Growth, The Big Picture

Posted On September 18, 2023 By Scott Stratton, CFP(R), CFA In Financial Planning, Portfolio Management / No Comments

With all the noise in today’s markets, it is easy to miss the big picture about growth. 2022 and 2023 have been two of the strangest years in a generation for investors. As a result, it is easy to feel uncertain about investing right now. And that uncertainty often leads investors to make bad choices. So, we are going to step back and look at the 30,000 foot view of what really matters for investors.

In 2022, we saw inflation rise to 9% and the Federal Reserve start the process of slowing the economy. As the Fed raised interest rates, stocks dropped 20%, briefly entering Bear Market territory. In the bond market, rising interest rates snipped the price of bonds, sending the US Aggregate bond index down double digits. For diversified investors, 2022 was a perfect storm where diversification failed and both stocks and bonds were down an uncomfortable level.

Now in 2023, we have seen the Federal Reserve continue to raise rates up to the present moment. At the start of the year, I saw one report that said the probability of a recession in the next 12 months was 100%. 100%, a certainty! And while the full 12 months are not up yet, we have not had a recession. In fact, the S&P 500 Index is up 15.83% this year. While the yield curve remains inverted, a favorite predictor of recessions, it now appears that the likelihood of a 2023 recession is diminished and might not happen at all.

Don’t Time The Market

Comparing 2022 and 2023 doesn’t make sense. The market “should” not be up 15% this year. And yet here we are, with a very welcome gift of an amazing performance in the first seven and a half months of the year. The consensus economic forecasts at the start of 2023 were lousy. If we had listened to them, we would have sold our stocks and hid out in cash. We would have missed out on the gains that we have had for 2023!

There are often compelling historical precedents to entice investors to think we can predict what is going to happen over the next 12 months. Making changes to your investments feels obvious, a smart choice, and low-risk. Unfortunately, history shows us that it is hubris to try to time the market and more often detrimental than beneficial.

It is a challenge to actually stay the course and maintain your discipline. It is difficult to ignore the forecasters and not think that there is an opportunity for you to either protect your principal or rotate into a better performing investment.

Timing the market continues to be a bad idea. I didn’t hear any forecasters in January predict that stocks would be up 15% by August. If we had listened to their predictions, although well-intentioned, we would have made a mistake. Thankfully, we didn’t try to time the market this year. Here is how we manage a portfolio:

Establish a target asset allocation for each client’s individual needs and risk tolerance.
Rebalance portfolios when they drift from the targets.
Adjust our portfolio models annually based on the valuation and expected returns of each category.
Use Index Funds and manage each client’s portfolio to keep costs down and minimize taxes.

Rebalancing

The funny thing about rebalancing is that it often means doing the opposite of what you might expect. When stocks were down 20% last year or in 2020, we were buying stocks. Now, when stocks are up 15-20% and there is a lot of optimism for a soft landing, we are trimming stocks and buying bonds. In hindsight, this looks pretty logical. However, in real time, rebalancing often feels like not such a good idea. And sometimes it isn’t – there’s no guarantee that rebalancing will improve returns. But, what it does offer is a disciplined process to managing an investment portfolio, versus the behavioral traps of trying to time the market. The bizarre markets of 2022-2023 certainly reinforce the potential benefits of rebalancing.

Average Versus Median

Do you remember from high school algebra the difference between Average and Median? Average is the total sum divided by the number of items. Median is the data point in the middle. And there can be a big difference between Average and Median. Stock markets are cap weighted, so the larger stocks move the index more than the smaller stocks. Still, let’s consider how the “average” return of an index can be quite different from the median returns of its component stocks.

The year to date return of the S&P 500 Index ETF (SPY) is 15.83% as of August 16. But that is not the median return of the stocks. Of 504 components of the S&P 500, only 135 have done better than 15.83% YTD and 369 have done worse than the overall index. If you had picked a random stock from the S&P, there was a 73% chance that you would have done worse than “average” this year.

And what is the Median performance of the S&P 500 this year? Only 3.36%, an under-performance of more than 12% than the overall index. Even worse, 212 stocks in the S&P 500 are down, negative for the year.

What is the big picture of growth in stocks? Trying to pick individual stocks is extremely difficult. Don’t think that using an index fund means “settling for average”, the reality is that over time, the index return has done much better than the median stock.

This year has been such a frustrating year for investors because stocks are all over the place. If you don’t own a few of the top performers, you are likely lagging the benchmark by a wide margin. What is a way to make sure you own the winners today and tomorrow? Own the whole market with an Index Fund. Realize that if you pick a stock from the S&P 500, it is not a 50/50 coin toss that you will beat the market average. The chance is lower than 50% because the market average typically does better than the median stock. The stocks which do outperform will move the index disproportionately and they will be fewer in number.

There is a lot of noise and confusion in the markets today, and that’s okay. We are in uncharted waters and seem to be going from one “unprecedented” event to another. Thankfully, I don’t think we need to have a crystal ball to be successful as long-term investors. What I believe can help is stepping back to remember the big picture: don’t time the market, stick to an allocation and rebalance, and use index funds. That’s our roadmap. When in doubt, we can recheck our directions and keep going.

What You Can Control

In the short-term, stock markets can be very volatile. As a result, I believe a lot of inexperienced investors mistakenly think that their success depends on their ability to game the markets. They think that growth is achieved through trading or superior returns.

Unfortunately, trying to outsmart the market often makes your performance worse, rather than better. Active management doesn’t work, at least not consistently over 10 or more years. We stick to passive, low-cost index funds or ETFs for our stock market exposure. And we remain invested in a long-term asset allocation.

Once that investment decision is out of the way, the main determinant of success is your savings rate. How much are you investing each month? That is what you can control. If you want to be more successful in accumulating your wealth, you don’t need to worry about the Jobs Report this week, or what was in the Federal Reserve meeting notes. You need to focus on how can you can save an extra $100, $500, or $1000 a month and make that a habit.

Instead of worrying about your YTD performance, calculate how much wealth you will have in 10 or 20 years, with an average rate of return. Because in the long-run, an average rate of return is excellent. And then what you can control – your savings – is what actually matters more. Growing your wealth is largely a factor of savings and time. Chasing investment performance is a distraction.

