A Tale of Two Doctors: Wise Money vs. Lavish Lifestyle

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After completing medical school, you face a crucial crossroads regarding how you are going to manage your finances as a high-income earner. Here is a quick story contrasting how Dr. Wise and Dr. Lavish dealt with money during their careers. As you read through their experiences, consider which one you want to emulate for your life.

Meet Dr. Wise

Dr. Wise and Dr. Lavish were both young doctors who just finished their residency programs and began their first job as an attending. Dr. Wise immediately started managing her finances wisely. She created a budget and lived within her means, even though she had a significant amount of student loan debt. She prioritized paying off her loans quickly, and with disciplined monthly payments, she managed to become debt-free in just a few years.

After becoming debt-free, Dr. Wise continued her financially responsible journey. She started contributing a significant portion of her income to retirement accounts such as a 401(k)/403(b), a Backdoor Roth IRA, and a Health Savings Account. She diversified her investments and regularly reviewed her portfolio to ensure it was aligned with her long-term goals. Over the years, her investments grew steadily, and she built a substantial nest egg for retirement.

Meet Dr. Lavish

On the other hand, Dr. Lavish had a different approach to managing his finances. He immediately purchased a luxurious house and an expensive sports car right after getting his first attending paycheck. He wasn't very concerned about his student loans so he made only minimum payments. He believed that his high income as a doctor would take care of everything.

As the years went by, Dr. Lavish found himself struggling to make ends meet. He was burdened by high mortgage payments, car maintenance costs, and growing student loan interest. He didn't have much of an emergency fund and when it came to retirement, he had very little saved.

Results After Decades of Financial Decisions

Fast forward a couple of decades, and the two doctors had vastly different financial situations. Dr. Wise had not only paid off her student loans but had also built substantial wealth through disciplined saving and investing. She was financially secure, and her retirement was looking to be quite comfortable. She continued to work as a healthcare professional because she enjoyed it, not because she had to.

In contrast, Dr. Lavish was still working long hours to maintain his expensive lifestyle and living above his means. He had only a fraction of the retirement savings and investments that Dr. Wise had. The stress of financial insecurity and the burden of debt had taken a toll on his well-being. He started regretting not being more financially responsible when he was younger.

The story of Dr. Wise and Dr. Lavish illustrates the importance of taking control of your financial life early, especially for healthcare professionals who often face significant student loan debt. Wise financial decisions, like paying off loans and investing for the future, can lead to a secure and comfortable life, while lavish spending can lead to financial stress and insecurity. 

You need to choose if you are going to be a Dr. Wise or a Dr. Lavish during your life. I think it is save to assume which one I think is the better choice. If you have questions or feel that you need help building out your financial plan, please reach out as I would be happy to meet for a Free Consult.

References:

ChatGPT was used to assist with this story creation: OpenAI. (2023). ChatGPT (September 25 Version) [Large language model]. https://chat.openai.com

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Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

End-of-Year Financial Checklist: 7 Steps for a Solid Financial Plan

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To enhance your financial situation, consider doing an end-of-year financial review. This doesn’t need to be a complex or time-consuming process, but it can set you up for success in the next year. Here are 7 steps to help guide you through your end-of-year review, and gain confidence in your financial plan.

1. Review Your Budget and Spending

Begin by assessing your spending habits. If you don’t currently use a budget, I would look at your expenses and make your best guess at creating one for the coming year. If you’re already dedicated to your budget, this is the time to figure out what worked well, and what needs to be changed. Think about these questions as you forecast for the next year.

• Is my income going to remain the same?

• Do I need to be more strict in one area, or loosen up in another?

• What large expenses am I anticipating in the coming year that I can plan for?

• Am I saving and investing enough of my income?

Remember that your budget should be a fluid tool to ensure you know where your money is going.

2. Prepare for Tax Time

Much of your tax planning will have to wait until next year, but it can be helpful to get a few items in order before tax season. You can collect business expenses, charitable giving receipts, childcare expenses, and other tax-deductible items.

