask me to manage any more of his money!).  It took until July of 1989 for his investment to fully recover back to the $100,000 mark.  As much I thought he would ask me for his original money back, he left it with me (though he didn’t ask me to manage any more of his money).  His account balance at the end of March was just north of $1,600,000 as he has never touched his account.

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In hindsight does it particularly matter that the Dow went from 2,500 to 1,800?  Sure, the 30% decline was very painful at the time, but I learned an important lesson from that experience.  Wealth is built over time.  Buy quality companies when they are on sale and you will be rewarded for your patience.

Change Your Thinking

TP

We have all heard the adage “Buy Low and Sell High,” but how does that play out in real life?  Can anyone time the top and bottom of the market?  We do not believe it is possible.  So how do we ensure that you are buying when prices are low and selling when prices are high?  Let’s look at a very current and relevant example:

Toilet Paper…Yes, I said toilet paper!  Earlier this year I bought a 30-roll pack of Kirkland Brand 2-ply Bath Tissue from Costco as our household was running low.  The $19.99 price tag seemed reasonable compared to other stores I had shopped.  The VERY NEXT WEEK, Costco put out their monthly advertisement and offered $4 off the same product I recently purchased.  Being the economically consumer that I am, I stopped back and picked up another 30-roll pack.

Was I happy that I had toilet paper for my family even though I paid full price?  Sure, I needed it.  I was even more excited when I got it on sale!  Fast forward one month and now I am REALLY glad I bought all that toilet paper!  I have seen people offering up to $5 a roll on-line!

So what does my story about Costco brand toilet paper have to do with the markets?

Why does your thinking change when it comes to stocks?  It is something you need to meet your long-term goals.  It was full price a month ago.  Today it is on sale for 25% off, so why are we not stocking up?  Could it go on sale some more?  Sure!  But if you see it on sale, buy more as you can always sell to someone for $5/roll!

RMD’s for 2020

960x0As part of COVID-19 stimulus package signed by President Trump, Required Minimum Distribution’s (RMD) have been suspended for 2020.  This will allow people age 70.5 and over (or those who have inherited an IRA) to leave their money intact for a market recovery.

However, should you leave your money?  Limiting the RMD may lower your tax bracket for one year, but you should consider your tax brackets over multiple years.

https://www.forbes.com/sites/ashleaebeling/2020/03/27/congress-suspends-required-minimum-distributions-for-401ks-and-iras-for-2020-opening-window-to-tax-savings/#665998582cb6

Please Ignore The Media!

So many examples of out there of the press just trying to catch readers attention.  Here is one example that I saved from Valentines Day…the rest is history.  If you get caught up in what the media is preaching, you WILL be worse off.  Put your money in the markets long-term and LEAVE IT ALONE.

Below I have shown the S&P 500 (biggest 500 companies in US) from 2-14-2020 forward:

Can You Live 2+ Years Longer?

When I run long-term projections for folks, I regularly assume 95 years will be their life expectancy.  You should see some of the looks I get!  Almost everyone laughs and says there is no way they will make it to age 95.  However, statistics show that a 65-year-old couple has a 90% chance that one of them will be alive at age 80 and nearly 50% chance that one of them will still be alive at age 90!  How is this percentage going to change over the next 20 years until I reach retirement?

JPM Life Expectancy

Also, keep in mind that data on the left is put together by the Social Security Administration, so it is a sample set of the entire population!

Do you go to the dentist regularly?  Dr. David Cleveland at Darby Creek Dental shared that more than 1 in 5 Americans hasn’t seen a dentist in more than 3 years!  Do you wear your seatbelt?  According to the National Highway Traffic Safety Administration, 27 million Americans still do not?  Do you have access to quality healthcare?  What about the ability to buy quality fresh foods?  If you answered yes to any of the above, you are likely to have a longer expectancy than the average American.

So again, I ask…is 95 absurd?

So how long of a retirement should you plan for?  Can you change your life expectancy?

The obvious answer is to look at longevity in your family history.  If both of your parents lived into their 90s and were physically and mentally healthy, you have a pretty good chance to be looking towards that centenarian mark.  Want some tips directly from the Centenarian’s themselves, then read this article from PBS or watch this video from Sharp Health.

Ok, so what about you?!?  Try taking the test at www.livingto100.com that will ask some specific health questions and compare your estimated life expectancy to the average.  It will also recommend life changes and will show how those changes can impact your longevity.

So what age did you get?

If you need help planning for all those wonderful years of retirement, please feel free to reach out to me!

Why Dad…Why? A Life Insurance Story!

kid-handshake

Let me start off by saying I am very appreciative of all the help that friends and family have provided me over the years!  I don’t mean to sound ungrateful at all, but rather want to use my situation to teach others.

My dad recently called me and told me that he had taken out a whole life insurance policy on me right after I was born and he was turning it over to me now that I have my own family.  I was stoked!  Free Money!

It was a $25,000 whole life policy that my dad paid $189/year in the event I passed away, they would have money to bury me.  Kinda morbid, but a reality.  The sales person talked about me having the ability to use it for college and the ability to take loans from the policy tax-free…blah…blah…blah…

Today I own a whole life policy that has a death benefit of $28,002 or I could take my cash value of $6,668.62 out to use for anything I want.

Here’s the problem…

If my dad would have just put that FIRST $189 payment into an S&P 500 fund it would have grown to $10,542.42 of cash.  THAT IS JUST THE FIRST PAYMENT!

If he would have put that same $189/year into an S&P 500 fund until he turned it over to me, I would have an account balance of $74,511.36!

Again, I am not ungrateful for the gift, but that can be the difference between the next generation going to college or not…having the ability to take on the risk of a business venture or not…spending more time with kids or not.

What would an extra $67,842.74?

 

Education Planning 102

Piggy Bank with savings formula

Want to take your education planning, and tax deductions, to the next level?  Keep reading! 

To add a layer of sophistication to education planning, you must recognize that Ohio allows a tax deduction of $4,000 per beneficiary and allows you to move accounts between beneficiaries within the same family. 

Let’s look at an example.  If a married couple (H & W) has two children (B & G) in private school, they could potentially pick up $16,000 in state tax deductions.  They would open an account with B as beneficiary, G as beneficiary, H as beneficiary, and W as beneficiary contributing $4,000 to each account. Then H and W would move their accounts to B and G to be used for tuition. 

$4,000 tax deduction * 4 beneficiaries = $16,000 Ohio tax deduction!

If you have questions, please do not hesitate to reach out!

Save Taxes Paying For Private School

EducationPrivate school education can have many upsides, but saving for college while paying private school tuitions can be daunting.  I have found very few people are aware of a recent tax change that can help reduce your taxes! 

The recent tax change has now allowed section 529 education savings plans (if you don’t know what this is, I address it here) to be used for primary education expenses up to $10,000 per year.   This can be a big tax win for Ohio parents with children in private school. 

Ohio allows for a $4,000 state tax deduction per beneficiary (up from $2,000 last year) for funds contributed to an Ohio College Advantage plan.  While the accounts were originally established for college savings, now they can be used to pay for private education. 

So instead of making your next private school tuition payment from your checking account, simply contribute to your child’s College Advantage account and then request reimbursement for the tuition you paid.  Simple as that and you have a $4,000 state tax deduction!

Feel free to reach out to me if you have questions!