Develop Your Saving Habits

Make savings automatic. Put your investing on autopilot with monthly contributions to your 401K, IRA, and investment accounts.
Save More. Don’t just do the 401(k) match, try to put in the maximum to each account. And then ask where else can you invest? Do the math of how much money you want to accumulate. (I can help with that.)
Keep the big expenses down. Living beneath your means is easy if you are smart about your housing costs and your cars. Many Americans who are not frugal in those areas do not have anything leftover to invest.
Develop your career. If you can expand your income without increasing your expenditures, your savings can increase dramatically. If you ever have a chance to work for a company with stock options, go there. I have seen over the years, tremendous wealth accumulated from stock options.
Be an Entrepreneur. This can be high risk, but when they are successful, entrepreneurs earn and save much more than employees. Besides a salary, an entrepreneur is growing a business that has value.

As a financial planner over the past 19 years, I’ve gotten to look at a lot of families’ finances. The difference between those who were struggling and those who were wealthy was seldom just income. I’ve seen a lot of high income folks who were living hand to mouth. Other families who had similar incomes were millionaires or well on their way. The difference was their saving rate. You can’t grow what you don’t save.

There is no substitute for saving. We have to make savings automatic and increase our savings whenever possible. It may help to work backwards: start with your goal and determine how much you need to save and for how long. Then you can see saving as the solution and beneficial process rather than as a sacrifice. Some Americans are saving very well. But the Big Picture is that the average American isn’t saving enough. We need to be talking more about saving, because for too many families, it is the step that they cannot get past.

Our recipe for Growth is simple. Save monthly and dollar cost average into Index funds. You can do this in your 401(k), IRA, or taxable account. The account is less important than the process. The more you save, the more wealth you can accumulate. The younger you start, the better. The faster you increase your saving, the sooner you can reach your goals. Saving is growth and investing is secondary.

Investment Taxes Eat Your Growth

Taxes matter. We work hard to establish a good portfolio and get a respectable rate of return. And then the government wants their cut. How about 37% for Federal Income Taxes (increasing to 39.6% in two years). And another 5% for state taxes. Don’t forget 15.3% for self employment taxes for Social Security and Medicare (or half that number if you’re an employee). Then, if you do well, how about an extra 3.8% in Medicare surtax (“Net Investment Income Tax”).

Once you have your “after-tax” money, it’s all yours, right? Well, not quite. You get to give the government another $5,000, $10,000, or more in property taxes. And when you want to buy something with your after-tax money, you get to pay 8% in sales tax.

The point is that it doesn’t matter how much you make, it matters how much you keep. That is why tax planning is such a big part of our wealth management process. As your portfolio grows, the tax implications can become a significant annual expense and a drag on returns.

What continues to shock me is how many Advisors are making huge mistakes with client portfolios and creating tens of thousands of dollars in unnecessary taxes. Taxes which could have been avoided or reduced substantially through better planning. Sometimes this is because they use a model portfolio that doesn’t attempt to have any tax efficiency. But other times, it is laziness and having too many clients to manage individual portfolios in a tax-efficient way. It’s easier to stick people into a model and let the computer automatically rebalance the portfolio.

This is the big picture for wealthy Americans: Your after tax-return matters more than your pre-tax returns. You have very little control over taxes on a monthly basis, but a great deal of control over taxes in the long run. Here are the mistakes we often see and how we can do better:

Portfolio Tax Efficiency

Mistake 1: Mutual Funds in Taxable Accounts. Mutual Funds have to distribute capital gains annually. Each December, many investors get a surprise tax bill from their funds. BETTER: hold Exchange Traded Funds (ETFs) in taxable accounts. ETFs rarely, if ever, have capital gains distributions.

Mistake 2: Short-Term Capital Gains. Short-Term Capital Gains (less than 1 year) are taxed as Ordinary Income, up to 37%. BETTER: Hold for Long-Term Capital Gains (more than 1 year), which are taxed at lower rates (0, 15 , or 20 percent). Trading which creates ST Gains should be avoided in a taxable account. We are very careful about the tax implications of our rebalancing trades, as well.

Mistake 3: Bonds and REITs in Taxable Accounts. Bond income is taxed as ordinary income (up to 37%). BETTER: Hold bonds in IRAs, which are tax-deferred. Also, IRA distributions will be taxed as ordinary income, so bond income isn’t treated worse in an IRA, unlike capital gains. When you have a LTCG on a stock ETF in an IRA, all that growth will be taxed as Ordinary Income. Traditional IRAs will have the highest tax rate, so it is better to allocate the low growth bonds to IRAs and high growth stocks to Roths and taxable accounts. This process is called Asset Location.

Mistake 4: Not harvesting losses. BETTER: Harvest losses annually in taxable accounts. Losses can be used to offset gains that year, and $3,000 of losses can be applied against ordinary income. Unused losses will be carried forward without expiration.

Mistake 5: Not asking about charitable giving. 90% of Americans are not itemizing and not getting any tax benefit from charitable donations. BETTER: We can get a tax benefit two ways, without itemizing: A) make donations of appreciated securities from a taxable account. Or B), if over age 70 1/2, make Qualified Charitable Distributions (QCDs) from your IRA.

Mistake 6: No Plan for Managing IRA Distributions. BETTER: Do Roth Conversions in low income years before RMDs start at age 73.

Mistake 7: Not understanding Taxes that will be owed by Beneficiaries. BETTER: Working with your Advisor to consider inter-generational taxes in your Estate Plan. For example, taxation of trusts, step-up in cost basis, charitable giving, and Beneficiary IRAs.

Mistake 8: Not doing a Backdoor Roth IRA. I’ve had advisors tell me it’s not worth their time to move $13,000 to $15,000 into a TAX-FREE account each year for a married couple. Not worth it for the advisor, I guess (no additional revenue). BETTER: Although the numbers are small annually, we have been doing back-door contributions for clients for many years, and it does add up.

The Changing Retirement Picture

Did your parents retire with a Pension? Maybe they worked for 30-40 years for the big company in town, or for a municipality, school district, military branch, or government agency. When they retired, they had a pension and Social Security which fully covered their expenses. They might have also had retirement health benefits which paid for deductibles and co-pays which were not covered by Medicare.

You probably don’t have the same benefits. How much is a Pension worth? Well, we can easily compare a Pension to the cost of a Single Premium Immediate Annuity, or SPIA. A SPIA works the same way as a Pension – it is a guaranteed monthly payment for life. For example, let’s consider a 65 year old female who has a pension which guarantees her $2500 a month for the rest of her life. We could buy a SPIA with the same guaranteed $2,500 a month for life, for a cost $437,063. So, a $2,500/month pension is worth $437,063.