The final piece of preparation for tax season would be to decide how you plan to prepare your taxes. You might do it yourself or prefer to hire it out. There is no wrong way to go about it, but now is the time to reach out and find a good CPA that you can work with to optimize your tax situation.

3. Max out your Contributions

The end of the year is the ideal time to review the contributions you have made to your retirement accounts. While doing this it’s important to know the maximum limits you can contribute to each account. When dealing with retirement accounts, we are typically talking about an employer-sponsored plan such as a 401k, 403b, and 457; or a brokerage account such as a traditional or Roth IRA. The employer plan limits for the year 2023 are $22,500 for employee contributions. It is important to note that this does not include the employer match. On top of this, if you are 50 years or older, you qualify for what is called a “catch-up” contribution that allows you to contribute another $7,500, bringing your total to $30,000 max for the year. The IRA options max out at $6,500, with a $1,000 catch-up contribution if you are 50 and older. Even if you can’t max out these contributions, adding to a Roth IRA can still benefit your financial future.

4. Review Investments

If you work with a financial advisor, now is the time to reach out and see if you can sit down with them for a year-end review meeting.

If you are a DIY investor this is still a great time to reconfirm your approach, assess performance, and rebalance your portfolio. It may be time to consider working with an advisor, if so, opt to find a fiduciary advisor who has your best interest in mind.

5. Consider a Roth Conversion

Roth conversions are done by transferring pre-tax dollars into a Roth account which will then grow tax-free. This approach can be great for someone nearing retirement who has a large amount of their wealth in pre-tax accounts. It can also be beneficial for young professionals with plenty of time for the investment to grow. This does not make sense for everyone, so consult a financial professional to weigh the pros and cons of this option.

6. Open Enrollment

Open enrollment occurs at different times of the year and is dictated by your employer. It is most commonly presented around early November and allows you to review or change your employee benefits options.

This is a good time to ensure you’re getting the best value on your insurance plans. You may even find that you qualify for additional plans such as term life insurance or disability coverage at little to no cost to you and your spouse.

7. Confirm Beneficiaries

While this is not something that changes often, it is necessary to make sure that they are up to date. Here are some accounts that should have a beneficiary associated with them. 

• Retirement accounts (401k, 403b, 457, and IRAs)

• Investment Accounts

• Bank Accounts

• Life Insurance Policies

Having beneficiaries properly assigned can help you have peace of mind that your loved ones will be taken care of. 

Walking through this checklist can give you a clear picture of your current financial situation, and set you up for success in the coming year.

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References:

https://www.experian.com/blogs/ask-experian/year-end-financial-checklist/#:~:text=Otherwise%2C%20gather%20information%20about%20your,and%20invested%20over%20the%20year

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500#:~:text=Highlights%20of%20changes%20for%202023,to%20%246%2C500%2C%20up%20from%20%246%2C000

https://www.bankrate.com/personal-finance/end-of-year-financial-checklist/#checklist

https://www.investopedia.com/terms/b/beneficiary.asp#:~:text=Beneficiaries%20should%20be%20designated%20for,may%20need%20your%20financial%20help

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Am I Doing Enough With My 401K?

Is Your 401K Doing Enough For You?

Is your 401k your biggest investment asset?

Have you ever had a financial professional look at your 401k?

Do you take advantage of the tax benefits of your 401k?

Are you upset with the return of your 401k?

How much do you really know about your 401k? Click here to listen about some of the most important points on employer sponsored retirement plans. If you have not had your 401k analyzed by a professional now is your chance to do so.

How Would You Like To Lose Money In 2022

How would you like to lose money in 2022? (Market Update)

Can the Fed Lower Interest Rates without causing a recession? 2022 has been filled with INFLATION, RISING INTEREST RATES and FEARS OF RECESSION. Within the last five months the S&P500 has declined by more than 15%, the Dow Jones over 10%, the NASDAQ tech-based growth index down over 25%.