To have the same retirement funding as your parents, you may need $400,000 or more in assets than they had. And that is just to replace one modest pension. If your parents had two pensions or had a bigger pension, you might need much more than $400,000 to get the same retirement income.

And you probably won’t buy a SPIA and would prefer to keep your money in an IRA. At a 4% withdrawal rate, you would need $750,000 in your IRA to get $2,500 a month. So maybe you need $750,000 more than your parents, not $437,000, to replace their pension! These pensions were worth a lot. It will take a worker 30 years of saving to build up their 401(k) to $750,000. It’s not impossible, but the big picture is that most Americans aren’t doing a good job of saving. The average 401(k) balance for workers age 55-64 is $207,874. The median balance at 55-64 is only $71,168, meaning that half of all 401(k) accounts are less than $71,168.

I’m afraid the promise of becoming wealthy through your 401(k)s has proved elusive for the average American. It’s a wedge that is driving wealth inequality in our country. But I don’t think Pensions are coming back – retirement preparation rests squarely on the individual’s shoulders. You certainly can get to $500,000 to $1 million in a retirement account, but you have to aim to put in the maximum, not just get the company match. Then you have to not withdraw it and let it compound for 30 to 40 years. That recipe will work, but it’s not easy, it requires some sacrifice and a lot of discipline.

Counting on Social Security

The Social Security Trust Fund will be depleted by 2033. After that, revenues will only cover about 70% of promised benefits. After kicking the can down the road for 20 years, Washington needs to get its act together soon. We can either reduce benefits or increase taxes. It may be a combination of both, but one thing is for sure: keeping the status quo is not going to be an option. The Social Security budget for 2023 is $1.30 Trillion. The Department of Health and Human Services (Medicare, Medicaid, and other health agencies) have a budget of $2.10 Trillion for this year. These two programs, largely for Retirees, have become the biggest portion of government spending.

There will have to be a reckoning in the years ahead about these programs. Something has to change, they are unsustainable in their present form. I think there will be changes in inflation adjustments, a gradual increase in the full retirement age, and probably some means testing which will reduce benefits for high net worth families. Or there could be a whole new system. As difficult as it is to imagine, the system is so broken that starting over from scratch might be better than continuing to try to put new band-aids on this fiscal cancer.

The big picture for the future of government retirement programs is very uncertain. These are not the only issues facing the government. Our debt is growing. This year, the interest payments alone on US Treasury Debt will be $964 Billion. We may top $1 Trillion in interest payments next year. And there is no plan to ever repay this debt, only to grow it every single year. When you look at debt projections, it only reinforces the need to reign in the expenses which are growing the fastest.

In our planning process, we include Social Security projections. But we had better be prepared for benefits to potentially be a bit less than promised. So, once again, it may be that more of your retirement income needs to be self-funded. If you don’t have a pension, the burden of funding your retirement has been shifted to you. Have you calculated what that will cost? That’s what we do with our retirement planning software, MoneyGuidePro. We create an ongoing plan for your retirement needs, which adjusts over time, and where we can continue to refine assumptions and expectations.

I hate to be such a downer, it’s really not my nature. But a lot of Americans are going to have worse retirements than their parents, because they don’t have a pension. The burden of saving for retirement has shifted from the employer to the employee. Now instead of everyone getting a good outcome, many Americans are under-prepared for retirement. And then we have to look ahead at the uncertainty that is facing Social Security and Medicare. It looks like we will have more individual responsibility for our outcomes and less universal assistance.

The Forest For The Trees

The Big Picture for Growth can be hard to see because the fog of current events makes it hard to see the long-term horizon. Here are our four pillars of The Big Picture:

Don’t time the market. Stick to your asset allocation and rebalance. Use index funds.
Once you’ve made the shift away from performance chasing, focus on what really matters: how much you save.
Taxes hurt returns. Tax planning helps.
You are responsible for your own retirement savings and financial security.

I’m sure things are going to change. We don’t really know how, when, or why they will change. While some may find uncertainty to be paralyzing, it doesn’t have to be. Even if the future is a moving target, planning is not a waste of time. Not at all! Being well prepared also includes the flexibility to adapt and evolve.

A lot of my day to day work is focused on the small details of implementing our plans. But the growth is created when we step back and take a long, hard look at The Big Picture. We should all be having more of those conversations, with our spouses and children, our bosses and colleagues, and especially with your financial professional.

Bear Market Has Arrived

Posted On May 22, 2022 By Admin In Portfolio Management /

Stocks continued their slide for an eighth week. Friday’s drop now brings the S&P 500 Index down 20% from its recent peak. We are officially in a Bear Market. Tech stocks, in the Nasdaq Index, are down over 30% and have already been in a Bear Market.

Investors have questions and want to know what to do next. I’m going to share five thoughts.

One. Predictions are a waste of time. I’ve spent too much time this past week, reading, listening, and watching “experts” suggest what will happen next. No one knows. Some say the bottom is in, others call for another 20% drop. Some say inflation is here to stay, some say we are already in a recession, other say stagflation. The challenge is Confirmation Bias. Are we really evaluating evidence with an open mind? Or are we only looking for evidence which confirms our point of view? Unfortunately, certainty is one thing which we do not get to have as investors. Luckily, we don’t need a crystal ball to be successful. We know what has worked over time: diversification, index strategies, and focusing on keeping costs and taxes low.

Two. Our Investment Themes for 2022 have been helpful. Year to Date: Value stocks are doing better than growth stocks. International stocks are doing better than US Stocks. Short-Term bonds and Floating Rate bonds have held up better than the Aggregate Bond Index. We are still down an uncomfortable amount, and that is to be expected. However, we are down less than our benchmarks across all our portfolio models. I am not ever happy about Bear Markets, but our asset allocation has been a positive factor.

Three. We are at a 52-week low in many stocks and indices. Look back over the last 10, 20, or 30 years of stock market history and find those 52-week low points. Going forward, were you better off selling those lows or buying those lows? Obviously, you would have done very well by buying historic 52-week lows and selling would have been a mistake eventually. Could the market go lower from here? Of course. We don’t know what will happen next, but market timing via selling 52-week lows has been a poor strategy historically.