Now let’s discuss why I worded this first paragraph in the way that I did. It enticed you to click on it and read more… This is not a new concept; the media makes money off of clicks and attention-grabbing headlines than ever before. Their goal is to scare, light a fire or entice you like never before. Now before we discuss the economics and actual statistical significance of the current market, I wanted to make one thing abundantly clear; IT PAYS TO BE A BEAR.  How do I know this? Because I am willing to bet my first line caught your attention, and it wasn’t even mine, it was taken from the headline of a Wall Street Journal article:

“Sadness and anger, for example, are negative emotions, but anger is much more potent. "It drives us, fires us up, and compels us to take action," Harvey Berger [Founder and CEO of ARIAD Pharmaceuticals] says. If you've ever found yourself falling for outrage clickbait or spent time hate-reading and hate-watching something, you know what Berger is talking about. "Anger, anxiety, humor, excitement, inspiration, surprise—all of these are punchy emotions that clickbait headlines rely on," he says.”

Within the graph above we can see the majority of news coming from four of the major mainstream media news sources are overwhelmingly negative.

Now since we have discussed why the world wants you to think a crash is coming lets analytically look at what actually causes a market crash? By observing the history of the markets and highlight what causes markets to decline, we know, markets move (in the short term) most commonly because of buying and selling. Below I have taken a screenshot of the S&P500 from 2007 to 2013 to highlight the 2008 market crash. If you look to the bottom of the chart, you can see a handful of green and red columns. These are called candlesticks, and they represent the volume at which people are buying and selling stocks. Red candlesticks represent selling and green candlesticks represent buying. As you can see on the decline of the 2008 crash the majority of the candlesticks are red, this forces markets to a bottom before someone steps in and says “This is now so cheap enough where I am willing to buy.” That is what we see right at the very bottom of the 2008 trough. On a very simple scale this is an explanation to how the markets tend to move.

The upside to the current conditions we are in is the fact that quite literally... There is currently no alternative to equities. Or as we say, TINA (There is no alternative). Let’s look at what that means, the chart below depicts the amount of interest a consumer would earn with $100,000 in the bank throughout the last few decades. As you can see in the years prior to the 2008 financial crisis you could sell your stocks, put your money in the bank and still make 2-5%. (If you are under the age of 30 this is where you laugh audibly). At this moment the average bank account yields .04%. This Is not a very attractive when compared to stock investing. Not to mention we have an extreme surplus of cash in the system. The average American has more money in the bank than ever before in history.  So, mix this all together, we have limited opportunities outside of stock investing (stopping a major selloff) as well as a surplus of cash to potentially fuel the market with buyers. 

What we have experienced thus far in 2022 is not a rare occurrence, we actually have seen this dozens of times throughout history. At some point in the year the market has pulled back negatively and still ended the year positive. In the illustration below the lowest point the market hit during a specific year is denoted by a red dot and the grey bar denotes where the market finished in that given year. There are 16 examples just in this illustration where we see a double-digit decline and by the end of the year the market is positive.

Now what you may be thinking is “This time is different.” That phrase has been uttered for hundreds of years through hundreds of economic cycles.  The fact of the matter should be, it does not totally matter if it is or isn’t. The market has proven one thing time and time again, the most patient investors are the ones who are rewarded with the greatest success. Tune out the noise, and let the beauty of “time in the market” not “timing the market” do what it does best.

The four most dangerous words in investing are

“This time is different”

-        Sir John Templeton (1933)

Maximizing Tax-Smart Charitable Giving: 4 Strategies to Consider

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If you are passionate about supporting your favorite charities while optimizing your tax liabilities, this blog post is tailored for you. We will explore four tax-smart strategies that could help you maximize your charitable giving. It's essential to consult your tax professional before implementing these strategies, as everyone's financial situation is unique.

1. Bunching Your Contributions

The standard deduction for 2023 varies depending on your filing status: $13,850 for Single Filers, $27,700 for Married, and $20,800 for Head of Household. To benefit from itemizing your tax return, your total deductions should exceed the standard deduction. Otherwise, choosing the standard deduction might be more straightforward.

For example, if you are married and plan to donate $15,000 annually to your preferred charity, and your standard deduction is $27,700, donating $15,000 alone wouldn't surpass the standard deduction. In this case, opting for the standard deduction makes more sense.

However, consider an alternative approach: accumulate $15,000 in year 1, year 2, and year 3, totaling $45,000. During the first two years, take the standard deduction, and in year 3 donate the $45,000 and itemize your tax return to deduct the charitable donations. This three-year "bunching" strategy could help minimize your overall tax burden.

"In general, contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income…" (Source: IRS; link below)

2. Using a Donor Advised Fund (DAF)

A Donor Advised Fund (DAF) is a specialized account designed for charitable donations. When you make an irrevocable donation to a DAF, you become eligible for a tax deduction in that year. The funds in the account can be invested and directed to specific charities in the future.

You can combine the bunching strategy with a DAF, which can be especially useful if you donate to multiple charities. It simplifies tax recordkeeping and may be appreciated by your CPA.

3. Giving Appreciated Investments Instead of Cash

Donating appreciated investments from a taxable brokerage account directly to a charity can be advantageous. When you sell an investment in such an account, you typically incur capital gains taxes. However, donating the investment directly to a charity may allow you to avoid capital gains tax. Ensure you've held the investment for at least one year to qualify for long-term capital gains treatment and claim the deduction if itemizing. (Source: Fidelity; link below)

The cash you initially intended to donate can be used to repurchase the investments, effectively resetting your cost basis. This can lead to lower capital gains when you eventually sell the investments, resulting in reduced future tax obligations.

4. Qualified Charitable Distribution (QCD)

As you approach retirement, you'll be required to take Required Minimum Distributions (RMDs) from your traditional retirement accounts, typically starting between 70.5 and 75 years old, depending on your birth year.

If you wish to allocate some or all of your RMDs to charity to avoid paying taxes on them, consider a Qualified Charitable Distribution (QCD). You can direct your RMD to your chosen charity, provided it's the first withdrawal of the year. This strategy is beneficial if you are already planning on being charitable while facing RMD requirements.

Utilizing these strategies for charitable giving can significantly reduce your tax liability. Supporting charitable causes is admirable, and doing so while optimizing your tax situation is even better.

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Jurgen Longnecker

Action Tax & Accounting, PC 616.422.3297 actiontaxandaccounting.com

I'd like to extend my thanks to Jurgen Longnecker for his contributions to this blog post. Having insights from a CPA regarding charitable contributions and taxes is always incredibly valuable.

References:

https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

https://www.fidelity.com/viewpoints/personal-finance/charitable-tax-strategies

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

SavvyMoney Feature: 6 Tips For Teaching Your Kids to Save

Leanne Rahn had the privilege to be featured in SavvyMoney to talk to readers about “6 Tips For Teaching Your Kids to Save”.

Leanne shares tangible tips and steps parents can implement to create a positive environment around money for their littles.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Waiting To Start Investing Until 40 Could Cost You Over $4 Million?

Albert Einstein has been credited with saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” (Source: Goodreads; link below) I want to review a few scenarios to show you how powerful compounding interest can be when you start early and are consistent with investing. Hopefully, this will help you be the person who earns it throughout your life instead of the person who pays it!

Disclaimer: All these scenarios are calculated to earn the same interest rate every year. Your actual numbers in real life will be different since some years it might be higher, lower, or even negative. The average stock market return over the long term has been around 10% per year. (Source: Forbes; link below)

The Early Investor

Source: Calculator.net; link below

Iron Man has read Heath’s blog posts and knows that starting to invest early is very important so he starts investing right after high school. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 18 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $318,500. The total interest earned over those 49 years would be $4,973,043. Iron Man’s total balance when he turns 67 would be $5,291,543. That means 94% of the money inside the account is from compounding interest!

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Investing A Decade Later

Source: Calculator.net; link below

Loki wants to have fun in his 20s. He goes on fancy vacations, drives fancy cars, and lives his best life. When he turns 30 he decides to start investing for retirement. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 30 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $240,500. The total interest earned over those 37 years would be $1,590,093. Loki’s total balance when he turns 67 would be $1,830,593. That means 87% of the money inside the account is from compounding interest! Still good, but $3,460,950 less than Iron Man. Those 12 years of additional investing were very powerful.