Read more: Are We Headed For a Bear Market? (2015)

Four. We have made a few moves in our portfolio that I wanted to share. We sold some of our convertible bonds and replaced them with a Vanguard Commodities fund. This should help us reduce equity-like exposure and add an inflation hedge. We sold one emerging markets bond fund and replaced it with a newer fund (also from Vanguard) with a much lower expense ratio. We sold bond funds and replaced them with individual bonds, laddered from 1-5 years. Although interest rates may rise, we can hold bonds to maturity and receive back our par value. Overall, these trades do not drastically change our asset allocation. But we are always looking for ways to improve our holdings, even in modest, incremental ways. We are not ignoring the market, portfolios, or clients at this time.

Five. Patience. If you are a ways off from retirement, this is a great time to dollar cost average and be buying shares in your IRA, 401(k), or brokerage account. You make money in Bear Markets, you just don’t realize it until later. For those who are close to retirement, or in retirement, we are already diversified and have a withdrawal strategy that anticipates market volatility such as this. We are planning for the next 20-30 years. There will be multiple Bear Markets over your retirement. Although each Bear Market feels like a surprise, they are bound to happen. And like in 2020, we are using the current drop as an opportunity to rebalance portfolios and do tax loss harvesting.

Read more: Stock Crash Pattern (March 2020)

We’ve seen this before. We’ve been here before. Bear Markets are an unfortunate reality of being an investor. They stink and we would all prefer if markets only went up. When times are good, we need to invest with the knowledge that Bear Markets are inevitable. And then when Bear Markets do arrive, like Winter, we need to wait out the storms knowing that Spring will eventually return.

Ignore predictions. Our investment themes are on the right track. Don’t sell a 52-week low. Look for opportunities to make small improvements. Be patient and persevere. That is how we are responding to the Bear.

5 Ways to Buy The Dip

Posted On March 15, 2022 By Scott Stratton, CFP(R), CFA In Behavioral Finance, Portfolio Management /

Right now, we are talking to investors about ways to buy the dip. From the highs of December, it is pretty remarkable how quickly markets have reversed. Stocks were already down in January as fears of inflation and rising interest rates took hold. The war in Ukraine has shocked the world and we are seeing tragic consequences of this inexcusable aggression. Inflation was reported at 7.9% for February and that was before we saw gas prices surge in March following the Russia sanctions.

This past Tuesday, we saw 52-week lows in international stock funds, such as the Vanguard Developed Markets Index (VEA) and the Vanguard Emerging Markets Index (VWO). Here at home, the tech-heavy NASDAQ is down 20%, the threshold used to describe a Bear Market. It’s ugly and there’s not a lot of good news to report.

Ah, but volatility is the fundamental reality of investing. Volatility is inevitable and profits are never guaranteed. In December, when the market was at or near all-time highs, everyone was piling into stocks. And now that many ETFs are near their 52-week lows, investors are wondering if they should sell.

Market timing doesn’t work

Unfortunately, our natural instinct is to do what is wrong and want sell the 52-week low rather than buy. Back in December, there were a lot of people hoping for a correction to make purchases. Now that a correction is here, it’s not so easy to pull the trigger on making purchases. The risks seem heightened today and nobody wants to try to catch a falling knife. Unfortunately, the market isn’t going to tell us when the bottom is in place and it is “safe” to invest.

Last week was the 13-year anniversary of the 2009 Lows. Most reporters say that the low was on March 9, 2009, because that was the lowest close. But I remember being at my desk when we saw the Intraday low of 666 on the S&P 500 Index on 3/06/09. Today, the S&P 500 is at 4,200 (down from a recent 4,800). Even with the 2022 drop, we have had a tremendous run for 13 years, up 530%.

A prospective client asked me this week what I had learned from being an Advisor back in 2008-2009. And I told her: First, you can’t time the market. Clients who decided to ride out the bear market did better than those who changed course. Second, individual companies can go out of business. You are better off in diversified funds or ETFs rather than trying to pick stocks.

Buying The Dip

While you shouldn’t try to time the market, we do know that “buying the dip” has worked well in the past. Since 1960, if you had bought the S&P 500 Index each time it had a 10% dip, you would have been up 12 months later 81% of the time. And you would have had an average gain of 12%. That’s a pretty good track record.

I feel especially confident about buying index funds on a dip. While some companies will inevitably become smaller or go out of business, an index like the S&P 500 holds hundreds of stocks. Over time, an index adds emerging leaders and drops companies on their way down. That turnover and diversification are an important part of managing an investment portfolio.

So with the caveat of buying funds, what are ways to buy the dip today? What if you don’t have a lot of cash on the sidelines? After all, if we don’t time the market, we are likely fully invested at all times already.

5 Purchase Strategies

Continue to Dollar Cost Average. If you participate in a 401(k), keep making your contributions and buying shares of high quality, low cost funds. If you are a young investor, you should love these market drops. You can accumulate shares while they are on sale!
Make your IRA contributions now. If you make annual contributions to an Traditional IRA, Roth IRA, 529 Plan, or other investment account, I would not hesitate to proceed. Make your contribution when the market is down.
Rebalance your portfolio. Do you have a target allocation, such as 70% stocks and 30% bonds? With the recent volatility, you may have shifted away from your desired allocation. If your stocks are down from 70% to 65%, sell some bonds and bring your stock level back to 70%. Rebalancing is a process of buying low and selling high.
Limit orders. If you do have cash, you could dollar cost average. Or, with your ETFs you can use limit orders to buy at specific prices.
Sell Puts. Rather than just use limit orders, I prefer to sell Puts for my clients. This is an options strategy where you get paid for your willingness to buy an ETF at a lower price. We have been doing this for larger accounts with cash to deploy, but this not something most investors would want to try on their own.

Uncertainty, Risk, and Sticking to the Plan

There is always risk as an investor. Whenever you buy, there is a possibility that you will be down and have a loss in a week, a month, or a year from now. Luckily, history has shown us that the longer we wait, the better chance of a positive return in a market allocation. We have to learn to accept volatility and be okay with holding during drops.

We can go one step further and seek ways to buy the dip. To me, Risk means opportunity, not just danger. So, which is riskier, buying at a 52-week high or at a 52-week low? Well, neither is a guarantee of success, but given a choice, I would rather buy at a low. And that is where we are today.

I think back to March of 2020, when the market crashed from the COVID shut-downs. And I recall the horrible markets in March of 2009. In both cases, we stuck to the plan. We held our funds and didn’t sell. We rebalanced and made new purchases with available funds. That is what I have been doing with my own portfolio this month and it’s what I have been recommending to clients. We don’t have a crystal ball to predict the future. But we do know what behavior was beneficial in the past. And that is the playbook I think we should follow.