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The Mid-Life Investor

Source: Calculator.net; link below

Captain America was unfortunately in cryosleep for many years so he wasn’t able to start investing until he turned 40. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 40 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $175,500. The total interest earned over those 27 years would be $552,293. His total balance when he turns 67 would be $727,793. That means 76% of the money inside the account is from compounding interest! That is still good but again $4,563,750 less than Iron Man who started 22 years sooner. 

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Which superhero do you want to be?

• It takes discipline to start investing early like Iron Man at 18 years old but the rewards down the road can be tremendous

• If you look at the graphs in all three scenarios you will notice that compounding interest doesn’t really start to ramp up until after the first 10-20 years. Don’t get discouraged in the first 5 years if you don’t see your money growing dramatically yet

• There’s a Chinese proverb that the best time to plant a tree was 20 years ago but the second best time is now

If you would like help to harness the power of compound interest schedule a time when we can discuss your particular situation.

Sources:

https://www.goodreads.com/quotes/76863-compound-interest-is-the-eighth-wonder-of-the-world-he

https://www.forbes.com/advisor/investing/average-stock-market-return/

https://www.calculator.net/future-value-calculator.html

“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

MoneyGeek Feature: Women’s Guide to Making Financial Moves After College

Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “Women’s Guide to Making Financial Moves After College”.

Leanne discusses challenges women face as they begin their financial journey after college and what they can do to set themselves up for a fruitful financial life.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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MoneyGeek Feature: How to Find the Best Car Insurance for Women

Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “How to Find the Best Car Insurance for Women”.

Leanne discusses her recommended insurance professionals and why gender is used for calculating premiums.

Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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Is A Financial Advisor Worth It?

If you have extra time, are interested in finances, and are willing to research the actions needed to become successful financially; then you might not need a financial advisor. There are a lot of great free resources available if you are willing and able to put in the time and effort. That being said, there are also many reasons why you might choose to work with a financial advisor. 

You might:

• Be too busy with work/life to complete research on your own

• Deal with analysis paralysis and need some guidance on how or where to invest

• Get nervous during periods of market volatility and need someone to give you reassurance and prevent you from making an emotional investing decision that could cost you a lot of money

• Need someone to help keep you accountable and consistent with investing

• Not be interested in finances/investing and would rather pay someone to help so you can spend more time on things that you enjoy

Whether you are currently working with a financial advisor or looking to work with a financial advisor, here is a review of some ways financial advisors could add value to your investing plan according to Vanguard. If you do not need/want a financial advisor you may still want to focus on these areas as you manage your own financial plan. (Source: Vanguard Advisor’s Alpha; link below)

Value a Financial Advisor Could Bring

As I review the seven modules that Vanguard presents, please keep these quotes from the paper in mind.

“Paying a fee to a professional who follows Vanguard’s Advisor’s Alpha Framework described here can add value in comparison to the average investor experience, currently advised or not. We are in no way suggesting that every advisor—charging any fee—can add value. Advisors can add value if they understand how they can best help Investors.”

“We do not believe this potential 3% improvement can be expected annually; rather, it is likely to be very irregular.”

“Some of the best opportunities to add value occur during periods of market duress or euphoria when clients are tempted to abandon their well-thought-out investment plans.”

(Source: Vanguard Advisor’s Alpha; link below)

1. Suitable Asset Allocation Using Broadly Diversified Funds/ETFs     Value: >0.00%

Asset allocation is the percentage of investments you have in stocks, bonds, cash, and alternative investments. Factors to help determine your asset allocation are your risk tolerance, risk capacity, and the goals you have for that particular sum of money. Having the right mix of investments for your specific situation and goals is very important. Vanguard found this value add to be significant but stated it was too unique to quantify.

2. Cost-Effective Implementation (expense ratios)     Value: 0.30%

After determining your asset allocation, the next step would be to decide what investments to invest in. One thing that you have a lot of control over is how much you pay to be invested in the stock market. The difference between the returns you achieve and the cost you pay is your net return. Vanguard recommends keeping your expense ratios low, and I agree. A high expense ratio for a fund could be greater than 1% whereas a low-cost index fund could be as low as 0.04%. Vanguard found this value add to be 0.30%.

3. Rebalancing     Value: 0.14%

Your asset allocation can drift over time. Let’s say you originally invested 80% in stocks and 20% in bonds. One year later if stocks perform better than bonds, you might now be 90% stocks and 10% bonds. If you want to control your risk and stick within your risk tolerance, then rebalancing back to the original 80% stocks and 20% bonds may make sense for you. Rebalancing can also help you buy low and sell high. It forces you to buy the investment that underperformed and sell the investment that overperformed. This is easier said than done. If you had an investment that did really well, emotionally you may not want to sell some of it and buy the investment that underperformed. A financial advisor could do this automatically for you. Vanguard found this value add to be 0.14%.

4. Behavioral Coaching    Value: 0.00%-2.00%

As human beings, we all have emotions. During periods of market volatility and downturns, having an advisor to help prevent you from changing your investment strategy could be very valuable. When COVID initially started, the market took a huge dive as the economy shut down. I know a few people who sold completely out of the stock market because of fear. Then when the market recovered they missed out on the huge gains that followed. They let their emotions get the best of them and ended up locking in their losses by selling. If they would have had an advisor to help them stick to a financial plan they might be in a better position today. Vanguard found this value add to be 0.00%-2.00%.

5. Asset Location     Value: 0.00%-0.60%

There are three main types of accounts where you can keep invested assets: Tax-deferred accounts, Tax-free accounts, and Taxable accounts. Having the right investments inside of the correct accounts could help you pay less in taxes, which would leave more money left over for you. Here is a figure from the Bogle Heads forum which reviews which funds might be better for the three different account types. A financial advisor could help you decide which investments should be inside which accounts. Vanguard found this value add to be 0.00%-0.60%.

(Source: Bogleheads Wiki; link below)

6. Spending Strategy (withdrawal order)     Value: 0.00%-1.20%

If you only have investments inside of one account type then this module wouldn’t bring any value to you. On the other hand, if you have some investments inside of a 401(k), a Roth IRA, a Health Savings Account, and a taxable brokerage account then which account you withdraw money from first could add a lot of value and help you save on taxes.

You might withdraw from your 401(k) for your required minimum distributions for that year first, then you might consider taking money out of your taxable brokerage account, after that you might decide to withdraw money from your Roth IRA, saving your HSA for later. Having money invested in different account types can allow you to adjust how much tax you pay during your retirement years. Withdrawing money in a sub-optimal order could cause you to pay more taxes! Vanguard found this value add to be 0.00%-1.20%.

(Source: Vanguard Advisor’s Alpha; link below)

7. Total Return Versus Income Investing     Value: >0%

This includes helping investors decide what kind of bonds to include in their portfolio such as short-term, long-term, and high-yield. Guiding investors to not focus solely on retirement income with bonds but to also consider capital appreciation that could add value over the long term. This could also help decrease risk and increase tax efficiency. Vanguard found this value add to be significant but stated it was too unique to quantify.

So Is Having a Financial Advisor Worth It?

That is a value judgment, so only you can decide if having a financial advisor is worth it. Vanguard has shown that advisors can add up to, or exceed, 3% in net returns by following their Advisor’s Alpha framework. Over a long period that could add tremendous value to your financial plan. That’s if you are being charged reasonable fees for the services provided. This figure shows the median advisory fees based on account size.

• If you want to do it on your own, make sure to do your research so that you can invest well

• If you currently work with a financial advisor, make sure you what they are charging you and evaluate if they are following Vanguard’s best practices in wealth management

• If you want to work with an advisor then feel free to reach out to as I would happily meet with you to explain how I would be able to help you with your financial plan

(Source: Kitces Blog; link below)

Sources:  https://advisors.vanguard.com/content/dam/fas/pdfs/IARCQAA.pdf

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

https://www.kitces.com/blog/financial-advisor-average-fee-2020-aum-hourly-comprehensive-financial-plan-cost/

“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

What is money? Isn't it really just time?