Amazingly, I have had only a couple of calls and emails from clients concerned about the market. None have bailed. We are in it for the long-haul. Market dips are inevitable. It is smarter to ignore them than to panic and sell. And if we can make additional purchases during market dips, even better.

Past performance is no guarantee of future results. Investing includes risk of loss of principal and Dollar Cost Averaging may not protect you from declining prices or risk of loss.

When Can You Splurge?

Posted On May 2, 2021 By Scott Stratton, CFP(R), CFA In Behavioral Finance /

We all have things we enjoy, and the question of when can you splurge has unique financial planning considerations. We probably think about these choices, consciously or subconsciously, every day. And while I don’t think there can be a hard and fast rule, there are some things to consider. Once we start peeling back the proverbial onion, there are many psychological layers to this question. We all have a relationship with money. It is based on our experiences, upbringing, and innate preferences. The question isn’t just When can you splurge? It is How can you have a better, more effective relationship with your money?

“Money makes a terrible master but an excellent servant”
P.T. Barnum

First, let’s define what we mean by splurge. Clearly, your normal living expenses should not count as a splurge. But, even this is problematic. There are many Americans who have adopted a lifestyle which they cannot afford. Their choice of housing, cars, vacations, clothes, etc. consumes all of their income. And then when an emergency does occur, it has to go on the credit card. They end up in debt and there is no way to pay off those debts with their current consumption. They don’t see that they are splurging already, and spending in an out of control manner. Read more: Machiavelli and Happiness in an Age of Materialism.

A definition of splurge as “to spend money freely or extravagantly, especially on something special as a way to make yourself feel good.” Most definitions imply wastefulness and vanity. But I also think that occasionally being able to spend money on things which you enjoy is a great freedom. We all may have interests which make no sense to others. Perhaps it is cars, or watches, or shoes, or a boat. To us, it is the realization of a dream. To someone else, it would be a waste of money. That’s okay. The blue car pictured above is my splurge from this March. Maybe that doesn’t do anything for you. For me, a lightweight sports car with a manual transmission is a joy.

When Not to Splurge

Let’s begin by laying down a few prerequisites for a splurge. Perhaps it is easiest to think of these as a checklist:

Can you pay in Cash? Or would this splurge be funded by credit card debt? If you don’t have the cash to purchase an item, maybe you should hold off until you can afford it.
Do you have an emergency fund with at least 3-6 months of living expenses?
Are you funding accounts for your long-term goals? For example, a 401(k) or IRA for retirement, a savings account for a house down payment, or a 529 plan for your kid’s college.

If you can pass these three prerequisites, then the splurge is not going to hurt you. After all, we don’t want to look back on our splurges with regret and be angry that we made a mistake. Number one, credit cards, also suggests that if you presently have a lot of credit card debt, you should not splurge. You should prioritize paying off your cards, first. How much should you save for number three? If you are in your 20’s and are currently saving at least 12% towards your 401(k), I think you are off to a good start. If you got a late start, you may need to save more than 12% to be prepared for retirement. Read more: What percentage should you save?

Start with a Plan

My purpose as a Financial Planner is to help you be smart with your money. Our ultimate goal is to make sure you achieve your financial goals. With that in mind, we are always looking to design long-term diversified investment strategies built within a planning process. We are always looking for the most cost-efficient, high-value ways to manage your money.

The beauty of the plan is that it creates awareness and a process for change. For some individuals, that may mean establishing automatic savings programs to fulfill your needs for retirement, debt management, house goals, college savings, etc. We can break down each goal into a monthly target and set it on auto-pilot. Read more: Do You Hate Saving Money?

For others, a plan can show them that they are on track. Because many people are afraid to splurge. And I am writing for them, too. Yes, there are people who need to splurge less. But there are also people who need to splurge more.

If your relationship to money is centered on fear, anxiety, and regret, you are carrying a terrible amount of stress with you at all times. This is a scarcity mentality, which is psychologically harmful. It impacts your behavior and hurts your satisfaction. In one study, adults who had a positive attitude about aging lived 7.5 years longer than those with a negative mindset. Your thoughts matter! Read more: 5 Ways to Go From A Scarcity to Abundance Mindset.

Your plan will let you know how much you can splurge and give you the confidence that you aren’t doing anything to hurt your future self. Maturity is often defined as the ability to delay gratification. We all need to save for the future. Still, splurging doesn’t require that we have already accomplished all our goals! Only that we are presently taking the steps necessary to get us there. If you want to feel more confident about your splurge, start with your financial plan. Otherwise, how do you know?

But Should You Splurge?

Still not sure if a splurge is a good idea? Afraid you will regret a big purchase? A few last thoughts.

Avoid impulse buys. Shopping as therapy for stress, boredom, or other problems is only a band-aid. Find a better solution. Talk to a friend, go for a walk, do something that makes you feel better and actually addresses the emotional need.
Could this be easily reversed? Some items hold their value. If you buy an item for $3,000 and could resell it in a couple of years for $3,000, it’s a fairly low risk proposition. And if it brings you joy, then why not.
Have you shopped around and done your research? Can you buy used or find an alternative? A splurge doesn’t have to be reckless; see if you can find a great deal.
Do you have a bucket list of experiences that you’d like to do and and see? A splurge can also be a trip or event, and it is healthy to spend on creating memories and not simply buying more things. We only get so many trips around the sun. Our time here will go quickly and it is finite. 10 years from now, you may still smile when you think about that epic vacation to Machu Picchu. You probably aren’t going to be thinking about what it cost because in the long run, it didn’t matter.
An itch needs to be scratched. Sometimes, an idea takes hold and we simply need to do something. If it doesn’t go away, maybe we will be richer as a person for having allowed ourselves to live a little more freely. What is the worst that will happen if you do this one splurge?

Intention, Choice, and Balance

Money is a great tool to lead a satisfying and interesting life. We all know that more things can’t bring you happiness. And we all know someone who spends too much and rationalizes it as “self-care”. How can you find a balance? At the one extreme, many Americans are not saving anything and are two paychecks away from being broke. At the other extreme, there are hoarders who are paralyzed with fear of spending and losing their money. I’m a frugal person, but this can be taken too far.