Time in Place of Money

What is money? If you live in the United States, you probably think of money as the US Dollar. People in Japan might think of the Yen. People in France, Germany, and Italy might think of the Euro. Economists Milton Friedman and Allan Meltzer describe money as, “a commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.” (Source: Britannica; link below)

What if you thought of money a little bit differently? When thinking about money, try substituting my time in place of money because time is what you have to give up to receive money.

Exchanging Crops for a Phone

Let's say a farmer wants a new phone. He knows how to grow crops but can’t build his own phone. The farmer sacrifices his time to grow crops that he can sell to others for money. Once he obtains this money he can buy a new phone. The owner of an electronics store sacrifices her time working at the store selling phones to earn money. What does she do with that money? She might buy the farmer's crops at the grocery store. The money is just an intermediary for the time between the farmer and the electronics store owner.

While this is a simplistic example, this is how many transactions happen in our society. If you start thinking about money as actually being your time, then it could make you wiser with your money. Being wiser with your money could lead you to be more efficient with your time!

How to Apply to Your Life

Here is a real-world scenario where you could apply this money as time principal. The average new car price as of November 2022 was $48,681. (Source: Kelley Blue Book; link below) Economics is all about opportunity costs. If you spend $48,681 purchasing a new vehicle then that is $48,681 that you do not have to purchase something else. Let’s assume that you make the average hourly wage of $32.80/hour. (Source: St. Louis Federal Reserve Bank; link below) We can find how many hours you would have to exchange for purchasing a new vehicle by dividing $48,681 by $32.80: 1,484 hours! Once you take taxes into account the number of hours will probably be even higher.

While you might normally ask if the car was worth $48k, instead ask yourself if it’s worth 1,484 hours of time working at your job. Are you willing to spend 74% (1,484/2000) of a year working to purchase that new vehicle? If the answer is “yes,” then go for it and enjoy your new vehicle. If the answer is, “Hmmm I think I might be able to use those 1,484 hours more effectively somewhere else in my life”, then keeping your current vehicle could result in a wiser use of your time!

I am currently in this scenario right now in my own life. I drive a 2011 Prius that only has around 75,000 miles. It runs great, does not need any major repairs, and gets 50 MPGs! I don’t need a new vehicle but have been intrigued with the 2023 Rav4 and 2023 Prius. I utilized this process in my head and determined that was too many hours of my working life to pay for a newer vehicle that I might want but don’t need. I would rather use those hours spending time with my friends/family, writing blog posts, creating YouTube videos, and staying healthy by playing beach volleyball/pickleball.

Words to Live By

You can utilize this thinking in many different scenarios. Just take the price of what you are considering buying and divide it by your hourly wage. That will tell you how many hours it will take you to work to pay for that next big purchase. Then decide if you are okay with that tradeoff. 

Here is one of my favorite quotes from the book, “The Psychology of Money,” by Morgan Housel. He states, “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.” Make sure you are being wise with your money so you can enjoy your time to the fullest!

Sources: https://www.britannica.com/topic/money

https://www.kbb.com/car-news/average-new-car-price-sets-record/

https://fred.stlouisfed.org/series/CES0500000003

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“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Artificial Intelligence Reveals the Secrets to Being Healthy

Health and Why it is Important

I recently posted about how I was able to have Artificial Intelligence (AI) write a blog post on how to become a successful investor. I thought it was amazing to see what the AI was able to generate on the topic. Click here to read that post. Since wealth and health usually are intertwined, I thought it would be interesting to see what AI also had to say about staying healthy. Here are two responses that the AI wrote when prompted with, “Write a blog post on how to stay healthy.” (I used the website https://openai.com/) 

AI’s First Response

When it comes to staying healthy, there’s no one-size-fits-all solution. Everyone’s body is different and requires different types of care, so it’s important to find a plan that works for you. Below are some tips that can help you stay healthy and make sure you’re getting the most out of your body. 

1. Exercise regularly: Exercise isn’t just good for your physical health, but it can also help improve your mental health as well. Whether it’s taking a walk, going for a run, or taking a yoga class, find an activity that works for you and make it part of your routine. 

2. Eat a balanced diet: Eating a balanced diet is essential for staying healthy. Make sure you’re getting enough fruits and vegetables, whole grains, and lean proteins. Also, try to limit your intake of processed foods and sugary drinks. 

3. Get enough sleep: Sleep is an important part of staying healthy. Aim for seven to nine hours of quality sleep per night and make sure you’re getting enough rest. 

4. Manage stress: Stress can have a huge impact on your physical and mental health, so it’s important to find ways to manage it. Try yoga, meditation, or simply taking some time for yourself to relax and unwind. 

5. Stay hydrated: Drinking enough water is essential for staying healthy. Make sure to drink at least 8 glasses of water a day.

AI’s Second Response

Staying healthy can be a challenge, especially when it comes to maintaining a healthy lifestyle. But with a little planning and dedication, it’s possible to keep your body in tip-top shape and enjoy a happier, healthier life. Here are some tips to help you stay healthy: 

1. Eat a Balanced Diet Eating a balanced diet is essential for maintaining good health. Focus on incorporating plenty of fruits, vegetables, and whole grains into your meals. Limit saturated fats, trans fats, and processed foods, and make sure you’re getting enough protein, fiber, vitamins, and minerals. 

2. Exercise Regularly Regular exercise is just as important as diet when it comes to staying healthy. Aim for at least 30 minutes of moderate activity each day. This can include walking, jogging, swimming, or biking. Strength training is also beneficial for maintaining muscle mass, bone density, and overall health. 

3. Get Enough Sleep Getting enough sleep is vital for your body to function properly. Try to get about eight hours of sleep each night. If you have trouble sleeping, consider making lifestyle changes such as limiting caffeine consumption, avoiding screens before bed, and establishing a regular sleep schedule. 

4. Manage Stress Stress can have a major impact on your physical and mental health, so finding ways to manage it is essential. Consider activities such as yoga, meditation, or deep breathing to help keep your stress levels in check. 

5. Practice Self-Care

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Wealth and health! The healthier you are, the less money you need to spend on healthcare. The wealthier you are, the more resources you have available to stay healthy. Instead of a downward spiral, this is an upward spiral! If you want to get wealthy and stay wealthy, you should probably focus on one of your most important assets, your health! If you need help changing any of your health habits, one of the best books I read in 2022 was “Atomic Habits” by James Clear and I would highly recommend it. https://jamesclear.com/atomic-habits

“If you can get 1% better each day for one year, you’ll end up 37 times better by the time you’re done.”

— James Clear

“It is only when looking back 2, 5, or 10 years later that the value of good habits and the cost of bad ones become strikingly apparent.”

— James Clear

“If you have any financial questions I would love to connect with you to help”

— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

How Do I Improve Investment Efficiency? - Part 1

Engineers are very familiar with the equation for efficiency:

Efficiency = Output/Input

We want to know we are getting the most productivity out of a system or machine in order to make the best use of resources or energy.

Our investment portfolio should not be any different. We should want to get the most return for the amount of risk we are taking.

In this episode, we take a look at the types of risk we can use as inputs in our investment machine. We will also review the Sharpe ratio, which is the widely used measure for efficiency of investment return and consider how we can go about increasing the Sharpe ratio of our portfolio.

The data included in this video was obtained from Portfolio Visualizer’s Asset Class Allocation tool found here.

“I am passionate about helping people improve the efficiency of their finances!”

— Andy Cole

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Why Should I Care About Volatility?

When most investors think about volatility, they think about riding a roller coaster or a wave. They know the path of more volatile portfolios has a larger amplitude than smaller portfolios but the additional risk may lead to higher returns over time. While many investors think about how bumpy the ride may be, not many investors consider the variability of outcome that comes with higher volatility.  

In the first episode, we saw how diversifying across a basket of companies can lead to a portfolio that has similar expected return with less volatility than investing in a single company. In this episode, we will take a look at why that matters and how that lower volatility can lead to a higher probability of success in your financial plan.

The data included in this video was obtained from Portfolio Visualizer’s Monte Carlo simulation tool found here.

“I am passionate about helping people improve the efficiency of their finances!”

— Andy Cole

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.