Choose what is truly important to your life. Don’t let others decide for you what is a good use of your money. But be smart. Start with a plan and cover your bases. When you have your savings plan established, be intentional with your spending so your choices align with your goals. By that I mean, don’t just spend blindly, splurge in ways that are meaningful to you. Maybe bonding on a family vacation is more important than upgrading your car this year. Maybe keeping your housing costs reasonable will allow you to spend on other priorities. The balance is deciding where to splurge and where to not spend your money. The right balance is to splurge neither too much, nor too little. Never splurge to keep up with the Joneses.

When can you splurge? I’m not going to show you the compound interest on a daily cup of Starbucks. I’m not interested in slapping people on the wrist to make them feel bad about how they spend their money. I believe you can align the head and the heart on your spending. When you have invested time and energy into your financial plan, you will have earned the confidence to know when you can splurge. Then, giving yourself permission to splurge will not be from weakness, but to help you live the life you truly want.

How to Save More Money

Posted On August 29, 2020 By Scott Stratton, CFP(R), CFA In Financial Planning /

Growing your net worth is the product of saving and investing. Sometimes, we assume this means we have to slash our spending to be able to save more. Sure, you want to have awareness and planning regarding your spending. But it’s not much fun to give up coffee or never take a vacation. There has to be a balance between sensible spending and your saving goals.

Luckily, there is another way to increase your savings rate: earn more. Especially for younger investors, as your income grows you will find that you can easily save more. This may take a number of years. But, as your career takes off, your income may increase at a double digit rate during your twenties and thirties.

So, don’t despair if you cannot save as much as you would like today! Focus on growing your career and increasing your income. Saving will get easier.

Hold Your Spending Steady

As you get promotions and raises, avoid the temptation to keep up with the Joneses. You will see friends and classmates who are buying fancy cars and huge houses. Good for them! But what you might not see is how much debt they have, how little they save, or their net worth. You won’t know how stressed they are about their finances. They may be two paychecks away from being broke.

Hopefully, your current lifestyle is enjoyable and you find happiness in your relationships and the things you do. Getting more expensive things is not likely to create lasting satisfaction. The temporary, but fleeting, pleasure from consumption is known as The Hedonic Treadmill. If your priority is becoming financially independent, using a raise or bonus to save more is a better choice than spending it.

Put Your Savings On Autopilot

As your income grows, save your raises. Establish recurring deposits to your retirement plans and other accounts, and increase them annually. If take this step when you receive a raise, you will not miss the extra money. Skip increasing your monthly savings, and you probably aren’t going to have extra money leftover at the end of the year. If it’s in your checking account, you will spend it!

For couples, a joint income is a tremendous opportunity. If you can live off of one salary and save the second salary, you will grow your wealth at an amazing rate. In some cases, this could literally be saving one of your paychecks. Or, it may make more sense to participate in both of your 401(k) plans, and save the equivalent of one salary.

Multiple Sources of Income

Given the economic fallout from Coronavirus, many people aren’t getting a raise this year. A lot of us are seeing that our 2020 income will be lower than 2019. Hopefully, this will be temporary, but there are lessons to be learned. It is a risk to have all your eggs in one basket with one job. If you lose that job, you’re really in trouble.

As an entrepreneur, I have always had multiple sources of income. My financial planning business is diversified across a number of clients. I also sell insurance. I make music in a couple of orchestras and teach a few lessons on the side. Some of it is small, but having multiple sources of income gives me flexibility and safety.

Have you considered finding a side hustle, second income, part-time business, or online gig? Find something you enjoy and make it into a business. Find something people need and provide that service. You never know where that part-time work might take you. Maybe someday it will allow you to retire early or be your own boss! In the mean time, use your additional income to save more and build up your investment portfolio. Don’t give up your time just for the sake of buying more things.

How and Where to Save More

How much should you save? If you are saving 15% of your income, you’re doing way better than most people in America. Start at a young age, and a 15% savings rate will likely put you in a very comfortable position by retirement age. For those who are more ambitious, or just impatient like me, aim to save more than 15%. You could be putting $19,500 into your 401(k) each year ($26,000 if over age 50).

And you might be eligible for an IRA, too, depending on your income. Or, consider a taxable account, Health Savings Account (HSA), or 529 College Savings Plan. There are lots of places you could be saving! Put your savings on autopilot with recurring deposits to your retirement plans and other accounts. If take this step when you receive a raise, you will not miss the extra money, but you will be growing your wealth faster.

Do you need a reason to save more? The sooner you save, the faster you can achieve financial freedom. Even if you enjoy your work, it’s great to have the means to not have to worry about your job.

You can save more by spending less. That’s true, but you can only eliminate an expense once. Most people will have some tolerance for cutting costs, but austerity is no fun. Focus on increasing your income, hold your expenses steady, and increase your monthly savings. Put your energy into building your career, and aim for a high income. Couples have a great ability to save, if they can aim to live off one income. Look for creating a second or third income stream. A lot of the wealthy people I know have an entrepreneurial mindset. They have multiple income streams.

As your earnings grow, you will be able to save more and invest more. Most of my newsletters deal with investing, tax, or planning questions. But those benefits only accrue after you’ve done the first step of saving that money. It’s not how much you make that matters, but how much you keep!

Stock Crash Pattern

Posted On March 21, 2020 By Scott Stratton, CFP(R), CFA In Portfolio Management / 1 Comment

There is a stock crash pattern which is playing out in 2020. We’ve seen this before. We saw it in 2008-2009 with the mortgage crisis, in 2000 with the Tech bubble, and in 1987. The cause of every crash is different, but I’d like you to consider that the way each crash occurs and recovers is similar. Let’s learn from history. What worked for investors in 2000 and 2008 to recover?

I don’t believe in the value of forecasts, and no one can predict how long the Coronavirus will last. This week, things are getting worse, not better. Truthfully, a market bottom could be weeks or months away. No one can predict this, yet it’s human nature to seek certainty and guarantees.

Once we accept that we cannot predict the future, what should we do? I believe the answer is to study what has worked best in the past. That is what we plan to do here at Good Life Wealth Management for our client portfolios. Here’s our playbook.

Stock Crash Pattern Steps

Don’t sell. I had clients who sold in November of 2008 and March of 2009. Luckily, we got them back into the market within a few months. Unfortunately, they still missed out on a substantial part of the initial recovery. The initial recovery will likely be very rapid. We aren’t going to try to time the market.
Rebalance. In our initial financial planning process, we examine each client’s risk tolerance and risk capacity. This leads to a target asset allocation, such as 50/50 or 70/30. Because stocks have fallen so far, a 60/40 portfolio might be closer to 50/50 today. Rebalancing will sell bonds and buy stocks to return to the target allocation. This process is a built-in way to buy low and sell high. (Selling today would be selling low. It’s too late for that.)
Diversify. The investors who have concentrated positions in one stock, one sector, or country jeopardize their ability to recover. Some stocks might not make it out of this recession. Some sectors will remain depressed. Don’t try to pick the winners and losers here. We know that when the recovery does occur, an index fund will give us the diversification and broad exposure we want.
Tax loss harvest. If you have a taxable account, sell losses and immediately replace those positions with a different fund. For example, we might sell a Vanguard US Large Cap fund and replace it with a SPDR US Large Cap fund. Or vice versa. The result is the same allocation, but we have captured a tax loss to offset future gains. Losses carry forward indefinitely and you can use $3,000 a year of losses against ordinary income. Tax loss harvesting adds value.
Stay disciplined, keep moving forward. When it feels like the plan isn’t working, it’s natural to question if you should abandon ship. Unfortunately, we know from past crashes that selling just locks in your loss. Instead, keep contributing to your 401(k) and IRAs, and invest that money as usual.

This Time Is Different

The most dangerous sentence in investing is This time is different. It isn’t true in Bull Markets and it isn’t true in Bear Markets. In the midst of a crash, people abandon hope and feel completely defeated. Maybe you will feel that way, maybe you already feel that way. Maybe you are thinking that this is the Zombie Apocalypse and all stocks are going to zero.

What history shows is that all past crashes have recovered and led to new highs. If you’re going to invest, this is what you have to believe. Even though things are terrible right now, if you think that this time there will be no recovery, I think you will be making a mistake.

The stock market will continue to go down for as long as there are more sellers than buyers. Panic selling is the driver, not fundamentals. No one knows how long that will take. Eventually, we will reach a point of capitulation, when all the sellers will have thrown in the towel. That will be the bottom, visible only in hindsight.

My recommendation is to study past crashes, not for the causes, but to see the charts of the recoveries. I believe that 2020 will have a similar stock crash pattern to 2008, 2000, and previous crashes. We don’t know how long this takes or how deep it goes, but we do know what behavior worked in past crashes.

We have a plan, and I have faith in the plan. Things may be ugly for a while, probably a lot longer than we’d like. All we can control is our response. Let’s make sure that response is based on logic and history, and have faith in the pattern and process.

Investing involves risk of loss. Diversification and dollar cost averaging cannot guarantee a profit.

2020 Stock Market Crash

Posted On March 8, 2020 By Scott Stratton, CFP(R), CFA In Behavioral Finance /

This month will likely be called the 2020 Stock Market Crash in the years ahead. Investopedia defines a crash as a double digit drop over a few days as the result of a crisis or catastrophic event. A crash typically occurs after a period of speculation which drives stock prices to above average valuations. Panic is a hallmark of a crash, versus a Bear Market. Certainly, we have met the definition of a crash.

Risk is perceived as danger when it occurs, but only in hindsight do we see another definition of risk: opportunity. If you look at the purchases you made in your 401(k) back in 2008 and 2009, you may be astonished by the gains you made at those low prices!

Your emotional response to a crash may be to ask if you should sell. But then you might miss out on today’s opportunities. Even if you are fully invested today, consider these five actions instead of selling.

Five Opportunities

Keep buying. Dollar cost average in your 401(k), IRA or other accounts. The shares you buy at a low price could be your largest future gains. If you have not made your IRA contribution for 2019 or 2020, this might be a good time.
Roth Conversion. Thinking about converting part of your IRA to a Roth? If so, you would now pay 11% less in taxes versus last month. After that, your gains will be tax-free in the Roth.
Rebalance. Hopefully you started with a defined allocation, like 60/40 or 70/30. If that has subsequently gotten off-target, now may be an opportune moment to make rebalancing trades.
Replace low yielding bonds. Look at the SEC Yield of your bond funds. The SEC Yield measures the yield to maturity of a fund’s bonds and subtracts the expense ratio. It is the best measure of expected returns for a bond fund. Bonds can work as portfolio ballast: a way to offset the risk of stocks. If that is your objective, stay safe. Unfortunately, the actual contribution of bonds to your portfolio return is terrible, maybe 2%, or even less than 1% if you own short-term treasuries. Instead, what I find attractive after this crash is Preferred Stocks, non-callable CDs (versus Treasuries of the same duration), and Fixed Annuities. If your SEC Yields are unacceptable consider changes, but proceed with great caution. Above all, avoid trading down from a safe bond to a risky bond just for a higher yield.
Do nothing. Markets go up and down. You have the choice of just ignoring it. Selling on today’s panic is the worst type of market timing, giving into fear. So, take a deep breath and realize that after the crash it is often best to hold.

Work on Your Financial Plan

There’s more to your financial success than just whether the stock market is up or down. Ask yourself the following questions:

Am I on track for retirement?
Do I have an Estate Plan?
Am I prepared for my children’s college education expenses?
Have I protected my family with a term life insurance policy? Additionally, are there risks to my career, business, health, or family which I need to address?
Do I have a disability and long-term care plan?
How am I addressing my charitable goals?
Are there additional ways to save on taxes?
Should I refinance my mortgage?
Am I eligible for a Health Savings Account or Flexible Spending Account?
Have I calculated the optimal age to begin Social Security for myself and my spouse?

Don’t let investing in the stock market consume all your attention, because it is only one piece of your financial plan!

Think Long Term

Risk is danger and risk is opportunity. Instead of worrying about this month, imagine that it is 2021 or 2022 and the market has recovered. What would you have wished you had done in the 2020 Stock Market Crash?

Ignoring the panic of the day isn’t easy. Thankfully, a good investor doesn’t have to make predictions about the market going up or down. We can’t control that. The key is managing how you respond when the market is at its worst. Finally, if you know you need work on your financial plan or would benefit from professional advice on managing your portfolio, I am here to help.

Past performance is no guarantee of future results. Stock market investing involves risk of loss of principal. Dollar cost averaging does not guarantee a gain.

Five Wealth Building Habits

Posted On November 10, 2019 By Scott Stratton, CFP(R), CFA In Behavioral Finance /

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
– Aristotle

Accumulating wealth and developing financial independence does not happen overnight, but it’s not nearly as complicated as most people think. Good habits create results when consistently applied over time. Today, we are going to talk about how to get on track and create new wealth building habits.

Frankly, most of my clients are already doing these things. That’s why they have money to invest with me. So, I’m not really writing this for them. I meet a lot of people who have a similar level of income, who are intelligent and successful in their own field, but unfortunately, their habits are never going to lead them to become wealthy.

This past week, I gave four presentations at different companies around Dallas about personal financial planning and estate planning. One of the most common questions was about saving money and creating wealth. I think there are a lot of myths about building wealth that are holding people back from success. We need to dispel those myths and replace old habits with a new habits that create wealth.

Myth 1: You don’t make enough money to become wealthy.

I’ve seen families who become millionaires with incomes under $100,000, and I’ve seen people go bankrupt who make over $300,000. Stop thinking that the problem is that you don’t have enough income. Until you have a savings plan, you are probably going to end up spending everything you earn. Without a savings plan, a raise will only stimulate additional spending.

To be a better saver, look at your biggest expenses. When you make smart choices about your home and car choices, everything else in your budget will fall into place nicely. If you have reached a bit too high for your budget, there is no magic way to save money when your fixed expenses consume all of your income. If you are in over your head with these costs, you need to find a way out. Don’t focus on how much you make, focus on how much you can save.

Habit 1: Wealth Builders are frugal about their two biggest expenses: their house (or rent) and their cars. They view these as expenses, not as investments or as “lifestyle” choices they deserve.
Read more: Rethink Your Car Expenses

Myth 2: You can’t save right now.

You’ve got student loans. You’ve got young children. You need to save for a down payment. You need to pay down your mortgage first. You’ve got a kid about to start college.

There’s always an excuse why people aren’t saving and investing today. But there’s never going to be a “green light” where you will feel that it is easy to invest.

Habit 2: Wealth Builders put their investing on autopilot.

First: establish an emergency fund with at least three months of living expenses. Pay off your credit cards so you do not carry a balance or pay any interest expenses. Then establish automatic monthly deposits into an account for each of your financial goals:

a 401(k) or IRA for Retirement
a bank account for your next car purchase
a 529 Plan for your child’s college education

It doesn’t matter if you start small. If all you can afford today is $50 or $100 a month, just get started and don’t wait. When the money comes out automatically, you won’t miss it. As you are able, increase your monthly contributions. Your eventual goal is to save at least 15% of your income. Can you get there in a year or two? Calculate how much this is and get started. If you have to adjust later, that’s okay. Don’t wait another day, because that day could turn into years. Wealth building habits need to be easy, and it doesn’t get any easier than automatic.

Myth 3: Things will take care of themselves.

You’re not worried. Time is on your side. You’ve got other things to deal with. It can wait.

Yikes. Get your head out of the sand. You can do this. Educate yourself about investing.

While I encounter an attitude of denial sometimes with younger investors, it is not just Millennials who think this way. In fact, I think a lot of Millennials are proving to be much smarter than previous generations about materialism, credit card usage, and their life goals.

What scares me more are older entrepreneurs who tell me that their business is their retirement plan and that their company is the best investment. Great, how many times have you built and sold a company for over a million dollars? Never done that? What is your exit strategy? It’s not a good idea to put all your eggs in one basket, and the successful entrepreneurs I know build a positive cash flow business which creates personal wealth in addition to their ownership value of the company.

Habit 3: Wealth builders educate themselves about their finances, are organized, and track their net worth.

Read more: buy this book, it’s the best investment primer I have read.

The Cost of Waiting from 25 to 35

Myth 4: You have to become an expert in the stock market to be successful.

Day trading. Penny stocks. Cryptocurrency. Stock options. Commodity futures. Hedge funds.

You don’t need any of these things to become wealthy. You don’t have to read the Wall Street Journal everyday, watch CNBC for hours, or spend your weekends pouring over spreadsheets or stock reports. In fact, trying to beat the stock market is not only exceedingly difficult and unlikely to achieve, it often creates unnecessary risk in the process. The antidote is simple:

Habit 4: Wealth Builders buy Index Funds.

Buying the whole market gives you diversification, low cost, and tax efficiency. Evidence consistently shows the benefits of using an index approach. And you don’t have to be an expert, or become a stock trader, to use Index Funds.

Myth 5: Your best bet is to do it yourself.

We can all agree that no one cares more about your money than yourself. Unfortunately, there are reasons to distrust the financial services industry and to question whether they are putting their own interests ahead of yours. And it costs money to get professional advice. Those are the three main reasons why people want to manage their finances on their own.

Over the past 15 years, working at three different firms, I’ve had the pleasure to serve some incredibly successful people. There was a retired surgeon who served as a chairman of a major University. The president of an S&P 500 company. The co-founder of an oil and gas company who sold his company for $300 million. A Harvard educated software engineer. An engineering PhD who speaks five languages.

These people are way smarter and more successful than I am. They could do it themselves if they wanted. But they all decided to hire a financial advisor, develop that relationship, and out-source their financial planning.

Why Get Professional Help?

You cannot be an expert in all fields. Successful people rely on professionals who have specialized training, knowledge, and experience, including accountants, lawyers, and financial planners.
Time. They have more valuable uses of their time, not just for work, but also to spend with their family, hobbies, or other interests.
You don’t know what you don’t know. An advisor can help you avoid costly mistakes as well as to identify any behavioral biases or blindspots you might not be thinking about. Laws and regulations change all the time.
Accountability. An advisor will help you set goals, coach you to make good decisions, and proactively keep you on track even when you are busy thinking about other things.
Family: knowing they have planned for their family if something should happen to them and that the professional management of their financial affairs would continue.

If the most successful people you know have a financial advisor, maybe it’s time you stop trying to do it on your own.

Habit 5: Wealth Builders value and seek professional help.

New wealth building habits take time to establish. In an age of instant gratification, recognizing that today’s steps might take years to pay off takes particular maturity. It won’t happen overnight, but I can assure you, you don’t have to be a rocket scientist to build wealth – just keep good habits. Apply your habits consistently, with patience and perseverance, and you won’t be surprised when someday you open an account statement and see a seven-figure number.

Or you could keep doing what you are doing, and you will stay right where you are. Everyone believes that they are rational and logical, but in reality, we all naturally resist change even if that change is in our own best interest. We have to look in the mirror and be honest with ourselves if our actions are truly in line with our goals. That can be painful to acknowledge, but the reward of radical honesty could be the realization that you need to create new, better habits.

Unless you receive an inheritance or win the lottery, wealth is not an event, but a habit. Thankfully, even small changes in your habits can pay big rewards over time.